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The pandemic shock will make big, powerful firms even mightier

26 Mar 2020

ACROSS THE rich world, governments and economists are scrambling to work out how costly virus-related lockdowns will be. Will the economy shrink by a tenth or a third? Is the slump going to last for three months, six or more? No one can say with any precision. A similarly unnerving and inexact exercise is happening in boardrooms as firms try to estimate by how much their cashflows will fall and whether they have the resources to survive.

Amid the chaos one thing, at least, is clear: a few powerful firms are set to gain more clout. Already some are a source of financial stability. It costs less to insure Johnson & Johnson’s debt against default than Canada’s. Apple’s gross cash pile of $207bn exceeds most countries’ fiscal stimulus. Unilever is funnelling cash to its army of suppliers (see article). In the long run this group of firms—call them the top dogs—may win market share by investing more heavily than, or buying, enfeebled rivals. The catch is that the post-pandemic world will put these corporate champions on a leash.

Downturns are capitalism’s sorting mechanism, revealing weak business models and stretched balance-sheets. In the past three recessions the share prices of American firms in the top quartile of each of ten sectors rose by 6% on...


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This content was originally published by The Economist: Business. Original publishers retain all rights. It appears here for a limited time before automated archiving. By The Economist: Business

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