I had some interesting reactions when I posted “The key to a successful recovery from this crisis is how fast the economies can re-allocate both financial and human capital” – but I think I may not have made my point clear.
I mentioned in that post that business failures will occur. While this is a tragedy it is not all bad. Sometimes life is just like that. The circle of life involves death too. And while death is a tragedy it is neither good nor bad. It is what it is. To me, Steve Jobs expressed this extremely well in his 2005 Stanford commencement address, two years after he was diagnosed with pancreatic cancer which proved fatal.
“No one wants to die. Even people who want to go to heaven don’t want to die to get there. And yet death is the destination we all share. No one has ever escaped it. And that is as it should be, because Death is very likely the single best invention of Life. It is Life’s change agent. It clears out the old to make way for the new. Right now the new is you, but someday not too long from now, you will gradually become the old and be cleared away. Sorry to be so dramatic, but it is quite true.”
– Steve Jobs at the Stanford University commencement address in 2005
The point of business failures in an economic system is a fact of life in any economy. Businesses come and go, especially in times of disruptions (like the economic crisis we are facing today). Those that are the most adaptable will survive, and those that aren’t adaptable simply will not. While business failures result in job losses, this is not all bleak as people who are released from those no longer adaptable businesses can now seek opportunities in businesses that are future-ready and more adaptable. Similarly, financial capital that is stuck in the old businesses can now be released and move to fund new businesses.
As I mentioned in my earlier post, in order to manage the social fallout from business failures – social safety nets and retraining or remobilisation programmes need to be in place to ensure that the people who found themselves out of jobs have the ability to survive the crisis enough to be able to reskill and find new opportunities. Platforms to match skills with job opportunities will be needed.
And we have seen some of this already in the COVID-19 business shutdowns where people find alternative ways of creating income. The economy just needs to find a way to scale up these types of opportunities. Clearly, the online and digital economy is the main beneficiary of the crisis and should, therefore, receive more funding and human capital. Similarly, investments in digital infrastructures will be more necessary than ever – see the catch up needed in investments in high-speed internet access. This is also true for the need for investments in soft infrastructure.
In addition to the re-allocation of human capital – there is a need to ensure that financial capital is able to be re-allocated to the new enterprises. Conditions need to be created such that people and entities with capital are induced to invest in new enterprises, some micro, small or medium, but those that are future-ready and far more adaptable to the new normals. The present financial system often tends to be conservative and risk-averse thus starve funding to startups. Rules and regulations, and financial risk and reward mechanics need to be adjusted to facilitate more venture funding.
Our best brains will need to be given the focus on how to create the right conditions to ensure that capital and resources can move from the old to the new. Sometimes we have to allow business failures to happen in order to allow the natural order of life for resources to move to the new. If we were to look at our economy over the past, say, 30 years – how many new businesses do we see represented on the stock market today as compared to 30 years ago? In reality, Malaysia is stuck in the so-called Middle Income Trap, of the old economy of low cost, low skilled labour, and low technology. It is time to re-shape our economy. And what better time than to take the opportunity during a crisis?
The last thing we should do is keep funding tired businesses that are unable to adapt; and keep our economic structure as the way it was and has always been for the past 30 years. Don’t let this happen, never waste a good crisis to fix the economy.