The data that shows economic recovery requires more than reopening shops

Why trust may be the most important factor in persuading consumers to return.

 

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Around the world, economies are slowly reopening months after being hastily put in the deep freeze by national governments. The service and hospitality sectors, which were mandated to all but completely close to any in-person trade, have been hit especially hard by the downturn. Reviving economies will require consumers to spend again in shops and eat in cafés.

Given the way some politicians speak about putting the economy back into gear, you’d be forgiven for believing that the salons and eateries the public have been deprived of for months simply need to reopen, subject to additional social distancing regulations.

But what if there were more to the story? Our colleague Stephen has written on why simply allowing shops to reopen is not a guarantee that the service and hospitality industries will get going again. Many consumers, particularly the elderly and most vulnerable, will continue to avoid restaurants, bars and shops if they fear visiting them will make them ill. Indeed, in many countries around the world, swathes of the economy effectively shut down a few days before lockdown was ordered precisely for this reason. Consumers stopped shopping and dining out not because they couldn’t, but because they didn’t want to – few people believe that any meal is worth potentially catching Covid-19.

[see also: Why restoring trust is the most important economic challenge the government faces]

A paper published in June provides evidence for Stephen’s thesis. In particular, it shows that there is virtually no difference in spending patterns in US states that have reopened versus states which have not. In turn, the authors suggest, this would indicate that health concerns are a significant driver of spending decisions – not government orders to shut down high street establishments like salons and shops.

The graph below shows a comparison of consumer spending in the states of Florida and New York. Florida came out of lockdown long before New York – though that decision has now been partially reversed – but the spending patterns in both are virtually identical in the period up to mid-June, according to the paper.

Gilberto Montibeller, a professor at Loughborough University who studies risk, told the New Statesman that any policy intended to restart the economy must take into account how risky people perceive certain activities to be – regardless of whether those activities are truly likely to transmit coronavirus. “Covid-19 is a classic example of a high perceived risk. Any policy has to deal with both perceived and actual risk and understand why people are feeling afraid.

“You cannot open the economy and expect activity to resume at steady levels, because there are health concerns. The two issues are not as isolated as policymakers assume.”

Polling released yesterday (2 July) by Ipsos Mori provides further proof that, at least in the UK, consumers are not raring to go out when lockdown is lifted on 4 July. Excluding "don’t knows", respondents were evenly split on whether they would go to the hairdressers. But significantly more people said they would be uncomfortable doing every other activity polled as before, from going to museums to working out in the gym. By a margin of 60 per cent to 29 per cent, respondents were uncomfortable about going to bars and restaurants. Similar percentages reported unease with visiting cinemas and places of worship.

The same poll shows that just as the UK prepares to ease its lockdown, public concern about the coronavirus is up 13 per cent, to a total of 50 per cent.

There is some precedent to believe that fear of disease might have a significant influence on behaviour. John Barry, a historian of the Spanish flu pandemic of 1918-20, told the New Statesman that although few states and cities attempted total shutdowns to fight Spanish flu of the type seen in response to Covid-19, “there was so much fear that in many places the economy was effectively shut down because of absenteeism. In war industries like shipbuilding, absenteeism was in excess of 50 per cent. In industries not seen as essential to the war effort, my guess is that absenteeism was considerably higher.”

[see also: Coronavirus and the geopolitics of disease]

Today we see similar instances of absenteeism. In May, it was announced that English primary schools were to reopen on 1 June. An opinion poll by Deltapoll taken after the announcement found one in three parents would not send their children back until they considered it safe to do so. Sure enough, on the day primary schools opened their doors, one million children were reported to have been kept at home. Amid growing criticism from voters and political leaders, the policy was reversed.

For policymakers, this means that reopening for the sake of it may not be enough to get the economy going – especially if cases of Covid-19 begin increasing again, as they have in a majority of US states in the past week, indicating to consumers that going out is risky. Less vulnerable groups, such as the young, may be willing to use bars and restaurants, but an economic recovery cannot be sustained on the basis of a minority of consumers. The young have little money at the best of times, and these are not the best of times.

[see also: The maps that show just how disastrous the US’s coronavirus outbreak is]

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