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How Covid-19 Changed Digital Purchasing Trends, Overall Buying Power, and Put Capitalism Under a Microscope



October 21, 2020 6 min read

Opinions expressed by Entrepreneur contributors are their own.

We haven’t seen a healthcare crisis like Covid-19 since the Spanish Flu in 1918. It has touched every part of our lives. As a result, we’ve had to rethink the way we work, shop, go to school and socialize. 

Even when we’ve mastered the virus, the world will likely never be the same again. And it shouldn’t be. 

How purchasing trends have permanently changed. 

Entire industries and customer bases have moved to online ordering and home delivery. The rise in online purchasing hasn’t slowed—the online markets for essential goods, over-the-counter medication, and home entertainment products continue to grow. Consumer surveys conducted by McKinsey & Company show that this trend is here to stay. 

Covid-19 has also led consumers to shift preferred brands at an astonishingly quick pace. Most of this change has to do with the availability of products, with changes in brand loyalty occurring when a preferred product’s supply chain is interrupted. In the last six months, 36 percent of customers report trying new product brands, and 25 percent report adopting a new private-label brand. This shift seems to mostly benefit larger, trusted brands. Forty-five percent of consumers reported trying a new online retailer during the pandemic. 

In one of the more astonishing developments, 28 percent of consumers who previously preferred Amazon reported choosing another company in recent months, as a result of Amazon’s delay in shipment of non-essential items. 

Reassessing how we can change the market.

Crises of this magnitude (World War II, for example) almost always lead to a shift in cultural ideals and operating conditions. As recently as 2008, after an unforeseen economic crisis, we rethought the way the government interacts with big business. A slurry of financial regulation was introduced and the U.S. passed a Troubled Asset Relief Program (TARP). This program allowed the government to buy mortgage-backed securities and bank stocks. While there is still debate about TARP’s effectiveness (it invested $426.4 billion and recouped $441.7 billion), and whether or not it rewarded businesses for unethical actions, the program unarguably stabilized banks and prevented the auto industry from failing altogether.  

We still need to decide how we’re going to change. Currently, our vision for the future of the workforce is murky at best. We’re pretty certain that the use of digital platforms will speed up exponentially, and that will create a skills problem in which we need to train old workers new tricks. 

We’ll also likely need to rethink the way we plan for disasters in advance. 

No one predicted Covid-19, at least in its current incarnation. This is partly due to the free-market principles we’ve embraced since the 1980s. We’ve treated businesses as our primary economic engine and acted as if the government should stay as hands-off as possible. Because of this dynamic, we lack programs to detect or predict major shocks to the economic system—instead of preparation, our public services are limited to reactionary plans. 

This can all change. There are ways both businesses and policymakers can reinvent capitalism to better protect workers so that the next time this happens, we’re prepared.

Expanding access to capital.

One of the most important critiques we could make of modern capital, is the lack of access to capital afforded to many categories of the population. The most important drivers of access to capital are the labor markets and housing markets. These both are extremely important to defining facets of a person’s life, including: 

  • Living location
  • Income
  • Social circle 
  • Access to education 

After the U.S. escapes it’s labor market crash, there are many ways to make the labor market more attainable for all categories of citizenry. 

As of this moment, there’s no precise science—no proper technique—to enter the workforce. No one goes into a career 100 percent certain of the skills, classes, and experiences they will need to achieve their career goals. Carving out a profession is often an art of chance and luck as much as hard work. 

As we reignite the flames of the workforce, we should put an emphasis on delineating a clear path for new workers. This would include: 

  • Education about which jobs will improve in the future.
  • Education about which industries are currently in demand and growing. 
  • Education about what skills are needed to enter these fields. 

Because certain minorities have more difficulty acquiring jobs, businesses need to find opportunities to more evenly distribute the labor market, especially for people of color, women, LGBTQIA+ individuals and older workers.

There is also room for policymakers to assess which skills and services are lacking in their regions so that they may be provided more thoroughly. 

The social safety net is essential.

Because the government has been so hands off in regard to the labor market, there’s no safety net in place to protect minorities, gig workers, and those who face health crises.

