Economy History Post-Covid: Remain Positive, React Accordingly and We are Usually Successful
I was listening to some old songs over the weekend that got me thinking. The lyrics “The road I must travel”, from Mr Mister’s cheerful 1986 song entitled Kyrie Eleison reminds me of the current challenges ahead. What is going to happen to the economy? How will our politicians and entrepreneurial leaders react? What is the impact on mergers and acquisitions? Another great song, this time by Ian Dury and the Blockheads 1977 “Reasons to be cheerful” reminds me to question, can there be any reason for cheerfulness against the pandemic backdrop?
The media reports constant gloom and we know that shutting sections of the economy such as leisure and travel is going to have a significant long-term shock. However, economy history proves that there are reasons to be cheerful, and the road we must travel is not so scary as we may think.
Understanding the Negativity Bias
This is about perspective. We need to remember as leaders the media is biased towards bad news, which is proven to sell more. Psychologists call this the “negativity bias” which is our collective hunger to hear and remember bad news. This is a survival instinct as we look for signals that we need to change what we are doing to avoid danger.
As leaders, if we recognise this, we can look for and pay more attention to the good news. Entrepreneurs tend to be optimists so most of our clients in recent discussions are actually very focused and positive about how they can react effectively and look for opportunities. They do not know the exact path to thrive. Yet they are determined and imaginative.
Economy History Says The Markets Will Bounce
The equity markets have already recovered some of the ground lost when COVID first hit. In recent research, Coutts bank set out that, in each recession, over the last 30 years UK equities have gained 10% on average within 12 months of the recession ending. After three years the patient investor would be over 30% ahead. And after five years, that very same investor would, on average, have gained over 60%.
Intervention and Change
We need our economies to function, we need to survive and thrive. This is the attitude we need to adapt to be successful. Essentially a mix of people, business and additionally Governments being inventive, create and drive recovery. The UK, Europe, USA and China are for example all taking significant action in various methods to push money supply. Yes, such Fiscal stimulus will need to be paid back, but with low-interest rates. Governments have unprecedented latitude to borrow and the payback can effectively be managed over a long duration. It’s up to people on the road ahead to then work out how to increase productivity to create earlier payback if we can.
Economy History in Perspective
Human Civilisation is just 13,000 years old, although the species are much older. In relative terms, we are merely teenagers. In the last 75 years however since World War 2, statistically we have reduced famine, pestilence and war whilst increasing most human’s quality of life exponentially. Compared to most other people in history, on average we live like kings and live in luxury. The Pandemic will not change these statistics, and, if the economy history is anything to go by, our living conditions are only going to get better.
Despite COVID, medical advances have massively increased the quality and longevity of life we can expect to live. I have to admit it does not seem like that at the moment, especially as the old and vulnerable are the worst affected by the current situation but then that’s what our interventions are about and they seem to be working with fewer deaths by far than previously expected.
M&A Activity Post-2008 Crash
In 2008, the financial system nearly collapsed as people started to question whether the money, they had in banks was even retrievable. This was a global financial shock, probably greater than the impact of the lockdowns. Yet within three years, M&A had recovered to its normal level of activities. This is because M&A is itself a contributor to recovery bringing together ideas, teams, synergy and economies of scale to create better companies. There is plenty of capital looking for a home to back deals and looking for a greater yield in low-interest economies. This is a fuel for M&A as are recessions which force companies to consolidate.
So, what is the road we must travel? The title of the song “Kyrie Eleison” is Greek for “Lord, have mercy.” We can however on the road we must travel go further than prayer. We have the sum of human knowledge at our fingertips and levels of technology unmatched in any other civilisation. With teamwork, collaboration, and the sharing of ideas, the road we must travel is one of optimism, and, if the economy history is anything to go by, history itself is on our side.
Turn off the news and if we all do our bit to change, increase productivity, do deals, and live purposefully, we will drive beyond this. Indeed, what we learn may accelerate many positive aspects of our lives from moving beyond consumerism to sustainability and accepting we all have a responsibility for our environment and other people. “The road I must travel” therefore and we as leaders must follow is one of justifiable optimism.
“You can if you think you can and these days we are usually right.”
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