The real economy will prevail

A few years ago, Moni visited Berlin for a weekend and concluded that "everyone in Berlin's a DJ." The party moved from one club, where a friend was playing a set, onto another venue, and then another until daybreak and beyond. The pandemic's varying effects on economies around the world has reminded me of that insight.

Substitute 'DJ' with 'service-sector worker'. Like management consultant, PR advisor, travel agent, translator, events organiser. Jingle-writers working on radio ads. 

Now, for this thought exercise, let's imagine for a moment an island economy in which everyone works in the service sector. 

A lawyer needs an accountant, who needs IT support from a firm that requires a social-media expert, who needs a mentor, who in turn needs an accountant, who from time to time needs the services of a lawyer. And sales! And marketing! And new business development!

And so a merry-go-round of invoices is issued, for work done in supporting each other's businesses. Everyone needs technology. Desktops, laptops, mobiles - which need broadband, routers, apps, operating systems and synchronisation. The new oil, as we constantly hear nowadays, is data. IT guys keep everyone's devices connected to everyone else's devices. And everyone needs an office to sit in, and furniture to sit on. And they need to get to that office. And there's the state, which needs money to pay for roads so people can get to their offices and schools to provide the next generation of office workers and hospitals to care for the sick accountants and SEO managers and travel agents, so everyone pays tax - and the accountant accounts for the VAT on the lawyer's bills to the PR advisor for drafting a contract for services rendered to the social-media start-up. Banks lend money here and take deposits there, ensuring financial liquidity for one and all. 

I'm minded of Julian Tuwim's Wszyscy dla wszystkich from 1947, (along with a rough translation by me):

Notice the tangibility and local nature of the economy that Tuwim describes. Shoes, houses, clothes, loaves of bread, essentials of life, made and delivered within your village. No lawyers or accountants or PR agents or network architecture designers in Tuwim's village.

[There's a part of 'services' that's firmly rooted in the tangible economy - maintenance and repair. As I write, there's a roofer on our roof in Jeziorki, fixing a number of minor issues (for the first time in 19 years), before the photovoltaic panels are installed. Repairing things - buildings - cars - clothes - laptops - tools - anything that needs repairing or replacing - is, in my books, part of the tangible economy. As is maintenance - preventing the need for repair.

And then there's retail. The intermediary between manufacturer and consumer. Whether it's the shopkeeper in Chynów selling bicycle inner tubes, scythe blades and broom handles and wire by the metre, the multinational hypermarket in Piaseczno or the courier that delivers goods bought online, retail is an essential part of the economy that we cannot do without.

Then cometh the lockdown...

It swiftly separated the essential from non-essential sectors of the economy.

The tangible economy must continue to function. And in Poland that's what it did. Lidl on the corner stayed open (though only 16 shoppers at any one time, hour-long queue to enter). Construction work on the S7 extension continued (one guy per bulldozer). Factories did what was needed to keep producing, with appropriate distance between workstation. Farmers ploughed, sowed, fertilised, irrigated and harvested their crops. Workshops kept fixing cars, buses and vans. And motorbikes.

Google's Mobility index gave us some fascinating insights into the different responses of economies to the Covid-19 lockdown. The latest one, from 11 September, shows that 20% fewer Poles were in their workplace compared to the baseline established before the pandemic. The figure for the UK was 39%.
And at the height of lockdown, on 17 April, Google reported that 42% fewer Poles were at work whilst 68% of Britons were staying away from their workplace. This is clear looking at GDP in the second quarter; the UK contracted by 20.4%, while Poland's shrank by 'only' 8.2%.

My great fear for the British economy is that it has strayed too far from the tangible, deep into the realms of sophistication. Manufacturing, agriculture and construction represent but 18.0% of the value added to the UK's GDP. In the case of Poland, it's 31.0% (World Bank, 2019). Which means that 82% of the UK's GDP comes from services - and 69% of Poland's. Services that can be postponed or done without altogether are far more vulnerable to the disruption caused by pandemic than 

Listening to business managers and entrepreneurs from around Poland, I can see that some sectors are indeed doing better than others. New inward investment is being driven by corporate refugees fleeing China (for supply-chain reasons), India (near-shoring for better quality of outsourced services) and Brexit Britain (for obvious reasons). 

Some services are more tangible than others. Hairdressing (I'd almost put it into the 'repair and maintenance' category. You can't export hairdressing. But if you can do accountancy from home, you can do accountancy from a cheaper country. The real economy peril that the UK is in right now is that services have become far more portable thanks to IT and globalisation; if services shrink in the same way that manufacturing shrunk, and agriculture before that - what will be left to keep the UK economy going forward? Not something most Brexit voters considered, I'll be bound.

This time two years ago:
Polish railway stations with names in two languages

This time three years ago:
Two weeks - six cities

This time four years ago:
A guide to naming streets in Poland and the UK

This time nine years ago:
A glorious month

This time ten years ago:
My maternal grandfather

This time 11 years ago:
My home-made fixie bike

This time 12 years ago:
Well-shot pheasants