Heiwai Tang

Coronavirus could leave the world an even more unequal place. That would be a real disaster

The pandemic is hurting small businesses, and companies that survive Covid-19 shutdowns may find themselves with less competition. This is what we have seen following the Spanish flu pandemic and the September 11 attacks

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American Airlines planes crowd a runway at Tulsa airport where they have been parked due to the coronavirus pandemic. Photo: Reuters

Heiwai Tang

Published: 1:00am, 7 Apr 2020Updated: 3:00am, 7 Apr 2020

The end of the Covid-19 tragedy still seems distant. But when the pandemic is over, it could well leave, like the 1918 Spanish flu, not just deep psychological scars, but also wider inequality among businesses and people around the world.

In a few months, when we finally feel safe and free to walk around our neighbourhoods, we may find that the small coffee shop owned by the young latte art champion or the kebab restaurant run by the refugee family no longer exists. Instead, in the nearby shopping mall that is once again packed with tourists, the global fast-food chains may all have expanded.

Small businesses are at the highest risk of bankruptcy during an economic shutdown, especially those in the service industry. American restaurateur David Chang, who owns eight restaurants in New York including one that has won him Michelin stars for 11 years, has expressed deep concern about the survival of most restaurants in Manhattan and called for government intervention.

Cash-strapped small businesses will either try to secure another bank loan to cover recurring costs or simply shut down. In the United States, the record 6.6 million unemployment claims filed in the week ending March 28 suggest many businesses have already gone for the second option.

Research shows that high-wage workers tend to be employed by larger firms, implying that many of the workers who recently got laid off by small businesses would have clustered at the lower end of the income spectrum in the US economy.

Besides service businesses, small manufacturers supplying intermediate inputs to large manufacturers and wholesale retailers in the downstream of global supply chains are most vulnerable to the bullwhip effect – the magnification of negative demand shocks from final consumers.