Economy Boosters, Economy Busters

Noel Capon, the R.C. Kopf Professor of International Marketing, writes that the focus for revitalizing the economy should be to mitigate the virus.

A row of boarded up stores in Manhattan
Economics & Policy
Noel Capon

The American public’s frustration with stay-at-home orders continues to grow. Spurred by demonstrations across the country, government bodies at federal, state, and local levels are easing restrictions, just as the number of COVID-19 cases increases, and the US death toll marches inexorably beyond 100,000. And estimates of US pandemic deaths are continually revised upwards; authoritative estimates have them reaching 200,000 by this fall.

The core rallying cry driving the easing of restrictions is open-up the economy. Economy boosters want to reopen factories, retail establishments, restaurants, gyms, barber shops, nail salons, beauty parlors, and get supply chains moving. By these means, the argument goes, economic activity will start returning to normal, and US citizens will retrieve their traditional ways of life. Economy boosters do not ignore COVID-19; rather, many are supportive of, if not insistent upon, sensible measures to avoid virus transmission – social distancing, face masks, hand sanitizers.

The problem: These boosters do not seem to understand the nature of a business! Nor, indeed, do they understand the constituent elements of a functioning economy. They seem to think that well-equipped factories, well-managed supply chains, and adequately-stocked and managed retail facilities, along with appropriate personnel, are the critical ingredients of a successful economy. This perspective is incorrect. Economy boosters ignore the critical component of a successful business, and hence of a successful economy.

The fundamental requirement for any successful enterprise is customers. Only by securing customers does any type of firm earn revenues and make profits. No matter how effective the factory, how efficient the supply chain, or how well-stocked and managed the retail facility, if customers do not show up, there is no business.

So the critical question is not: How can we get the factories, supply chains, and retail establishments up and running? The critical question is: How can we get consumers out and about, and making purchases of products and services in high streets, malls, and other retail facilities? Factories, supply chains, and retail establishments are irrelevant if there are no customers. Of course, some consumers will purchase some goods online, but that activity will not be effective in substantially moving the economic needle.

Question: What is the probability that American consumers en masse will patronize retail establishments as the number of COVID-19 cases continues to rise, and the death toll mounts? I suspect the percent of the population that will return to normal activity is relatively low. Most people will opt for safety over shopping.

To achieve the goal of economic revitalization, the impact of COVID-19 must be reduced. No matter what positive actions retail establishments take in the near-term, a large percentage of the population is unlikely to engage these enterprises if cases and deaths continue to increase inexorably. The answer is pretty clear: the core focus for revitalizing the economy should be to mitigate the virus. Actions currently being taken to open up the economy will, as Dr. Fauci suggests, likely turn economy boosters into economy busters.

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