For these people, an unpredicted economic cataclysm can mean anything from difficulty purchasing daily necessities to outright financial ruin. We need to not only be able to predict incoming economic collapses, but also to deploy safety nets to protect the most vulnerable members of the workforce. 

Two Harvard Business School professors, Michael Porter and Edward Freeman, developed an outline for this concept called “shared value.” It asserts that in the past, publicly traded businesses have focused only on attaining capital for shareholders, sacrificing the wellbeing of the economy and workforce in the process. 

Instead, recent research shows that acting with concern for material, social, and government issues brings greater financial returns in the end. By this metric, organizations should work on creating a shared value for a bubble of individuals expanded to include employees, customers and the communities in which they live.

But Covid-19 isn’t just threatening the financial lives of the workforce. It’s also threatening their health. This is an area in which the U.S. is particularly weak—and weaker still during economic downturns, especially when compared to European capitalist counterparts such as Germany. During the recession between 2007 and 2009, it was found that a single percentage point drop in unemployment resulted in a health coverage drop by 2.12 percent

Healthcare in America simply isn’t sustainable. As Covid-19 has proven, when some among us lack access to healthcare, we’re all impacted. 

For all of the damage the health crisis has caused, it has also created opportunity. If we’re able to not only change our habits and practices but also rethink their value, we can build back up even better than we were before.


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The Trump campaign celebrated a growth record that Democrats downplayed.



The White House celebrated economic growth numbers for the third quarter released on Thursday, even as Joseph R. Biden Jr.’s presidential campaign sought to throw cold water on the report — the last major data release leading up to the Nov. 3 election — and warned that the economic recovery was losing steam.

The economy grew at a record pace last quarter, but the upswing was a partial bounce-back after an enormous decline and left the economy smaller than it was before the pandemic. The White House took no notice of those glum caveats.

“This record economic growth is absolute validation of President Trump’s policies, which create jobs and opportunities for Americans in every corner of the country,” Mr. Trump’s re-election campaign said in a statement, highlighting a rebound of 33.1 percent at an annualized rate. Mr. Trump heralded the data on Twitter, posting that he was “so glad” that the number had come out before Election Day.

The annualized rate that the White House emphasized extrapolates growth numbers as if the current pace held up for a year, and risks overstating big swings. Because the economy’s growth has been so volatile amid the pandemic, economists have urged focusing on quarterly numbers.

Those showed a 7.4 percent gain in the third quarter. That rebound, by far the biggest since reliable statistics began after World War II, still leaves the economy short of its pre-pandemic levels. The pace of recovery has also slowed, and now coronavirus cases are rising again across much of the United States, raising the prospect of further pullback.

“The recovery is stalling out, thanks to Trump’s refusal to have a serious plan to deal with Covid or to pass a new economic relief plan for workers, small businesses and communities,” Mr. Biden’s campaign said in a release ahead of Thursday’s report. The rebound was widely expected, and the campaign characterized it as “a partial return from a catastrophic hit.”

Economists have warned that the recovery could face serious roadblocks ahead. Temporary measures meant to shore up households and businesses — including unemployment insurance supplements and forgivable loans — have run dry. Swaths of the service sector remain shut down as the virus continues to spread, and job losses that were temporary are increasingly turning permanent.

“With coronavirus infections hitting a record high in recent days and any additional fiscal stimulus unlikely to arrive until, at the earliest, the start of next year, further progress will be much slower,” Paul Ashworth, chief United States economist at Capital Economics, wrote in a note following the report.


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Black and Hispanic workers, especially women, lag in the U.S. economic recovery.



The surge in economic output in the third quarter set a record, but the recovery isn’t reaching everyone.

Economists have long warned that aggregate statistics like gross domestic product can obscure important differences beneath the surface. In the aftermath of the last recession, for example, G.D.P. returned to its previous level in early 2011, even as poverty rates remained high and the unemployment rate for Black Americans was above 15 percent.

Aggregate statistics could be even more misleading during the current crisis. The job losses in the initial months of the pandemic disproportionately struck low-wage service workers, many of them Black and Hispanic women. Service-sector jobs have been slow to return, while school closings are keeping many parents, especially mothers, from returning to work. Nearly half a million Hispanic women have left the labor force over the last three months.

