The Disease, the Lockdown, and the Economy
Toronto and York region are heading into a lockdown to prevent the spread of COVID-19 on Monday, November 23rd. As restrictions have already been tightening for quite some time due to a second wave of cases, this was a necessary step to prevent area hospitals from becoming overwhelmed.
Public opinion is, understandably, divided. Public health officials of course agree that a lockdown and restrictive protocols are the solution. On the other hand, business owners are stuck between wanting to ensure their business can continue operating while maintaining a responsible position from a public health and safety perspective.
Voices from the business owner perspective are concerned that a lockdown will spell the end of their business. As a board member of one of the largest BIAs in Canada, these are the concerns I hear all the time.
A few types of businesses have been hardest hit — specifically in the sectors that serve the wealthiest members of society. If you are in the fine dining, high-end clothing, or luxury goods sector, sales are down across the board (as high as 30% according to a BCG estimate). Most high-earners work from home, and since luxury goods are a status signal for others to see, there’s no need to get dressed up. Fine dining is down simply because restaurant spaces were effectively halved with social distancing regulations.
But one thing to keep in mind is that common sense doesn’t hold true with the argument against a lockdown harming business across the province.
Those who fail to study history are doomed to repeat it. Back when the USA went into heavy lockdown in April, there were calls for re-openings as businesses suffered. The problem was that it was the disease, not the lockdown, that caused the dip in business. This is a key distinction in how we must evaluate the problem here.
And that was back in the early stages of COVID. We’ve gotten over the initial shock of how the disease has transformed our lives. I get weirded out when I see people shaking hands and hugging in movies. Businesses have either folded or adjusted to reach customers on more sales channels like ecommerce or curbside pick-up.
One thing the pandemic has made abundantly clear is that there are stark differences in how groups within a population behave. In a world that was free of restriction, individuals were able to purchase goods in-person or online with ease. For many, shopping is a social activity. Even going out alone can be invigorating for some who simply derive meaning from participating in society.
Now, contrast that with today. CIBC just reported that Canadians are sitting on the most cash, ever. Spending is clearly down across the board as many have taken to hoarding money due to uncertainty and a drop in social shopping. Purchases are now restricted to necessities or home comforts. Office lunches are a relic. The morning coffee ritual is starting to dwindle. Experiential purchases, which were beginning to outpace consumer goods purchases, have dropped substantially.
The concept of a third place is something that many have found lacking. Without the ability to sit at your local coffee shop and take in society, many are feeling disconnected. Mental health continues to worsen. When you introduce more barriers to people being able to enjoy what were previously frictionless activities, you will see participation drop.
But the problem is that this was the case before lockdowns were in place. We still needed to wear masks when we were out and about. Malls are a great example of this. Ask anyone at Cadillac Fairview about their outlook for the future and they’ll probably start panicking. Aside from a few stores where people go out of their way to make a trip to the mall, the mall sector is at a slow burn. It just goes to show how many stores relied on happenstance purchases and people buying things out of boredom.
However, malls were all open during the summer. It’s not like there were lockdowns in place that were harming sales. The impact of the disease cannot be overstated. With minor annoyances like lineups and (for some people) masks, you introduce a few too many barriers to entry. So instead, they stay home and shop on Amazon. I’ve seen two instances of malls being busy during the pandemic: when everything re-opened and this past weekend during Black Friday sales.
Small businesses have anecdotally been reporting that their sales, for the most part, are up. Unless your business deals with luxury goods or requires in-person visits, you’ve likely weathered the storm. Whether that was due to adaptation (building an ecommerce platform or innovating on product offerings), or your product was based around home comfort (just ask anyone selling plants, candles, or books), the pandemic hasn’t been all doom and gloom.
In short, a second lockdown won’t do much to change the current state of the economy, so fears from businesses are mostly unfounded based on the evidence. Businesses have already gotten over the first shock and have innovated or folded. Unfortunately, the disease has claimed many victims in the small business community, but a lockdown was not the cause, nor are looser restrictions the solution.
The government of Ontario and Canada could have done a lot more for small business owners, as most of the gains made during the pandemic have been made by large corporations like Amazon, Wal-Mart, and Loblaws, who rely on the precarious labour of low-paid employees. I’m no policy wonk, but I think we can all agree that supports for small business owners were lacking.
I’m going to write a second part of this that takes a closer look at the people impact, which will paint a slightly different picture and is certainly worth considering when you’re evaluating this issue.