Managing Economy’s Return to Normal

Philip Kotler
8 min readOct 25, 2020

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Managing the Economy’s Return to Normal

Philip Kotler

At some point, the nation will be ready to make a decision to reopen the economy. Certain conditions would have to take place:

· The number of new infections would need to show a steady decline.

· Persons who have not been infected might have to continue in certain areas to wear face masks, hand wash frequently, avoid handshaking, and minimize close personal interactions. They might have to take an antibody test that certifies that they can attend major gatherings.

· The nation would be able to test everyone who has symptoms and be able to trace their recent contacts.

· Hospitals would have acquired enough staff, supplies and equipment to handle the inflow rate of new patients.

· The country will have developed a successful vaccine for coronavirus.

Each state, with its governor, mayors, and leading business people will decide the conditions and rate for reopening business in their state. Governors of nearby states will work together on planning openings and scheduling which industries and areas to open first.

Local transportation will need to be ready so that workers and consumers can move to their places of business or shopping. Grocery stores will need to open early with adequate stocks and may need to limit the number of persons in the store at any time. Manufacturing companies making important products or components should receive priority for early opening.

Companies that are ready to open will plan their successive steps for moving toward fuller production. They will contact their at-home employees about whether to return to their offices, factories or stores or remain working at home. They will start advertising new job openings to replace missing employees and recruit persons with needed skills. Companies will send new orders to their former suppliers or new suppliers. They will contact their creditors about when their business would pay its past due bills.

Consumers are likely to be slow in resuming their old shopping habits. In Wuhan, China where the coronavirus first struck, consumers remained extremely cautious when the government lifted travel and other restrictions. Many were afraid to go outside. A few started to go into groceries to get their supplies. A few started to order and pick up food from pizza stores and restaurants. Some started to venture into fast food outlets and a few dining restaurants that opened their doors. Not many ventured into shopping malls, especially since many businesses in these malls remained closed.

This slow consumer response is healthy. If enough consumers return to shopping and enough employees return to work, and there is no substantial increases in infections, even more consumer and employees will return to normal activities. However, if a second wave of infections occur, everything will return to extreme caution and staying home. Once again, the government would insist on social distancing and even a lockdown.

At some point, a sufficient number of consumers will feel safe enough to venture outside and resume normal shopping behavior and resume their employment position. We will observe a number of developments:

1. Businesses that kept communicating with their customers and that acted with urgency and service during the crisis will be the first to realize strong business growth. These businesses will be trusted to satisfy their former customers and employees.

2. Consumers will find that some brands and stores have disappeared and that they need to choose new brands and stores. A recent McKinsey study in China found that 33 percent of Chinese consumers had switched brands during Covid-19 and 20 percent planned to stick to these switched brands. Businesses that are aggressive in their pricing and promotion will have a better chance to win customers who have lost their former brands.

3. Many consumers might carry a new consciousness about being healthy that will affect their food and brand choices. They heard that many persons who died from coronavirus were weak from overweight, diabetes, and heart and lung problems. Some consumers might decide to avoid or minimize meat consumption and switch to vegetarian or vegan diets.

4. Consumers will stop building heavy inventories of key goods when supplies become adequate. More consumers will have moved to online ordering and less store in-store shopping. As consumers increase their outdoor activities, they will reduce the level of their screen time intensity.

5. Businesses will need to rethink their product and service strategies and their media relationships and output. They must research emerging changes in consumer attitudes and behavior brought about by the coronavirus. They must recognize a new landscape of competitors. A company might have to make changes in its value proposition, product lines, market segments and geographical areas. Multinational companies will need a different reopening strategy for each customer nation based on that nation’s experience during the coronavirus. Businesses will need to invest in social and community programs and in personalization to attract and retain loyal customers.

How Long Will It Take For a Full Recovery

The market’s normal hope is that the economic recovery will be V-shaped. Market enthusiasts will point to the high level of pent-up demand during the intense coronavirus months of deprivation, isolation and boredom. However, these enthusiasts are overlooking the complex mechanics of restarting a shut-down economy and a public whose trauma and remaining fears will slow down their response at the opening of the recovery period. I don’t see the economy as returning to full employment and two percent annual economic growth for 3–6 years.

The chance that we return to full employment and two percent annual economic growth in 3 years would require the following favorable happenings:

1. The nation develops an early and easily implemented antibody test or viral test to know which people can be safe in public. A “spit” test or “finger prick” test would ideally be quick and reveal who would be safe in public.

2. The nation develops a reliable safe vaccine against coronavirus within the next two years that everyone can take.

3. The nation continues to send checks out to citizens and businesses to meet living expenses and maintain their businesses.

