Economic SARrowS

Posted: 01.16.06

Jon PeddieA software bug is an expensive mistake that can cost a company developing the software and/or its users hundreds of thousands of dollars to remedy. That's nothing in light of the worldwide economic costs of the SARS virus. The first-order effects (thousands of sick people and hundreds of deaths), the second-order effects (thousands losing their jobs in the travel and associated—i.e., conferences—industries, already in a weakened state, manufacturing losses due to factories in Asia being closed or operating with less staff, etc.), the third-order effects (costs of combatting the virus, health care facilities and personnel, etc.), and the fourth-order effects (loss of tax revenue, and of subsequent consumer spending).

The net-net is that little virus is going to cost the world economy trillions of dollars and the effect of those costs will be felt for the rest of this year and beyond. This isn't a bad case of the flu; this is almost a worldwide economic disaster. Look around you—can you find a single company, or possibly person, who can't relate a business impact to them due to SARS? One of the aspects of a global economy is, as the world shares in the wealth of all the participants, they also share in the costs when a disaster like this strikes. And because it's not isolated like the earthquakes, all countries with airline service get to suffer.

Why the alarmist tone in this? Because we, and I mean WE, are delusional if we don't account for the effects of this economic virus, for that's what it is, spreading like a computer virus through and into every business in the industrialized world and most of the rest of the world. This is not going to simply blow over like a bad cold. It will have a long-term rippling economic effect and you should prepare for it. How? Haven't got a clue, and I'm afraid to suggest. The first reaction is bunker mentality: jump in a hole, don't do anything (like hire new people, run ad campaigns, buy extra parts, oh my God) and hope it will pass. But if we do that we'll aggravate it. However, if we act like there's no effect, no problem, we'll be guilty of bad planning when the effects hit. This is going to be tough, and very challenging.

There's another wacked aspect to the SARS effect. Some companies who are looking for ways to cut costs are using SARS as a legitimization of their actions. Companies began pulling back on Computex as much from an excuse to save costs as from fear of the virus. There are arguments that normally healthy people who take normal precautions, the same as you would to avoid catching the flu, would not be at much risk. And, if it was like the go-go years of 99/00, you can bet no one would have canceled anything. I'm sorry if that sounds cynical, but I think you can find some agreement with it.

Economic terrorism

The other blow to our economies is the cost of fear of terrorism. When leaders in the U.S. government advise the citizens to avoid public places (code orange) due to the suspicion of a possible terrorist attack on a soft target (like the atrocities being experienced by the Israelis, Indonesians, the Saudis and Morroccans), the economy, which is heavily weighted on consumer spending (since we no long manufacture anything in the U.S.), will take a deep hit. That too will have a long-lasting effect, with primary effects being labor (layoffs) and secondary effects being inventory (as in too much and no way to run it down), followed by third-order effects on the manufacturers of those inventory items. And that is typically followed by an echo cycle in the manufacturing sector.

And the good news?

This is going to sound a bit like Pollyanna, but it's the spirit of the people. No one wants to stop. No researcher, manufacturer, consumer, traveler or salesperson wants to quit. We're going to keep on keeping on. We'll go to the mall, and yeah, we might be a bit nervous at first, but damn it, I need a new pair of Britney jeans and I need them now. And I'm going to go to CeBit America in NYC next week, SARS, wars, or not. Why? Because I want to. I like NYC, my daughter is there, and I'm curious as hell about how CeBit is going to do in the U.S. Am I going to be careful? Absolutely. I'm careful any time I go to NYC—I didn't get this old being stupid. (OK, I am lucky, but I do try to be careful.) And, I won't be alone. Thousands of curious, info-hungry folks just like me are going to be on airplanes and staying at hotels and eating out and buying trinkets.

Now I and my ten thousand or so best friends visiting NYC for a few days are not going to save the economy, United Airlines, NYC or the taxi business in the city, but it is one small contribution. And if I come home alive, without a cold, then my confidence will rise and I will share that and others will pick up on it because they too want to go shopping, and slowly we'll climb out of the foxholes. And yes, it will time to pay for the costs of the SARS and terrorism, but we've gotten through worse.

Jon's advice

Stay claim, plan intelligently—not in panic and not foolishly.