Janen Ganesh wrote in the FT this past week that “COVID offers no grand lesson”. His point is that no political and economic system in any nation has consistently outperformed all others as far as COVID policy is concerned. While his inconclusiveness appears to be just a few column inches filled to meet a deadline at a time of the year when most aren’t reading their news sources too closely, it reinforces something that I wrote last month: that the “grand question” analyses show the bankruptcy of the question itself.
Just the same, there are some pretty good lessons from COVID-19.
Corporate income statements are bloated with expenses, and the beneficiaries of that bloat are in for a reckoning. Bloomberg reported this week: “Scars inflicted on travel are looking permanent. Companies are shifting away from massive expense accounts and the experiential lifestyle has become a memory.”
Corporate balance sheets are bloated and the writedowns are going to be painful. The WSJ reported this week: “Oil industry has written down about $145 billion in assets this year amid an unprecedented downturn and long-term questions about oil prices.”
Devolved decision making is superior to command and control. In the FT this week: “Devolution rules.” “[S]enior executives had to accept that management decisions were best taken on the front line and not in head office - often reversing a more traditional top-down line of command.”
Municipalities are changing in extraordinary ways as companies and their employees leave high cost of living (and high-tax) cities and states for less expensive ones. In the WSJ this week: “Accelerated Growth Strains Austin.” Rents are up, commercial areas are being significantly redeveloped, and residential prices are skyrocketing as the population surges. And with it, the culture and character of the town will change, too. “What happened in San Francisco with the tech boom was something nobody saw coming until it was too late.”
COVID-19’s lessons are that corporate spending was too high, a lot of valuations were too great, decision rights too concentrated, and many companies don’t need to be based in high cost geographies. Activist investors have already been pushing companies on the second point, challenging oil majors for overstating their reserves. Activists will scrutinize P&Ls to look for expense bloat and taxes to free cash to return to investors, and command and control management practices that stifle local efficiencies and innovation.
Societies, economies and businesses don’t evolve through grand design in response to big questions; they evolve through the crowdsourced effort of their member’s ability to muddle through. In benign times - stable monetary policy, low inflation and slow growth - the muddling through isn’t an obvious phenomenon. In extraordinary times, it is. So it turns out that corporate spending was too high, valuations were too great, control was too concentrated, and companies chose to locate in labor bubbles. The shock of this realization raises big questions. Those questions will be resolved through millions of small answers, not the narrative fallacy of a big narrative.
