What policymakers must weigh as they make decisions
SMITH BRAIN TRUST – As states weigh and implement plans for reopening their economies amid the COVID-19 pandemic, Maryland Smith’s Roland Rust recently joined faculty experts from Johns Hopkins and Stanford universities in a virtual panel discussion of the pros and cons of such re-opening.
Rust, a Distinguished University Professor, the David Bruce Smith Chair in Marketing and founder of Maryland Smith’s Center for Excellence in Service, recently won the 2020 Buck Weaver Award for career achievements in marketing science from the INFORMS Society for Marketing Science.
He brought these credentials to the discussion moderated by Newswise. Here is a condensed excerpt, edited for clarity:
Q: How has the Covid-19 impacted service economy jobs and employees – especially those who are deemed essential, and at high risk of communicating the disease?
Rust: Economists tend to think about the economy as numbers on a computer screen, but really, the economy is people. We are seeing a lot of individuals and individual mom and pop service retail locations being completely hammered. Take a small retail store for example. Chances are it has a relatively low margin for what it sells. Many of these stores simply don’t have the financial capability to withstand a long period of time without any revenues. I’ve seen projections, for example, that 70% of the restaurants are going to be out of business after this. You have the Paycheck Protection Program supposedly to support small businesses. But that money has been very, very slow to actually happen. Many of the businesses to actually succeed in getting the money have been big businesses with good relationships with big banks. A small business typically is nobody to a big bank.
Q: The aid is not going to the right places?
Rust: The aid is not going to the right places. Shake Shack is a dramatic example – of a company that should be able to support itself. There is no reason for small business money to be going to the likes of Shake Shack. I know that they returned it eventually, but it should not have happened.
Q: Can small businesses – often family owned – that work on small margins, make certain adaptations to reopen while still implementing certain practices of social distancing for safety and still generate some revenue?
Rust: If they don’t have enough money to open, they can’t accommodate the social distancing and they will be out of business. Many of these companies will simply not reopen. Of course, the retail community in general has been declining for many years because of online buying. … Amazon for example, is going to come out of this just great.
Q: Are there businesses that have an opportunity to grow and come out of this stronger?
Rust: Sure. … The delivery places, like pizza restaurants, are going to do really well. The online retailers are going to do really well. They are already doing really well. Even groceries are doing well amazingly enough because people have to eat. Yeah, there are going to be winners. The problem isn’t the winners. The problem is there are going to be a lot of losers. The people who are out of work because their retail location went out of business, they’re not going to contribute to the economy and they’re not going to hire people. You have a multiplier effect that’s going in the negative direction.
Q: As states reopen, even without a sufficient level of testing or contact tracing, can they expect a significant economic benefit or is it in some ways futile?
Rust: The easy answer is futile. I think that we don’t realize that things aren’t just going to pick up from where they were. It’s impossible. The people who were working at those places probably are completely laid off. Most or many of them are not going to have an easy time – and the customers likewise. Then you have the problem from the retail side, not only do the service workers not want to show up, but the owners can’t even open the stores.
Q: They just don’t have the payroll?
Rust: They don’t have the money. The money is gone. They still have to pay rent. They have to pay their creditors and were counting on that revenue that’s not coming in. So, they are in deep, deep trouble. It’s also worth pointing out many of the service employees at the greatest risk are basically low-paid and may even be in the gig economy and on the edge in society. These people are in serious trouble, and if their workplace doesn’t open back up, think about what’s going to happen to them. You end up with the unemployment rate at Great Depression levels. My greatest concern is we actually are entering a great depression.
Q: Any thoughts about Texas’ May 1 reopening?
Rust: I’m quite concerned about it – because of the lack of adequate testing. … With Texas being mostly a red state, there is perhaps even more of a concern that many people might simply take this as license to completely resume their normal lifestyles. If they do so, then there is going to be a rebound (in terms of the virus spreading) and I’m really worried about that.
Q: To what extent do you think that there is a false sense of security in states, like Texas, that are reopening?
Rust: There are some parts of the country that are not that affected – yet. But it’s more a fluke of how people mix within the country. For example, if there are not very many people traveling from China to North Dakota, then you’re not going to have a problem in North Dakota as quickly as you will, let’s say, in New York City. … Can you say that if you live in North Dakota you’re not going to get the flu? I don’t think you can say that. This is going to be everywhere, just like the flu, only it will diffuse even faster than the flu, because of its higher transmissibility.
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