John N. Friedman is professor of economics and international and public affairs at Brown University and a founding co-director of Opportunity Insights at Harvard University, which has been tracking the real-time impact of Covid-19 on the U.S. economy. In Inc.‘s special report on the future of business, he shared predictions about the economy. –As told to Vickie An
Your team surfaced data that shows what’s happening with the economy as a result of the pandemic. Some experts, including you, have said that we’re facing an economic downturn that’s worse than the 2008-09 financial crisis. How so?
This recession has been quite different from most past recessions. It was so acute in its immediate impact. There was a sharp response to the pandemic among consumers from high-income households. They pulled back on their spending most severely. That especially hit local small businesses in affluent areas.
Why did that happen?
It’s hard to know without getting inside people’s heads. But the top quarter of the wealthiest households, approximately, were responsible for more than half of the spending decline during the pandemic.
What’s the consequence?
For the past 40 years in the U.S., we’ve seen incomes grow much faster at the top than at the bottom. In the past few years, we were starting to see signs of more balanced growth, where median incomes started to tick up. But the pandemic ended that quite suddenly.
There are now millions and millions of missing jobs. Sooner or later, the reality of such a high unemployment rate is going to catch up with the overall economy.
What’s your overall prediction for our economic future?
I’m relatively optimistic about things returning to “normal” once we get past the pandemic. But I am most fearful on the small-business side. That’s because these businesses tend to have the lowest liquidity reserves. My sense is that there may be a lot of small businesses that close over the next 12 months. But there may be new small businesses that pop up–a lot of new entrepreneurial activity and new, exciting things that people discover.
What’s your best advice to business owners?
The businesses that are going to recover fastest are the ones that are the most flexible and creative. These businesses need to find ways to stay true to core competency, but maybe deliver it in a new way. Maybe there’s a slightly different type of service that leans on the same set of main business workings, but adapts itself for the times. Small businesses, because they can be more nimble and agile in response, can be best positioned to shift focus in this way.
From the November 2020 issue of Inc. Magazine