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We are all waiting for stories about revival and rebound. But they aren’t coming fast enough. What we hear instead are stories of struggle. Rebuilding something that has worked for several years by altering the fundamental assumptions of the model, is tough. Most households and businesses are struggling with that proposition.
Our love for community, collective participation, collaboration and connection is very high. We have built a socio-economic system with dependencies that lean on such qualities. Imagine the struggle for a nation like Australia with an abundance of natural resources and a high dependence on tourist traffic. They lean on the world, especially China, to import their metals and minerals. They depend on the world to visit their sunny beaches and beautiful attractions for income. How would they achieve self sufficiency without engaging with the world?
Countries like India that have a huge diversity of businesses are better placed. But the rhetoric about self sufficiency misses the strides collaboration has made in a technologically connected world. It fails to learn from the experiences of our past, when we tried to make everything from a needle to a ship. We ended up with pencils that broke too often, cars that were fuel guzzlers, steel that was too expensive to use, and missed the bus completely on customer service orientation and process efficiencies.
Our growth as a nation happened when we opened the doors to the world in 1991. We benefited from collaborating. We may ride this rough patch with short term fixes, but returning to isolation from the world is not a solution world economies are seeking. What is instead happening is a rework of business models, assuming that the vaccine is still far away and that ways to do business must be found that do not place anyone in harm’s way.
Businesses do not know if they are looking at short-term adjustment or a long-term course correction. There is no money for drastic change. Large capital investments are not on anyone’s mind. Anything that returns the trickle of revenue is welcome.
A neighbourhood restaurant simply brought down its walls and replaced them with large French doors and windows. The service station is now at the centre, with tables spread across the lawns. Customers place orders with their phones. A small team of youngsters is available to discuss preorder and keep the meal ready. Their meal delivery services are doing better than the restaurant business. But their tables are filling up as customers like the free flowing air.
Airlines have banished the middle seat; but trains, buses and planes won’t be viable without volume; stores are controlling footfall, but their costs will skyrocket if their stocks take too long to go off the shelves; there are no fresh stocks of durables to buy as manufacturing has stopped and no one is announcing a sale. Games, concerts, events and gatherings have completely halted.
We don’t have a backup plan for a lot of things. How would a musician, whose only source of income is playing at a concert, earn an income? What happens to the tour guide and event manager? How would a worker in a now shut factory find a job, if all his life he only practiced limited skills? How would a farmer sell his perishable produce if markets are closed and pickups have slowed?
As we ponder over our household incomes and personal finances, we must look around to see how the wheels of the economy have been clogged and how tough recovery has become. We are looking at a period of struggle, world over, before we can find ways to keep things going even if at a slower pace.
That is what opening up will mean. There is no cause for euphoria or the calculation that a boom is right around the corner. A period of prolonged pain, somewhat comforted by innovation in solving for the new normal, is what we should expect.
What should households do? First, be willing to draw upon your savings and rely on backups. You may end up using some of your assets to keep afloat. Be prepared to earmark what you will keep, and what you will use to tide over a period of low and uncertain income. Make a three year plan if possible. If liquidating the unused jewellery to keep the household well-funded makes sense, go for it.
Second, do not borrow if you can avoid it. You may be needlessly adding the burden of financing the loan if you took one. Unless the money being borrowed is building an asset that can generate income or appreciation, borrowing as an idea won’t make your household better off. These are not times for such opportunity. If you must borrow to meet regular and routine needs, or keep household incomes stable, make sure you are borrowing against assets. This is not the time for high cost loans. Let that credit card lie idle.
Third, keep your expenses in check. It is very tempting to use the extra time available to renovate your house; begin a new expensive hobby; or begin a long postponed pet project. Put these off if you can and seek activities that don’t call for large amounts of upfront or capital expenditure. Postpone high outlay expenses for another three years, if possible. Fourth, don’t rush to invest. Good companies are going through tough times and the others are flipping around to find their feet. There are a few business ideas that continue to thrive, but they are all overpriced and being chased after. If you must invest as you generate surpluses, choose stable and large over startups. Not the time for risk taking. Overweight short term debt in your portfolio. Not many are shutting down in three years.
Fifth, reach out to help if you have enough. People may not be looking for alms or charity, but many may be suffering more severely than you. They may be living in fear and anxiety. They may be depressed about the turn of events. Connect with people and be willing to help as much as you can.
We cannot let the pandemic overturn the core human value of purposeful living in a connected global community.
Source: Economic Times
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