The examples that I have encountered are numerous. There’s the airport security company that has plans to launch a vaccine tracking app after travel activity slows down. Or the owners of malls and stores renting empty sales areas to schools that need more space for students to distance themselves during class. Or digital businesses that can barely keep up with their own growth.
I spoke last week with Craig Fuller, Managing Director of FreightWaves, a Chattanooga-based online and subscription media company. FreightWaves saw a 300% year-over-year jump in its online business during the pandemic. The result was 70% annual growth in overall revenue, even with the total collapse of the company’s in-person events division.
“Our cash flow has accelerated dramatically because data and media have much higher margins than physical events,” says Fuller, whose biggest problem these days is retaining his employees. “We had eight days off to start their own business last year.”
They are not alone. There were more new trade applications filed in 2020 in the United States than any year on record – applications increased 24% from 2019. But 2021 could be even better – applications increased by 42, 6% in January alone compared to December 2020. Yes, brick and mortar retail is still lagging behind, and the travel and tourism industry may never be what it once was. But areas like e-commerce, fintech, and healthcare are booming.
This kind of Schumpeterian creative destruction is exactly what you want at a time like this. But the rise of entirely new types of business also creates new challenges for capital and labor. I point out three particularly urgent issues that will require more attention from policy makers.
The first is the question of how to value and protect intangibles, which will likely double as a percentage of business investment after the pandemic. Most big business battles today are about who owns what slice of the digital pie.
Take the case in US federal court between Epic Games and Apple on App Store commissions. Or the fight against pandemic exemptions from World Trade Organization intellectual property rules to boost vaccine production. Or Google and Apple are fighting with SAP, Siemens and BASF over patent protection in Germany.
As a higher percentage of corporate wealth is held in intangible assets, these types of conflicts will only increase. This underscores the desperate need for a 21st century transatlantic alliance around technology regulation and digital trade rules. China is going its own way on many of these issues, but Europe and the United States must not.
The second big problem is that the expansion of intangibles is likely to mean fewer jobs in the short run, even if it creates new businesses and entirely different industries in the long run.
Neither the public nor the private sector in the United States is fully grappling with this problem. With the exception of groups like the Freelance Union or the Domestic Workers Alliance, the labor movement is largely focused on protecting the traditional 40-hour-a-week work that has benefits. Meanwhile, companies are trying to get more and more people to work together and replace as many jobs as possible with technology.
There are ways to bridge the gap. Wearable perks have long been offered by politicians such as Senator Mark Warner, a Democrat from Virginia. They would allow independent contractors to carry health and retirement coverage with them from job to job, rather than pairing them with a job at one company.
I’m also a fan of the idea of taxing and redistributing some of the massive wealth captured by corporate data collectors. This includes not only the big platform giants, but many other types of businesses, from online retailers to consumer goods brands.
California Governor Gavin Newsom has already proposed a digital consumer dividend, a version of which could be implemented in the United States and Europe. Profits could be spent on training the workforce or improving public education. Both would act as a buffer against looming digital workforce shocks.
Third, if antitrust action is desperately needed to ensure a level playing field in the era of platform monopolies, we must stop looking for a quick fix in competition. I suspect there will be a lot of different solutions for different companies.
A business like Amazon could easily be split into a retail platform and a logistics provider. But it is possible that a search engine like Google may better exist as a public service tightly regulated by the United States Federal Trade Commission.
Real world rules and regulations should apply to the online world as well. Otherwise, digital players can easily use regulatory arbitrage to bypass even the largest incumbents in the most powerful industries. Think about the recent comments from Jamie Dimon, CEO of JPMorgan, on replacing commercial banking with fintech.
Change is good. However, if we do not recognize the full extent of the transformation that we are going through, we will end up with all the problems of the pre-pandemic economy, but on steroids.