Is the Covid-19 a white swan, a grey swan or a black swan? The answer portends the amount of disruption we could see, post-Covid.
A “white swan” event that is one that could have rationally been expected to happen at some time, and has major effects. If Covid-19 was a white swan, the world will not be disrupted as much as many expect. Essentially, change will happen without expected and “normal” statistical ranges. In other words, Covid will have about as much impact as a normal recession.
White swans are said to have relatively few negative implications, impacting the life of one or a group of people rather than the entire globe.
Grey swans--neither a completely unexpected black swan nor a predictable white swan--can be devastating for many, and can have radically unsettling implications. To be sure, black swan or grey swan events can be positive, not just negative, though the most common outcome is a negative impact.
The main difference between a grey swan and a black swan event is that one is known about beforehand, while the other takes us completely by surprise. But the bottom line is that a grey swan event can still be disruptive and devastating.
If Covid-19 was a grey swan, we might see unexpectedly large outcomes, in terms of change.
A true black swan event is typically expected to have disruptive implications. Black swans are outliers, events that are outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility.
Climate change, population growth or rising debt levels could be grey swans. Long-term water shortages could be a grey swan.
Black swans typically have “extreme” or “massive” impact, exposing fragility in ideas or practices that had underpinned “normalcy.” Many would consider the personal computer and the internet as examples of black swans.
Keep in mind that highly-disruptive events can still be white swans. Some consider the internet bubble burst of 2001 and the Great Recession of 2008 to be white swans. If that is the test, a grey swan or black swan would have unimaginable consequences.
Others might consider the 2001 internet bubble burst a white swan, but the Great Recession of 2008 a black swan. World War I, World War II, the fall of the Soviet Union, the rise of Islamic fundamentalists, 9/11 and the internet might be called by some black swan events.
Others might consider the Great Depression and World War II as a single black swan event. Some consider the sinking of the Titanic a black swan event. Others might consider larger events, such as the Spanish defeat of the Aztecs, to be black swan events.
The point of black or grey swan events is not “how to prevent them.” By definition, they cannot be predicted or prevented. But organizations can try and create robustness for their occurrence.
Small businesses, sadly, almost by definition cannot create much robustness.
Many businesses--large and small--will survive or die based on when economic activity can be resumed on a “normal” basis. A survey of U.S. respondents taken mostly in January 2021 suggests most believe it will be six months until they feel comfortable attending large public events.
A plurality say it will be six months until they are comfortable taking a vacation. Other life sustaining activities--such as going to work--are largely believed safe now. A majority of respondents feel safe shopping in retail stores now. Less than half are comfortable eating at a restaurant.
If these attitudes do not change, many restaurants and travel-related businesses will not be in business by the end of 2021. Failures in many OECD countries will eliminate more than three percent of jobs.
The number of active business owners in the United States plummeted by 3.3 million or 22 percent in just two months from February to April 2020. The drop in active business owners was the largest on record, according to the National Institutes of Health.
By December 2020, 42 percent of small businesses surveyed on Alignable said they were in danger of going out of business. By the fall of 2020, at least 49 percent of businesses reported they were unprofitable. Some 18 percent were operating at about breakeven levels.
It almost does not matter whether economic shutdowns and travel bans are classified as white, grey or black swans. For small businesses, they have the impact of a black swan, even if other segments of the economy will not be so affected.
It remains unclear whether Covid will prove a black swan for cruise lines, retailing, the travel industry, airlines, entertainment or real estate. As with small businesses, Covid might well turn out to have black swan impact on some industries.
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