Covid-19 & The Four Challenges

4Jun - by The Chung Report - 0 - In Uncategorized



Covid-19 & The Four Challenges

One word has come to define 2020 due to COVID-19’s unmatched impact on communities and economies around the world: Unprecedented. How will it impact Wichita?

‘UNPRECEDENTED.’

One word has come to define 2020 due to COVID-19’s so-far unmatched impact on communities and economies around the world: Unprecedented.

The impact of COVID-19 has proven extremely challenging and damaging due to the complex interconnectivity of the world economy.

"There’s a difference in scale, because the economy is so large and there are so many people on the planet," says Dr. George Dehner, a Wichita State University history professor who studies pandemics. "I think literally we’re seeing something that — as we look at historical record — appears to be unprecedented in terms of the total shutdown of the economy in so many sectors."

This pandemic is having an immeasurable impact on those directly affected — especially those who have lost loved ones. While we want to acknowledge the devastating loss of life that will be far and away the most tragic aspect of this pandemic, we want to talk specifically about the economic consequences, which will continue to impact virtually everyone.

This is a legitimate, bona fide crisis of the biggest magnitude nationwide.James Chung

"This is a legitimate, bona fide crisis of the biggest magnitude nationwide," says James Chung, data analyst and founder of Reach Advisors. "It’s not just a Wichita issue. There are just some things that Wichita’s done that has made it a little bit deeper and more problematic than elsewhere."

Since the crisis began, Chung’s data analysis firm has been creating projections to see how COVID-19 will impact communities across the country on a county-by-county basis. Nationally, the consensus forecast expects GDP to fall 7.5 percent in the second quarter of 2020 alone.

"In Sedgwick County, it’s probably going to be down 10 percent this quarter alone," Chung says. "In other words, that’s $845 million of economic loss from April to June. That’s a world of hurt. That’s going to hurt a lot of businesses. That’s going to hurt lot of households."

Before we can talk about action, we need to have a complete view of the problem. We’ve talked with leaders across the community to explore how COVID-19 will likely impact each of the Four Challenges.

THE BUSINESS CYCLE CHALLENGE

After the 2008 recession, Wichita was hit harder than most of the rest of the country. And despite a longer, less successful recovery, it’s easy to think that we did it — that Wichita made it through.

But that won’t always necessarily be the case, Chung says.

"We can’t assume that the Wichita-that-has-always-been is a sustainable Wichita over time," he says. "The legs were taken out from under us in this recession. It has before, but it really has this time around, in a painful way that has not been seen."

Chung says the quarterly performance figures look more like numbers from the Great Depression. And the GDP calculations are the lowest ever seen in the history of GDP calculations.

"If the national consensus GDP forecast holds up, and our localized forecast holds up, … that’s around $16,000 of lost GDP per household from April through June," Chung says. "That’s a lot of money in terms of economic output that’s not being generated per household. And of course, some people aren’t going to be affected, which means there are going to be people who are going to see even greater impacts than that number."

Chung says the regions most impacted by COVID-19 have economies that rely on tourism, oil and gas or cyclical manufacturing. While aviation manufacturing will clearly see a sustained impact from COVID-19, Chung says it was already diving into a recession before the pandemic ever hit due to a halt in production on the Boeing 737 MAX.

The legs were taken out from under us in this recession.James Chung

"Part of the reason that Wichita’s drop is deeper than the rest of the nation is that it’s not just the function of the national recession. Wichita had already entered a recession before the national collapse," Chung says. "Our local data indicators were showing that Wichita entered recession at the start of the year. It wasn’t waiting for coronavirus to start to kick around."

Add to that a near-total shutdown of consumer spending and you have a crisis that affects nearly everyone, regardless of the industry in which they work or the part of the city in which they live.

Dehner says one of the first disruptions of pandemics — whether it’s the bubonic plague in Italy or the Spanish flu — is trade.

"A number of economic sectors that are about physical connections — they get severely impacted," he says. "Those are lost profits that aren’t going to come back if people don’t travel."

Dr. Robert Weems, professor of business history at Wichita State University, says this impact will likely continue to be felt most as a decline in consumer spending as many consumers are spending less in social isolation.

"The most optimistic are saying, ‘There’s going to be a V-shaped recovery, that we’re having a steep decline and a real steep incline,’" he says. "From my own perspective, I think that’s extremely optimistic, especially when we look at just the depth and the breadth of the economic impact of COVID-19."

