In his 1942 book, “Capitalism, Socialism, and Democracy,” economist Joseph Schumpeter (1883-1950) espoused the theory of “creative destruction.” The term points to the underpinnings of individualistic creativity as part of the magic of capitalism, incessant and periodic bursts of innovation as new products and processes replace the outdated and less efficient. We see creative destruction at work in the form of “reconstruction” and reinvention in response to the pandemic.
Census data reviewed by The Wall Street Journal (9/26/20) indicated a surge in American new employer tax ID applications, up 12 percent through mid-September, “the most since 2007,” a year marked by a major economic slump, as we also have experienced with COVID-19 lockdowns. When the spotlight is on massive stress in business sectors, often unheralded initially is determined survivors, an individual, team, or company, bent on finding better ways of doing things, seeing and seizing new opportunities.
Increased personal savings and changing consumer behaviors are opportunities for driven creative types. With low interest rates, investors seek higher returns and new opportunities. Mega investment firms, venture capitalists, pension funds, large family offices, foundations, and accredited investors pursue inflation adjusted long-term real returns beyond low yield offerings in traditional low- to no-risk investments, such as insured savings deposits. However, individual investors must use caution and maintain adequate risk-adjusted investments to fund liquidity and cash flow needs over an appropriate period. Due diligence is called for in the evaluation of any investment opportunity.
Robert Arnott, investor, researcher, and writer, wisely observed, “In investing, what is comfortable is rarely profitable.” You should have enough low risk liquid investments with debt under control to underpin your “comfort zone” before stepping out of “your base zone” in search of longer-term increased profits. Know your tolerance for uncertainty when everyone else is jumping ship and crowding the lifeboats, because that’s when bargains manifest themselves, long before the herd spots them.
Speaking of ships, a record number of cruise ships have been sold or decommissioned. Carnival scrapped 13 older vessels. When you return to cruising you will find newer, cleaner ships emphasizing passenger testing prior to boarding, hospital-grade disinfectants, and UV-C light technology to kill germs. In August, the giant MSC Grandiosa sailed with 3,000 passengers on a seven-day Mediterranean cruise. With a capacity of up to 6,334 guests, only 47 percent occupancy was maintained for safety reasons. People want to “get out there.”
Air travel continues with well below average passenger counts, but here too, airlines are jettisoning older less fuel-efficient planes, and some carriers limit passenger loads and require passengers to wear masks. (Delta is keeping middle seats empty at least through Jan. 6). Going forward you will fly on newer and cleaner aircraft.
“Medill Reports Chicago” noted that Airbnb pivoted from short-term rentals to longer-term contracts. Where average rentals were 2.5 days, some guests, especially those fleeing virus-plagued big cities, are staying a month or more. Owners allow more time for cleaning between rentals, employing ozone generators to kill germs. Families, missing get-togethers, are booking homes in resort areas for a week or more. Challenge is the mother of invention.
Recently, WHO’s Dr. David Nabarro said, “We in the World Health Organization do not advocate lockdowns as the primary means of control of this virus.” The doctor used the phrase “primary means” relating to COVID-19, clarifying, “The only time we believe a lockdown is justified is to buy time to reorganize, regroup, rebalance your resources, protect your health workers...but by and large, we’d rather not do it.”
We are not likely to see widespread lockdowns going forward, as the fallout in terms of economic distress, including food shortages in parts of the world, is painfully evident. This too, is prompting a surge in creativity and innovation in everything from the formulation of vaccines and therapeutics, rethinking of supply lines and distribution methods for all manner of goods, food security, environmental protections, etc.
Restaurants are beginning to fill as people are restless. As social animals we want to get back to some semblance of normal. Vaccines are coming. Health care workers and high-risk persons will be first in line. As COVID-19 recedes as the “worry du jour,” innovation is energizing preparations for the next pandemic, and there will be one!
For those in school, anyone contemplating career paths or looking for a reset, heads up! Technologist Tom Golway declares, “Innovation has always been a catalyst of economic creative destruction, triggering the extinction of certain types of jobs while fostering the genesis of new types of jobs with new types of skills.” Are your skills up to date? A rapidly changing world can be a negative or a positive challenge. Think and plan positive!
Lewis Walker, CFP®, is a financial life planning strategist at Capital Insight Group; 770-441-3553;firstname.lastname@example.org. Securities & advisory services offered through The Strategic Financial Alliance, Inc. (SFA). Lewis is a registered representative and investment adviser representative of SFA, otherwise unaffiliated with Capital Insight Group. He’s a Gallup Certified Clifton Strengths Coach and Certified Exit Planning Advisor.