“If we’re thinking that the economy is recovering completely and uniformly, that is simply not the case,” said Michelle Holder, an economist at John Jay College in New York. “This rebound is unevenly distributed along racial and gender lines.”

The G.D.P. report released Thursday doesn’t break down the data by race, sex or income. But other sources make the disparities clear. A pair of studies by researchers at the Urban Institute released this week found that Black and Hispanic adults were more likely to have lost jobs or income since March, and were twice as likely as white adults to experience food insecurity in September.

The financial impact of the pandemic hit many of the families that were least able to afford it, even as white-collar workers were largely spared, said Michael Karpman, an Urban Institute researcher and one of the studies’ authors.

“A lot of people who were already in a precarious position before the pandemic are now in worse shape, whereas people who were better off have generally been faring better financially,” he said.

Federal relief programs, such as expanded unemployment benefits, helped offset the damage for many families in the first months of the pandemic. But those programs have mostly ended, and talks to revive them have stalled in Washington. With virus cases surging in much of the country, Mr. Karpman warned, the economic toll could increase.

“There could be a lot more hardship coming up this winter if there’s not more relief from Congress, with the impact falling disproportionately on Black and Hispanic workers and their families,” he said.


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Ant Challenged Beijing and Prospered. Now It Toes the Line.



As Jack Ma of Alibaba helped turn China into the world’s biggest e-commerce market over the past two decades, he was also vowing to pull off a more audacious transformation.

“If the banks don’t change, we’ll change the banks,” he said in 2008, decrying how hard it was for small businesses in China to borrow from government-run lenders.

“The financial industry needs disrupters,” he told People’s Daily, the official Communist Party newspaper, a few years later. His goal, he said, was to make banks and other state-owned enterprises “feel unwell.”

The scope of Mr. Ma’s success is becoming clearer. The vehicle for his financial-technology ambitions, an Alibaba spinoff called Ant Group, is preparing for the largest initial public offering on record. Ant is set to raise $34 billion by selling its shares to the public in Hong Kong and Shanghai, according to stock exchange documents released on Monday. After the listing, Ant would be worth around $310 billion, much more than many global banks.

The company is going public not as a scrappy upstart, but as a leviathan deeply dependent on the good will of the government Mr. Ma once relished prodding.

More than 730 million people use Ant’s Alipay app every month to pay for lunch, invest their savings and shop on credit. Yet Alipay’s size and importance have made it an inevitable target for China’s regulators, which have already brought its business to heel in certain areas.

These days, Ant talks mostly about creating partnerships with big banks, not disrupting or supplanting them. Several government-owned funds and institutions are Ant shareholders and stand to profit handsomely from the public offering.

The question now is how much higher Ant can fly without provoking the Chinese authorities into clipping its wings further.

Excitable investors see Ant as a buzzy internet innovator. The risk is that it becomes more like a heavily regulated “financial digital utility,” said Fraser Howie, the co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.”

“Utility stocks, as far as I remember, were not the ones to be seen as the most exciting,” Mr. Howie said.

Ant declined to comment, citing the quiet period demanded by regulators before its share sale.

The company has played give-and-take with Beijing for years. As smartphone payments became ubiquitous in China, Ant found itself managing huge piles of money in Alipay users’ virtual wallets. The central bank made it park those funds in special accounts where they would earn minimal interest.

After people piled into an easy-to-use investment fund inside Alipay, the government forced the fund to shed risk and lower returns. Regulators curbed a plan to use Alipay data as the basis for a credit-scoring system akin to Americans’ FICO scores.

China’s Supreme Court this summer capped interest rates for consumer loans, though it was unclear how the ceiling would apply to Ant. The central bank is preparing a new virtual currency that could compete against Alipay and another digital wallet, the messaging app WeChat, as an everyday payment tool.

Ant has learned ways of keeping the authorities on its side. Mr. Ma once boasted at the World Economic Forum in Davos, Switzerland, about never taking money from the Chinese government. Today, funds associated with China’s social security system, its sovereign wealth fund, a state-owned life insurance company and the national postal carrier hold stakes in Ant. The I.P.O. is likely to increase the value of their holdings considerably.

“That’s how the state gets its payoff,” Mr. Howie said. With Ant, he said, “the line between state-owned enterprise and private enterprise is highly, highly blurred.”

