A year later, COVID has changed the global economy

MARCH 18, 2021 — Editor’s note: This op-ed by Thomas Tunstall, senior research director for UTSA’s Institute for Economic Development, originally appeared in the San Antonio Express-News.

What began a year ago as a brief relocation from the office to a work-at-home setting transitioned into something else altogether. The weeks bled into months, ultimately extending over the year and beyond for many folks.

The brake on economic activity resulting from the COVID-19 pandemic sapped more out of the gross domestic product than any downturn since the Great Depression in the 1920s and 1930s, and far more than the Great Recession that began in late 2007.

“Though 2021 appears poised for improvement, it’s far from certain things will go back to the way we knew it. ”

While vaccine research and production occurred in record time, the distribution channels fell short of expectations. Nor did relief come soon enough to rescue numerous small businesses, the likes of which will not return with the same ownership or models.

Large traditional retailers were hard hit as well. Indoor venues for sporting events, concerts and other activities weathered anemic attendance. So far, the surprises have been plentiful and pervasive. The winter storm of 2021 add another unexpected element to the mix.

The initial rounds of federal relief last year were disbursed unevenly and somewhat haphazardly, with many large businesses receiving payouts not intended for them. Further, despite government efforts to stem the carnage, new weekly unemployment claims remained stubbornly high through the year’s end and into 2021.

Many workers never returned to offices — a feature of the pandemic that will continue to burden the commercial sector. At the same time, the desire for home offices rapidly boosted housing prices, another consequence that would have been hard to predict a year ago.

With surprising regularity, nonperishable goods — typically exhibiting stable and predictable demand patterns — became almost impossible to keep in stock. Hand sanitizer, canned goods, and toilet paper flew off store shelves.

Hospitals failed to maintain sufficient quantities of personal protective equipment, not to mention ventilators — difficult-to-produce machines that are expensive to hold in large numbers if left idle. The winter storm exacerbated the situation by causing power outages and impairing the water supply, resulting not only in a shortage of bottled water but food stocks of all manner.

The decrease in both economic and noneconomic activity took its toll on the oil and gas industry, too. Last March and April, regular automobile use and air travel came to a virtual standstill. For the first time, oil prices went negative — if only for a day — the result of excess U.S. inventory and lack of storage capacity. By summer, prices began a steady rebound when energy demand picked up.

Crude oil prices now hover in the $60-per-barrel range — good news for both Texas producers and the Legislature. Higher oil prices increase state tax revenues, which should assuage the expected nearly $1 billion budget shortfall facing lawmakers in this legislative session. At the same time, however, Saudi Arabia’s decision to increase production will probably establish a crude oil price ceiling at or around the current level.

The key reason global oil markets did not collapse altogether last year in light of anemic demand and excess supply was an agreement by OPEC and Russia to curb production through most of 2020. In the U.S., low prices forced independent and major producers to cut back output also.

The upshot of events over the past year portends a sea change in the supply chain theory taught in business schools. The nature of supply chains — previously focused on cost and efficiency to the exclusion of nearly everything else — will instead emphasize resilience and flexibility as organizations seek out local and regional sources of product.

Community stakeholders such as city managers, mayors, county judges, economic development directors and regional planners will demand greater visibility into the critical supply chains serving their constituents. Due to the accumulated complexity evolved from management theory over the past few decades, no single entity has a clear picture of all the moving parts across disparate critical-product supply chains that sustain communities.

Though 2021 appears poised for improvement, it’s far from certain things will go back to the way we knew it. Future pandemics, natural disasters and random uncertainty lie in wait.

Notions of living space and personal distance — in addition to the value of critical resources such as energy, food and water — will figure prominently in the minds of policymakers and leaders over the 21st century.

In a sense, we should expect more of the same — only different. As Mark Twain once famously intoned, history doesn’t necessarily repeat itself, but it does rhyme.