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Why Recessions are like a Bad Car Crash

MALCOLM ZOPPI | LEGAL JARGON WRITER




This article will take a more educational approach to the current economic climate.


The Story:


The economies around the world are experiencing extreme downturns, leading to tragic consequences in a domino-effect style. This is caused by a submicroscopic parasite we all know as Covid-19. Over a relatively short amount of time, the virus has put the world’s economies on its knees, leading us into a recession.


Possible Commercial Implications:


The Cambridge Dictionary defines a recession as “a period when the economy of a country is not successful and conditions for business are bad” (Cambridge Dictionary, 2019). This seems to be an understatement when compared to the situation we are in now. Businesses are not just ‘not successful,’ they are collapsing. Companies previously identified as ‘too big to fail’ are experiencing real economic hardship, laying off thousands of employees and closing hundreds of stores.


Conditions for business are horrific. We have been experiencing a slippery slope of people continuously losing their jobs, hence spending less, in turn causing others to lose their jobs due to a lack of spending. This is the reason why recessions are like a bad car crash: it may take very little time for the damage to materialise, but it can take years to recover from it.


Governments try to counteract the consumers’ lack of spending by pumping money into the economy. This seems to be the equivalent of a band-aid for someone who suffered head trauma in their accident. The long-term impacts of a serious recession are significant: educational achievement in the population is substantially lowered. This is because many families will not be able to financially support their children’s educational ambitions, possibly delaying or abandoning university plans.


Worst cases can include families not being able to provide an appropriate learning environment due to losing homes and/or threatened childhood nutrition. The impact that an uneducated generation has on the economy is tragic, as the future workforce may not be sufficiently qualified to sustain the economy’s complex roles and to continue innovation and prosperity.


The availability of opportunities is also significantly lowered. People will be less willing to take financial risks by starting companies, hence creating fewer job openings. Entrepreneurial activity will further be diminished by the credit crunch, where small businesses will find it harder to receive loans to start or expand their enterprise. The long-term impact of this may include a lack of innovation and competition, leading to economic stagnation and abusive behaviour by large businesses using their dominant position in times of financial weakness.


Businesses will continue to find ways to cut costs. Labour, often being the biggest expense for a business, will be affected as a primary concern. This will lead to large-scale layoffs. The full scale of lost jobs is unlikely to return if tech companies find a way for organisations to continue operating without having to hire humans at full capacity.


Possible Legal Implications:


The legal implications can vary widely. Law firms will experience a continuous rise in corporate litigation cases. Insolvency lawyers will have their hands full for the foreseeable future, as will lawyers specialised in employment disputes.


The governments may decide to pass legislation to be better prepared to handle such unexpected ‘acts of god’. There will need to be stronger safety nets, as well as more regulation in the financial sector to minimise the possibility of businesses failing. Hopefully, the governments will decide to allocate more of their budget towards public health services to better treat and expand the hospitals’ capability. These possible new laws will affect how businesses operate, requiring surviving law firms to guide them in navigating new paths to growth.


Questions for Discussion:


  1. Will the current recession’s long-term effects be any different from the ‘typical’ recessions

  2. Should we have a better insurance (safety net) for when the economy suffers from a bad car 
crash? 


  3. Will the pandemic result in states spending significantly more to improve hospital capabilities? 



Malcolm Zoppi

Born in Switzerland, grew up in the Bahamas, studying in England, completed an Erasmus year in Denmark, and now living in Spain.

Malcolm prides himself on his internationality and ability to analyse current affairs from different perspectives.

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