China, in less than two generations, went from having a state-planned financial system to being at the global vanguard of internet finance, with trillions of dollars in transactions being made on mobile devices each year. Alipay had a lot to do with it.

Alibaba created the service in the early 2000s to hold payments for online purchases in escrow. Its broader usefulness quickly became clear in a country that mostly missed out on the credit card era. Features were added and users piled in. It became impossible for regulators and banks not to see the app as a threat.

ImageAnt Group’s headquarters in Hangzhou, China.
Credit…Alex Plavevski/EPA, via Shutterstock

A big test came when Ant began making an offer to Alipay users: Park your money in a section of the app called Yu’ebao, which means “leftover treasure,” and we will pay you more than the low rates fixed by the government at banks.

People could invest as much or as little as they wanted, making them feel like they were putting their pocket change to use. Yu’ebao was a hit, becoming one of the world’s largest money market funds.

The banks were terrified. One commentator for a state broadcaster called the fund a “vampire” and a “parasite.”

Still, “all the main regulators remained unanimous in saying that this was a positive thing for the Chinese financial system,” said Martin Chorzempa, a research fellow at the Peterson Institute for International Economics in Washington.

“If you can’t actually reform the banks,” Mr. Chorzempa said, “you can inject more competition.”

But then came worries about shadowy, unregulated corners of finance and the dangers they posed to the wider economy. Today, Chinese regulators are tightening supervision of financial holding companies, Ant included. Beijing has kept close watch on the financial instruments that small lenders create out of their consumer loans and sell to investors. Such securities help Ant fund some of its lending. But they also amplify the blowup if too many of those loans aren’t repaid.

“Those kinds of derivative products are something the government is really concerned about,” said Tian X. Hou, founder of the research firm TH Data Capital. Given Ant’s size, she said, “the government should be concerned.”

The broader worry for China is about growing levels of household debt. Beijing wants to cultivate a consumer economy, but excessive borrowing could eventually weigh on people’s spending power. The names of two of Alipay’s popular credit functions, Huabei and Jiebei, are jaunty invitations to spend and borrow.

Huang Ling, 22, started using Huabei when she was in high school. At the time, she didn’t qualify for a credit card. With Huabei’s help, she bought a drone, a scooter, a laptop and more.

The credit line made her feel rich. It also made her realize that if she actually wanted to be rich, she had to get busy.

“Living beyond my means forced me to work harder,” Ms. Huang said.

First, she opened a clothing shop in her hometown, Nanchang, in southeastern China. Then she started an advertising company in the inland metropolis of Chongqing. When the business needed cash, she borrowed from Jiebei.

Online shopping became a way to soothe daily anxieties, and Ms. Huang sometimes racked up thousands of dollars in Huabei bills, which only made her even more anxious. When the pandemic slammed her business, she started falling behind on her payments. That cast her into a deep depression.

Finally, early this month, with her parents’ help, she paid off her debts and closed her Huabei and Jiebei accounts. She felt “elated,” she said.

China’s recent troubles with freewheeling online loan platforms have put the government under pressure to protect ordinary borrowers.

Ant is helped by the fact that its business lines up with many of the Chinese leadership’s priorities: encouraging entrepreneurship and financial inclusion, and expanding the middle class. This year, the company helped the eastern city of Hangzhou, where it is based, set up an early version of the government’s app-based system for dictating coronavirus quarantines.

Such coziness is bound to raise hackles overseas. In Washington, Chinese tech companies that are seen as close to the government are radioactive.

In January 2017, Eric Jing, then Ant’s chief executive, said the company aimed to be serving two billion users worldwide within a decade. Shortly after, Ant announced that it was acquiring the money transfer company MoneyGram to increase its U.S. footprint. By the following January, the deal was dead, thwarted by data security concerns.

More recently, top officials in the Trump administration have discussed whether to place Ant Group on the so-called entity list, which prohibits foreign companies from purchasing American products. Officials from the State Department have suggested that an interagency committee, which also includes officials from the departments of defense, commerce and energy, review Ant for the potential entity listing, according to three people familiar with the matter.

Ant does not talk much anymore about expanding in the United States.

Ana Swanson contributed reporting.


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