Editor’s note: Tom Snyder is executive director of the Internet of Things users group RIoT and is a frequent contributor to WRAL TechWire.
RALEIGH – CDC confirmed the first case of coronavirus in the United States on January 21st. In just three months, the world has completely changed. While it is too soon to do a thorough analysis – three months is not a lot of data upon which to base conclusions – it is interesting nonetheless to begin to study what COVID-19 has taught us about our society and economy.
At RIoT, I have the privilege of working with industry leaders across a variety of market segments and regularly interface with university researchers and municipal and state governments. This gives access to a diverse set of viewpoints, information and data. Through our MISSION-R initiative, my team is helping launch six innovation projects to fight both the economic and health aspects of COVID-19. These projects are exemplary of exactly what is happening on the ground.
Tom Snyder
With this perspective in mind, here are a few observations and questions for the future:
Small business defines the economy
In the United States, 99.7% of employers have less than 500 employees. Of the more than 30 million businesses in the US, less than 4,000 of these are publicly traded on NASDAQ and the NYSE. These public companies represent 0.01% of all businesses, yet dominate news headlines and political influence.
COVID-19 has reminded us that we cannot measure economic health solely by checking the performance of the stock market. In fact, the S&P500 has regained half its value since it plummeted in late February and is nearly back to where it was last October. With the country remaining in lockdown, death tolls continuing to rise and unemployment setting record highs daily, the measure of where the wealth of the nation resides is proving a poor indicator of economic vitality.
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Community efforts to order carry-out from local restaurants and to buy gift cards to support mom and pop stores are well-meaning, but not sufficient. Until small businesses are fully open again, the economy remains closed.
Big business is a throttle
Despite the shutdown, most large businesses are stable and many are growing. But these businesses are underperforming. Amazon is taking weeks to deliver orders that Prime normally guarantees within 2 days. Truist and the biggest banks largely failed to get small business PPP applications submitted before stimulus money was depleted. National home improvement and grocery chains are regularly sold out of key supplies.
The point is not to be critical of this performance. COVID-19 presents a massive challenge. We should be thankful for what these companies have been able to achieve. But this underperformance reveals underlying truths that policy-makers would be wise to consider.
No private company is large enough to handle the scale of the US economy. Nearly every citizen is relying on a handful of companies during this crisis. Despite their massive size (and market capitalization) these companies simply can’t handle the volume.
Interestingly, the companies that are still delivering high-quality, on-time performance are the few small businesses still in operation. Most have dramatically pivoted their internal operations. Small companies have the flexibility to be nimble and creative. Restaurants are still getting hot food delivered during the dinner hour. Numerous small manufacturers are producing PPE.
Many small businesses are deliberately operating at a loss – because it is better to do something to support their community than to do nothing. Small businesses are authentically a part of the communities in which they reside, which may be part of why we see this behavior. Most of the richest companies that can afford to operate at a loss and support employees are choosing not to. Disney, for example, furloughed 100k workers despite having $6.8 billion dollars in cash reserves.
We saw this behavioral contrast clearly with the Payroll Protection Plan. Smaller, community banks were fast and successful in getting their clients loans. This is despite that PPP does not present much financial upside for the banks themselves. I have not yet heard from a small business that failed to receive PPP funds when filing quickly through a local bank.
Conversely, large banks operated very slowly. The sheer difficulty implementing new things in large organizations was certainly part of it. But widely reported complaints from those banks about the cost of PPP appears to have played a role. Shareholders were prioritized ahead of customers. North Carolina is the second largest banking center in the US after New York. As of last week, it was dead last among the 10 largest population states in the number of loan applications processed.
The learning here is that a very small number of companies are throttling the economy. This gives cause for reflection. Concern comes into play when you consider how many small businesses will not survive this crisis. Despite underperformance, Amazon, for example, is aggressively growing. They will fill the void left by main street business closures and continue to gain market share and control.
It will be interesting to see if policies emerge to break up large companies or better level the competitive playing field going forward. Status quo enables the big to continue to get bigger.
Government works
Despite my comments about big business being a choke point on the economy, the largest organization in the US and in every state – government – is executing fairly well. I won’t defend all of the decisions key leaders are making. We are not deploying sufficient resources to increase COVID-19 testing and it is far too soon to be reopening non-essential businesses.