This slow-down in trade will also be an ongoing challenge for the aviation industry. Chung says Wichita’s economy isn’t just tied to trade within the U.S.

"A recession could happen in Wichita simply if the Middle East or China entered a recession and stop buying planes," Chung says. "This is really going to hurt. It’s going to hurt a lot of families, a lot of businesses, but if there is a silver lining in as much pain as we’re going to see, perhaps this is the catalyst for digging deep and finding the better and stronger path for the future for Wichita."

Chung says some of this deep-digging is happening currently within the Human Capital Challenge at Wichita State University and WSU Tech.

THE HUMAN CAPITAL CHALLENGE

While the economic outlook appears bleak, Sheree Utash, president of WSU Tech and vice president of workforce development at Wichita State University, has her eyes trained on opportunities to create change.

"I’m a big believer in you never waste a good crisis," she says. "I certainly would not want this to happen ever again, in anybody’s lifetime. … It’s tragic times, but often out of tragic times, depending on how you look at that, there’s great innovation that can come."

In Wichita, this sense of tragedy was sparked earlier than in most cities with the grounding of the Boeing 737 MAX and the subsequent layoffs across the aviation industry.

Utash, joined by others including the Small Business Administration, state officials and the Greater Wichita Partnership as part of an aerospace taskforce, was busy innovating to face this tragedy when COVID-19 hit.

"That particular group now has morphed into a community COVID-19 taskforce," Utash says. "We’ve added other people to that who are critical during these periods of time. The county, the city, the medical community, our technology providers, daycare providers — a broader net of people that are looking at how to come together in order to, again, provide solutions, provide collaboration for maximum impact during this time."

After the aviation layoffs, WSU Tech was working on rolling out a program designed to give laid off workers a chance to continue their education or change their course of study to enter a new field.

It’s tragic times, but often out of tragic times, depending on how you look at that, there’s great innovation that can come.Sheree Utash

"We called it ‘Upskill, Reskill, Finish Your Degree,’" Utash says. "Now as we look at post-COVID and what’s going to happen, we still believe that there’s a lot of upskill, reskill that can happen with those that will remain laid off, and we’re committed to doing that."

In fact, Utash says the program will likely expand. Whereas before it was tailored to programs within manufacturing, machining, welding or electronics, going forward, it will also service those laid off from the hospitality, entertainment or retail industries.

"I mean, let’s think about things that we know we’re going to continue to need," Utash says. "Healthcare is going to continue to be critically important in our community. IT, cloud computing, cybersecurity, all the things that make all of this run, that we’re living off of it right now, extremely critical."

Chung says WSU Tech’s response to the aviation crisis could act as a national model. Now, that same response is being expanded across the industries impacted by COVID-19, giving Wichita an opportunity to diversify its workforce and, eventually, its economic base.

That doesn’t mean aviation won’t continue to be a huge part of the Wichita economy. But even aviation could look quite different post-COVID.

"It will be a little slow getting back, and we know that," Utash says. "One of the programs that we have that we know will continue to be a cornerstone and be completely needed in this next era is our airframe and powerplant mechanic. Planes will need to be repaired, and I believe there’s a great urgency and a lot of people that are very bright that are working on how to create … a repair operation for Wichita, which I’ve always said, for the last 20 years, is recession proof."

Utash sees the opportunities through the crisis. But it’s perhaps less optimism than defiance against the odds — against complacency and hopelessness.

"We’re fighters — we’re pioneers. That spirit isn’t lost on any of us, I don’t think," she says. "My expectation for this city is very similar to my expectation for my institution and that is to come out of this as a leader. To come out of this with innovation and creativity and cutting-edge responses."

Broad strokes of optimism are important when looking into the future. But today’s boots-on-the-ground business realities are far from ideal.

THE ENTREPRENEURSHIP CHALLENGE

For Josh Oeding, president and CEO of NXTUS, COVID-19 has meant hard discussions with entrepreneurs who, in some cases, have had nearly all their revenue evaporate.

"It was support mode, really," he says. "And those were really, really hard decisions. I mean, those were furloughing employees. Those were canceling events."

Without cash reserves to withstand dry spells, many entrepreneurs simply can’t weather a financial standstill. And in some cases, they won’t make it through the recession.

"This recession is a job killer, and it’s a business killer in a lot of cases," Chung says. "But, as Silicon Valley has learned, recessions are amazing times to build strong businesses."

