BY PATRICK FOULIS
RECESSIONS ARE capitalism’s sorting mechanism. Weak businesses shrink or fail and stronger ones expand. But in 2020 the process of creative destruction did not take place in the typical manner. Because the downturn was the result of a health crisis rather than, say, a financial crash or inflation scare, there were some idiosyncratic corporate winners and losers: think of the boom in video streaming, or cruise-liner firms being wrecked. Meanwhile vast state handouts propped up companies around the world, masking the scale of the corporate carnage. In 2021 the toll will become clearer as stimulus tapers down and more firms fail. Healthy businesses will ramp up investment, giving them an enduring advantage. These top dogs will, however, face a new climate in which three tenets of modern business—the primacy of shareholders, globalisation and limited government—are in flux.
Downturns tend to be infrequent and swift: since the second world war America has been in recession only 14% of the time. But they have a profound impact on the structure of business. During the previous three slumps the share prices of American firms in the top quartile of each of ten sectors rose by 6% on average, while those in the bottom quartile fell by 44%.
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