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In terms of designing and executing massive programs on a tight timeline, however, the government should be getting much more recognition than it is. When you brush aside political bluster and TV news channel editorial and measure action on the ground, the progress is significant.
It is popular, and easy, to claim free market competition is better than big government and heavy regulation. The reality is that few markets are actually free markets. Healthcare is not one of them.
As an example, consider finding a cure for a rare disease. The cost associated with research, experimentation, trials and commercialization easily can be billions of dollars. But if the number of people afflicted with a rare disease is extremely small, there is no market to bear that development cost. Unregulated, free-market principles would not result in companies that address rare diseases, despite that there is always a non-zero demand. Citizens cannot opt-out of the market. We do not pick-and-choose whether to have health issues or not.
COVID-19 is a rare disease. Not rare in that it impacts a small number of people. But rare in that a virus of this magnitude happens once in many generations. The world was not prepared for this rare disease. While it would be impossible to have a cure for every as-yet-discovered strain of virus, COVID-19 reveals an imbalance between industry and government.
Wall Street puts pressure on industry to operate “just in time”. This is originally a manufacturing term and essentially means to operate at maximum efficiency. Do not spend a dollar sooner than you need to. Minimize the time between when you invest and the resulting profit.
Building a stockpile is at odds with just in time principles. Inventory is something you pay for early, then do not profit from until much later. It is a liability on the balance sheet.
Similarly, research and development is also a liability. Yes, discoveries eventually can be commercialized to make money, but over the years, most large companies have greatly decreased their budgets for pure research. Discovery is long and expensive and fraught with failures along the way.
Government is not burdened by quarterly earnings pressure and thus has the freedom and responsibility to take a much longer view. Three-letter agencies like NSF and NIH have long been the funders of basic research that prepares us to address rare diseases. The government maintains a military reserve and other expensive “inventories” for disaster preparedness. But political pressure in recent years to drastically cut taxes and shift responsibility to the private sector has strained the ability of the government to have as much impact as it could.
It will be interesting to see if society rethinks the role of government, and tax revenue, post pandemic.
The future of news
I find it interesting how COVID-19 has amplified our recognition of just how fundamentally everything is tied to commerce. Consider for example the news. Factual reporting is a foundational pillar of our democracy. During this crisis, nightly news viewership is at its highest level in 20 years. More than 50% of Facebook article opens are posts from news organizations. News organizations, recognizing the criticality of an informed public, have dropped paywalls and opened up access.
Normally a large increase in customers would equate with a large increase in revenues. But in the US, our news has become almost entirely privatized, with a disconnect between the industry’s users (people who read/watch the news) and customers (advertisers who pay the bills). Particularly at a local level, businesses simply cannot afford to advertise right now and as a result, the news industry is seeing massive layoffs during a period of record user growth.
It brings to question the intelligence of tying critical elements of society so closely to commerce. Is advertising fundamentally the right way to cover those costs? According to a recent piece in Wired magazine, the US spends $1.35 per capita on public funding of journalism. Compare that, for example, to the UK which spends $100 or Norway at $176.
In the US, the biggest outlets, CNN and Fox News, could fairly be argued to be entertainment television. Nearly every minute of coverage is editorial in nature. [To be fair – this article is editorial, not news]. Advertisers pay for audience size and dry facts don’t draw the viewership that debate and conjecture do. Compare the reporting style and tone in the US to that of the BBC, which is predominantly government funded through a license levied against all households.
The good news is that local publications are reporting significant increases in subscription revenues. In recent years, subscriptions represent a small fraction of the total revenues required to pay reporters and fund operations. Will this be enough to carry local papers through the crisis? Will we see a cultural shift in society to demand facts and data? It is hard to imagine an increase in federal funding of public news in the current political climate.
Change will be permanent
I wrote in another TechWire piece recently that we will not simply go ‘back to normal’. This crisis will drive cultural changes that will manifest in how we do business, how we socialize, how we educate and how we work. It will drive new levels of innovation and entrepreneurship. It will be interesting to see if it also drives fundamental change in how we govern, regulate and fund our society and small businesses. I welcome your thoughts and feedback.
