As people are thrown out of work, as businesses fail and as the oil and housing sectors weaken, there is a branch of economics that insists it all may have a silver lining.
Just last week the retailer Pier 1, familiar to many Canadians, gave up attempts to refinance and announced it was shutting its doors for good. Almost simultaneously, the venerable Canadian fashion chain Reitmans went into bankruptcy protection.
Those are just some on the list of famous names that are in financial trouble during this COVID-19 lockdown, including J.Crew, JCPenney and Cirque du Soleil.
As people stop flying, the head of Boeing has suggested a major U.S. airline may fail, and globally, many smaller carriers are at death’s door.
As the CMHC worries Canadian real estate prices will crash by as much as 18 per cent, the oil industry struggles to recover from negative pricing and unemployment rises toward Depression levels, it is hard to see the bright side.
But according to the theory of creative destruction derived by Austrian economist Joseph Schumpeter in 1942 from ideas proposed by Karl Marx, economic and technological progress demands that businesses must die and industries and paradigms must be swept away to make room for new ones.
Canadian economist Peter Howitt, recent winner of the Frontiers of Knowledge Award for his work proving Schumpeter’s principles in the real world, said that while the creative destruction process is happening all the time, economic crises speed the process along.
“When old firms or technology or skills or whatever are hanging on, they can last a long time until things get really bad,” said Howitt. “It’s typically during a recession that a lot of the destruction takes place.”
The implication is that while those in retail or the oil business or the real estate industry may insist that the COVID-19 lockdown has been the cause of their failure, the economic crisis may instead be a trigger, a catalyst for a process already underway.
We already knew traditional retail was being challenged by tech giants Shopify and Amazon or by big-box discounters like Costco, but it was the downturn that pushed struggling companies like Pier 1 over the edge.
Part of a reset
Many have suggested in the past that the overleveraged housing market was an accident waiting to happen. In a broader sense, some economic thinkers say the current backlash against China and against globalization or even against the social structure of rich and poor is part of a reset for which pressure was already building.
According to Stephen Williamson, an economist at Western University, it may be dangerous for governments to try to push too hard against the economic forces at work in dying industries such as the fossil fuel sector.
Go to the news source: COVID-19 may be the catalyst — not the cause — of a painful but useful economic …