Why Expectations within the Economy Matters During Crises
Fear feeds on itself and directs proportionate results. If I am a provider of some services or goods that I expect people will not buy in these times, I expect to be poorer. Now I am unlikely to work long hours, unlikely to spend my money on buying things from others too.
What we do is highly interdependent on what we expect others to do.
What are you expecting? What are your employees expecting?
That sets the behavioural direction for your company and its results.
Costs of the current pandemic are indeterminable as of now. Yes there is the threat to and loss of lives. But there are three critical components of economic costs that must be seen and addressed as soon as possible.
First is the direct costs resulting from loss of jobs, pay-cuts, and business closures, combined with the rising health care costs. Does your company have the imagination and innovation abilities to innovate itself out of trouble or does it succumb to the expectations?
Second component is the fear. The fear led to lockdowns and mitigation policies that have led to the bulk of the costs. For e.g. shutting schools means many parents cannot work. Shutting cities meant business is interrupted. But the fear of contracting the virus means travel, entertainment, aviation, and retail sectors will remain severely affected even when everything reopens. These expectations within the companies in these sectors means a negative spiral effect on the economy consistent with expectations.
Third component is confidence. The confidence of people stands shattered at multiple levels. People aren’t confident that they are safe. They aren’t confident that their jobs are safe. They aren’t confident that meeting other people is safe. They aren’t confident that governments are being transparent. They aren’t confident that their companies are in their side.
Confidence is very easily broken but it is repaired very slowly.
The fear of the epidemic, now and in future, has already created a downward demand and downward trend for prices. This will lead to a negative growth. The way to overcome fear and control economic costs incurred is to build confidence.
Confidence of the people within your ecosystems will decide whether or not they will rebuild the economic realities of your business.
Surely over time we’ll all pull through and so will the stock indices. But the attitudes of our organisations, cultures, and people will greatly and proportionately determine people’s efforts and behaviours to be constructive toward a recovery or be counter-productive because of the expectations set out.