4. The nation starts within two years a major infrastructure rebuilding program to create needed jobs.

However, if these happenings don’t take place, the recovery period might take six years.

The recovery pattern is more likely to be U-shaped. The intense economic contraction during the coronavirus period will be followed by a broad and possibly persisting recession. In April 2020, the Harvard School of Public Health published this statement:

“Intermittent distancing may be required into 2022 unless critical care capacity is increased substantially or a treatment or vaccine becomes available… surveillance should be maintained since a resurgence in contagion could be possible as late as 2024.”

Much depends on how much money Congress votes to relieve destitute citizens, failing small businesses, and large corporations in specific industries. Congress passed a $2.2 trillion stimulus package as a start. Hopefully more financial aid packages will follow. Otherwise the initial money assistance will run out and the recession will linger. We need to remember the slow recovery of employment and output after the Great Recession. In that case, there wasn’t even a total economy shutdown.

Much depends on the speed with which businesses can get back into production. How fast can they hire needed workers? How fast can they repair their international supply chains? How much are they ready and willing to invest in new equipment and expand their business? How much finance will be available to businesses that want to expand fast?

Much depends on how fast testing of the population can take place with tracing of previous contacts of infected persons. If a second wave of infections occurs, this will slow down economic recovery.

Much depends on how safe persons feel to engage in normal shopping. If everyone wore masks and kept at a safe social distance, more persons would shop. If many people refuse to wear masks and do not respect social distance, more persons will stay at home. The existence of an obstinate group of non-mask wearers will slow down recovery.

If other factors slow down recovery, more government stimulus spending will be required to create jobs where businesses had failed. This would warrant finally turning to an urgently needed major infrastructure program.

The recession period will eventually end and turn into a stronger recovery. Yet many people will find themselves worse off than before. Several groups in America will not share in the strong recovery. Their jobs will not come back or will come back must later. Consider the following:

1. The travel and hospitality industry will experience an L-shape recovery. Many citizens will hesitate to fly to other destinations for business or pleasure where they cannot count on local medical services if illness struck. Until large conferences resume, many hotels will remain mostly empty in spite of lowering their prices.

2. Local entertainment events, such as performances of opera, theatre, ballet or even sports events will show L-shaped recovery. Citizens will hesitate to sit within a few inches of others in huge auditoriums where some percentage of the attendees might have colds or the flu. Citizens may have gotten used to staying home and finding excellent performances on their TV screen where they have more choices as well as the option to turn off their set, as well as save money. This will be a hard blow for actors and performers and the nation’s culture.

3. Many small businesses — apparel stores, small restaurants, beauty salons — would have gone out of business. Their former owners won’t have money to reopen them, even if they wanted to reopen them.

4. Low income, low skilled workers will hurt the most. If they get their jobs back, the pay will still be low. They may not get health insurance coverage. Their cost of rent, utilities, and normal goods will exceed their income and their debt will increase.

The wealthy will continue to grow their wealth. The middle class will manage to live with a modicum of comfort. They will find it hard to finance their children’s college education. Their college-bound children will incur high debt during their college education. Their children might have to live with their parents or at least carefully manage their costs after finding a job.

The poor will continue to suffer. The coronavirus, if anything, will deepen income inequality and raise public questions about whether classic capitalism can be made to work for more people. Is the purpose of capitalism just to generate more economic growth? Or is the purpose to generate better health and happiness in most citizens? More public discussion will turn to how capitalism can be restructured to provide (1) a better health system covering everyone, (2) a college education system that doesn’t put young people into substantial debt, and (3) a social assistance program that helps families in need to provide for themselves, their children and their senior retired parents.

Conclusion

The coronavirus disaster has thrown all the nations of the world into World War lll. This is the first world war where nations are not killing each other. The world is facing a bigger war against an invisible enemy that can be contained but not necessarily conquered. The time calls for the world’s nations to cooperate and help each other curb the growth of this enemy. This enemy makes old style fighting between nations seem absurd and senseless. Maybe the coronavirus will move the world to finally get serious about building peace and goodwill among nations.

The coronavirus has highlighted the need to restructure capitalism to serve more people not only with jobs but with institutions delivering better health, education, and family care. The coronavirus has highlighted other needs as well. More attention needs to be paid to how technology and innovation can improve our lives. How can technology improve grocery buying, banking, online meetings and conferences? How can innovation lead to better vaccines and drugs to cure, tests for antibodies, and methods of sanitizing and raising the level of hygiene and cleanliness in many parts of the world? These are issues that the world needs to address.

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Philip Kotler
Philip Kotler

Written by Philip Kotler

Philip Kotler is the S.C. Johnson and Son Distinguished Professor of International Marketing, Kellogg School of Management, Northwestern University (emeritus)

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