A business that can build a strong foundation during a downturn is often much stronger than the business that was built when times were good.

"You’ll see companies that never come back," Oeding says. "You’ll see jobs that never come back. You see demand in markets that’s destroyed and won’t come back. And then you’ll see some emerge as winners."

Oeding says it will likely break down into two phases. During the first phase, we’ll likely see businesses close.

You’ll see jobs that never come back. You see demand in markets that’s destroyed and won’t come back. And then you’ll see some emerge as winners.Josh Oeding

"There are businesses that are well-known businesses in town that literally saw 50 percent to 90 percent of revenue just disappear from a Monday to a Wednesday," Oeding says. "There’s nothing that you could have done other than have Apple-level cash reserves to survive."

In the second phase, things get interesting. This is likely when we’ll see new businesses build up. Some of that will happen because assets will get cheaper, and investments can be made with a higher return potential. But some of it will happen simply out of necessity for a living.

"If you’ve got a lot of great options and one of those options is to start a business … all the risk and hard work you’d have to put into starting your own business prevent you from doing it," Oeding says. "Well, some of those options may be gone now, as the economy recovers."

As of May 14, more than 36 million Americans have already filed for unemployment — far surpassing the jobless numbers from the 2008 crisis. Many of those will look for employment at established companies. But some may finally throw their hat into the entrepreneurial ring.

An opportunity also exists for larger companies to partner with these entrepreneurs and double down on innovation. With less capital to go around, the opportunity cost for innovation goes down.

"I think a lot of great companies will have these market pressures and will really cut costs and optimize," Oeding says. "And I think some of them — and we have these business leaders in our town — will maintain a view that the innovation imperative is now higher than ever."

Chung says there is a tendency to batten down the hatches during hard times. But it’s the communities and businesses that double down, find new ways to innovate and move forward that often come out on top when things turn around.

So far, Wichita’s entrepreneurial momentum doesn’t seem to be stopped completely. Oeding says Accelerate Venture Partners has closed three investments between the shutdown and late April.

NXTSTAGE, the entrepreneurial pilot competition that attracted founders from around the world, is also ongoing, although from a distance.

"Just like everybody else, we’ve executed a program virtually for the past 60 days," Oeding says. "We’ve had great engagement between our corporate partners and the startups. … The core of the program — big companies working with startups — is still a worthy cause."

Oeding says the best way Wichita can support its entrepreneurial community is to be a customer. Find local businesses to buy from and ways your company could leverage the innovation created by Wichita entrepreneurs.

This pandemic may be an end point for some companies, but not for entrepreneurship in general.

"I think generally entrepreneurs are awesome," Oeding says. "They’re forces of nature — they’re optimists. I think they’ll all tell you how this is a benefit to them even though it’s painful, because that’s just who they are. I think the majority of them know that this is pretty serious stuff, and they’re opportunistic. They’re trying to pivot."

Chung says there are likely very tough days ahead. But they represent an opportunity to evolve as a community.

THE PERCEPTION CHALLENGE

The way we respond to COVID-19 will likely impact the trajectory for years or even decades to come. In many ways, every community in the world will have to redefine themselves — discover new ways to support the people and businesses who live there.

"This recession is so deep, we’re going to be able to see which communities are strong and which ones aren’t," Chung says. "And I’m not talking about economically because every city is going to take somewhere between a 15 to 50 percent hit in Q2 [on an annualized basis]. We’re going to see what communities are fundamentally strong communities by how well they pull together, how well they get their community through this, beyond just themselves as islands on their own."

In Wichita, we tend to believe in the ideals of self-reliance and independence. And these are good ideals to foster. But in times like these, together is always stronger.

Wichita has come a long way in the past few years to fostering more togetherness. But there are still factors at play that create an uneven playing field for some. During COVID, one way we’re seeing this is in access to vital stop-gap funding for non-white entrepreneurs and small business owners.

This recession is so deep, we’re going to be able to see which communities are strong and which ones aren’t.James Chung

"Not just locally, but nationally, non-white entrepreneurs had a very difficult time in getting this stop-gap funding," Weems says. "There are some that have a very pessimistic outlook, in terms of what the future may be. … There is a fear that there will be a disproportion number of non-white businesses that will be casualties of COVID-19."

Christina Long, owner of CML Collective and the CEO of Create Campaign, says the Paycheck Protection Program (PPP) loans in particular were contingent on businesses having an existing banking relationship since the banks had to process that funding. Many in the minority entrepreneurship community didn’t necessarily have those types of relationships established.

