If there is a silver lining to the Covid-19 crisis, it is the remarkable creativity shown by the many businesses that have thrived by transforming themselves in unexpected ways during the pandemic.
The examples I’ve come across are numerous. There is the airport security company that made plans to launch a vaccine tracking app after the travel business tanked. Or the mall and store owners renting out empty retail areas to schools that need more space for students to social distance during lessons. Or the digital businesses that can barely keep up with their own growth.
I spoke last week with Craig Fuller, the chief executive of FreightWaves, a Chattanooga-based online media and subscription data business. FreightWaves has seen a 300 per cent year-on-year leap in its online business during the pandemic. The result was a 70 per cent year-on-year growth in overall revenue, even with the total collapse of the company’s in-person events division.
“Our cash flow accelerated dramatically because data and media have much higher margins than physical events,” says Fuller, whose biggest problem these days is keeping his employees. “We’ve had eight leave to start their own businesses in the last year.”
They aren’t alone. There were more new business applications filed in 2020 in the US than any year on record — applications were up 24 per cent from 2019. But 2021 could be even better — applications rose 42.6 per cent in January alone compared to December 2020. Yes, bricks and mortar retail is still lagging, and the travel and tourism industry may never be what it once was. But areas like ecommerce, fintech and healthcare are positively booming.
This kind of Schumpeterian creative destruction is just what you want at a time like this. But the rise of entirely new kinds of businesses also creates new challenges for both capital and labour. I’d point to three particularly pressing issues that will require more attention from policymakers.
First is the question of how to value and protect intangible assets, which will probably double as a percentage of corporate investment after the pandemic. Most big business battles today are over who owns what slice of the digital pie.
Consider the case in US federal court between Epic Games and Apple over App store commissions. Or the fight over pandemic exemptions to World Trade Organization rules around intellectual property to bolster vaccine production. Or Google and Apple battling it out with SAP, Siemens and BASF over patent protection in Germany.
As a greater percentage of corporate wealth is held in intangible assets, these types of conflicts will only increase. This underscores the desperate need for a 21st-century transatlantic alliance around technology regulation and digital trade rules. China is going its own way on many of these matters, but Europe and the US must not.
The second big issue is that the expansion of intangible assets will probably mean fewer jobs in the short term, even as it creates new businesses and entirely different industries over the longer term.
Neither the public nor the private sector in the US is grappling fully with this problem. With the exception of groups like the Freelancers Union or the Domestic Workers Alliance, the labour movement is focused largely on protecting traditional, 40-hour-a-week work that comes with benefits. Companies are meanwhile trying to push more and more people into gig work as well as replacing as many jobs as possible with technology.
There are ways to bridge the gap. Portable benefits have long been proposed by politicians such as Senator Mark Warner, a Virginia Democrat. They would allow independent contractors to carry health and pensions coverage with them from job to job, rather than having them tied to employment with a single company.
I’m also a fan of the idea of taxing and redistributing some of the massive wealth captured by corporate data collectors. This includes not just the big platform giants but many other types of companies, from online retailers to consumer goods brands.
California governor Gavin Newsom has already proposed a digital dividend for consumers, a version of which could be implemented in both the US and Europe. The proceeds could go to workforce training or to improved public education. Both would act as a buffer against looming digital labour shocks.
Thirdly, while antitrust action is desperately needed to ensure a level playing field in the age of platform monopolies, we need to stop looking for a silver bullet solution on competition. I suspect there are going to be a lot of different solutions for different companies.
A company like Amazon could be easily broken up into a retail platform and a logistics provider. But it’s possible that a search engine like Google might better exist as a utility tightly regulated by the US Federal Trade Commission.
Real world rules and regulations must be made to apply to the online world as well. Otherwise, digital players can easily use regulatory arbitrage to jump around even the largest incumbents in the most powerful industries. Think of the recent comments of Jamie Dimon, chief executive of JPMorgan, about commercial banking being replaced by fintech.
Change is good. However, if we don’t acknowledge the full extent of the transformation that we are going through, we’ll end up with all the problems of the pre-pandemic economy, but on steroids.