Rich get richer
|Vivek Srinivasan||Jul 16|
While the poor get poorer.
Some countries and regions are currently under lockdown. Others are perhaps open to business. In both cases, travel and visits outside have been limited severely due to fear. Many businesses, such as retail and restaurants have been hit and have no hope of recovering anytime soon. This has immediate implications for the real estate business as well.
Industries that employ a large number of workers such as Aviation, Travel, Hospitality, Automobile, Retail, Real Estate and several other service businesses are succumbing.
On the other hand, not too many knowledge workers have been hit by the pandemic. They can work from home and deliver the output. The major product launches that companies like Apple, Google and others have been able to make is a testament to that fact. To the contrary, a restaurant waiter has no hope of income.
Even in a country like India; take a developer who earns say 3 Lacs a month. Normally about a Lac would be spent on essentials, a Lac kept aside for savings and then the rest on discretionary spends. This discretionary spend would go towards pubs restaurants, retail, etc. In the current environment, it is also going into savings. There is no way for them to spend this money even if they wished to. Yes, you could buy good, but how many?
As another example, take the financial markets. Those were not affected even during the lockdown. Yeah, they fell briefly. But if you were to assess the state of affairs, with the financial markets as your only proxy, you would think nothing is wrong. Apple, for instance, is 50% more valuable than it was in January. The same is true for stocks and indexes around the globe. More have recovered to their January levels. So money is being made.
But not being spent.
The longer the pandemic lasts, the more this trend accelerates. The worse it would become for those employed in lower-paying jobs. At the same time, the wealth accumulation taking place at the top end keeps accelerating. Also, money compounds.
The direct result of this trend is going to be increased disparity between the rich and the poor. Still worse, this disparity will keep growing as each day goes by.
In all likelihood, the current situation is expected to prevail for several months if not another year! Besides, this is not just an India phenomenon; it is global.
So the real question is; what is all this accumulated wealth going to be doing? How will this money get spent?
Would people hoard it up and wait for one side to fall flat on their face, only to then go bargain hunting? Would try to buy out assets on the cheap?
Would this result in more risk capital being available for entrepreneurs in the future? More enterprise creation to meet the needs of the new order? Would the people who are currently struggling to make ends meet find a place in those enterprises?
I do not suppose that it will be the latter, but one can hope.
There is a precedent. In 1918, the Spanish Influenza caused a loss of life and brought about a similar trend. People of means accumulated more wealth. It unleashed a decade long trend which culminated in the Great Depression of 1929.
I hope we learn from our past.