"Having a middle man to facilitate those loan applications did not go as well for many in our community," Long says. "A lot of people looked to their stimulus funds and just tried to make due with what they had in order to cover business expenses. There was a lot of worry in the community.”

That’s why NetWork Kansas stepped in with its Restart Kansas program to help businesses get the money they need to operate with low interest and deferred payment. Long is one of more than 60 entities with access to funds that can be distributed to minority-owned businesses.

"It provided a quick, easy solution for people that needed access to up to $20,000 in funds," Long says. "That can be a game changer for those who are trying to cover for the unexpected. That in and of itself was a very appropriate, responsive approach."

While this program answers immediate needs, Long says it also sets up an opportunity to build a pool of money to continue helping minority-owned businesses in the future. Once funds are paid back through the loan program, they can be used again to help future businesses.

Through community partners including Fidelity Bank, Emprise Bank, Intrust Bank, Wichita Regional Chamber of Commerce, Evergy and more, Long says this pool can continue to grow and help businesses through this new normal.

EDITOR’S NOTE: The Chung Report is funded by the Bastians, who also own Fidelity Bank.

THE TIME IS NOW.

Every community across America and even the world are facing these same challenges. Wichita is not immune. But with that, there’s an opportunity to be better.

"Where are people going to go that’s certainly better than Wichita right now?" Weems says. "It’s not like there are pockets in America where everything is hunky-dory."

The answer to this question is largely up to us and how we react to the crisis at hand. If we react the same way we always have, we’ll remain behind comparable cities across the country.

"I think this will be an opportunity that a lot of places are going to face — to reevaluate how they want to reshape their community and reshape their economy," Dehner says. "Maybe this is going to be something that will bump us out of the groove. Maybe we’ll be a little bit more free flowing in terms of different innovative approaches. I can’t speak to that, but I think that we’re going to be like a lot of places, facing some serious challenges in our economy."

But that’s only if we can acknowledge this crisis as a catalyst for change.

Ever since Chung’s first Focus Forward presentation in 2015, he’s mentioned this idea of a crisis that pushes a community to evolve. At the time, it was a warning of what could lie at the end of the road Wichita was on. Today, that crisis is upon us.

"It seems like you have half the cities saying, ‘I guess this is a crisis. We need to do something. We need to prepare, we need to organize. We need to get things taken care of,’" says Dr. Jay Price, chair of the history department at Wichita State University. "Then there is another very significant segment of our society that thinks this is overblown and no big deal. It’s just the common cold and we need to just move on. I’m not sure we’re unified yet in how the response should even be."

If COVID-19 and the economic catastrophe that has followed is viewed in Wichita as "no big deal," our response will be equally blunted.

What if we took this time to truly change the trajectory of our city with new thinking, new priorities and a new identity?

Is now the time that Wichita gets serious? Or are we just going to say it’s the recession, we have to put it aside and effectively just wipe it off and assume that Wichita’s already lost the game?James Chung

"Is now the time that Wichita gets serious? Or are we just going to say it’s the recession, we have to put it aside and effectively just wipe it off and assume that Wichita’s already lost the game?" Chung says. "Quite frankly, I think we should ask every leader in Wichita that question, force an answer and see who’s on board and putting themselves in the game with the time and the capital. And let’s force that answer."

COVID-19 has forced all of us to live life very differently. But Dehner says pandemics always do that. Making permanent, positive changes for the sake of our city will be a great deal harder.

"People talk a lot about what’s going to change," Dehner says about pandemics in general. "Then a couple of years later, nothing really has changed — they go back to the way things worked before. I think this one is going to have a lasting impact in economic terms, and I think it would be unfortunate if we decided we were going to continue to try and get back into that same groove and hope that it recovers."

This formula was tried after 2008. It failed to make Wichita a national contender against Omaha, Des Moines, or Oklahoma City. We need a new strategy — some real change.

"This is a time to step back and ask, ‘Are we these islands on our own or can we be stronger together? Are there paths for greater good for the community, that can also be personally beneficial? Is it worth building a stronger and more prosperous and healthier Wichita? Or do we just leave it to decline further and not set up the strong recovery?’" Chung says. "It’s time to decide."

NEXT STEPS:


For a simple look at the perception challenge, check out this short video


Learn more about the Four Challenges


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