Can 'Creative Destruction' Work During a Pandemic?

he was eight years on finally making progress. But COVID nineteen is turning the clock back for women in Japan, just as it is in many other countries. We'll have more from economy reporter Yuko Takeo in a few minutes, but first I wanted to have a brief chat about creative destruction, the bold economic experiment, which always sounds like a brilliant idea just as long as it's happening to

someone else. Now, some of you will know the phrase creative destruction was made popular by the Austrian economist Joseph Schumpeter. The idea is that great things can come from disaster, and government shouldn't stand in the way of that process by rescuing firms that would otherwise go bust. As I say, tends to be really popular with everyone except policymakers who are right in the thick of a crisis and companies

that are themselves about to go bust. But it has taken on particular resonance in the COVID crisis because we just don't know how much of the economic destruction we're seeing might be creative in the end, and how much government should be doing all they can to avoid. US Federal Reserve reporter Rich Miller has been thinking hard about this, and he wrote an interesting piece for Bloomberg with France economy reporter William Horrobin about the potential differences between the

US and Europe in this area. He's with me now to discuss it with Eurozone economist may for Kusa. Welcome both of you, and thanks for joining me. Rich. I guess you should just explain the premise of your piece, what are you setting out to talk about, and and and maybe just give us a glimpse of the conclusions that you drew. Sure, thank you for having me um. The US traditionally has been seen as being better able than Europe to re orient its economy after recessions it's

it's got two advantages. One on the labor market, it's easier for companies here to fireworkers. And then two on the sort of going bust. The bankruptcy courts here tend to be friendlier to entrepreneurs, so it's easier to go bust and then come back and start restart a new business. So as a result, most economists see see the US as having a leg up in the in the creative

descruption business eiso to speak. But as you as you alluded to, you know, this crisis is uh, you know, perhaps like no other in the side of the speed and the severity and maybe even more important than tremendous uncertainty. So we don't really know, uh, we never know completely.

But but even more so now it's hard to know whether you know, if a firm goes bus now, is it viable in the longer term and is it just sort of going bust because we have a temporary collapse and demand due to COVID And if you know six months from now, you that Vietnamese restaurant on the corner would be a viable enterprise once we get a vaccine. And that's the conundrum that the policymakers are grappling with do you think I mean, may just just turning to you,

would you recognize this contrast between US and Europe. I mean, we definitely tend to think that it's easier to fail and start again in the US. Um, you can go bankrupt certainly more easily. Do people worry about that in the current context, that it's not going to be easy enough for people to fail and then reinvent themselves coming out of this. Yes, I think that was one of

the reasons. I think the cost associated with recreating existing businesses, existing job relations relationships and matching between the workers and the vacancies is higher in Europe generally, so it made more sense to try and protect those relationships and those businesses as much as possible so that the this reset up cost could be could be lowered and could be avoided.

There's more tape, there's this problem of restrictriation which is not as smooth, and there are different attitudes from the public as well on the role of government and how much government should protect people against the economic risks and economic hazards. So I think all that together meant that there was both a lot of um, some economic sense in prodicting, in protecting more, and a lot of political

wadingness to protect more. So yes, I think different, very different setups could explain some of the different emergency reaction to the crisis. But I guess I mean, rich of you look at how the US has responded to this crisis. They have in a sense tried to make the US sort of less American in the sense of, you know, try and reduce the number of bankruptcies and reduced this kind of destruction, maybe out of fear that it's it's

not so creative. I mean, how how much of a contrast is there and things like bankruptcy is relative to pass recessions at least so far, um well, so far on the bankruptcy for the bankruptcy filings are actually down about eleven percent, you know, a year over year, and and that is generally ascribed to you know, all the programs and all the huge trillions of dollars that the government is pumping in not only for consumers but but but also to give so that they have money to

go and spend at these companies, but also for the companies. Just so just to be clear, there's fewer companies than normal I mean than a year ago, are actually going bust even though we have this historic recession thus far. I mean, you know, we have a big question mark now over what comes next one when the stimulus that this huge amount of stimulus has put into the economy. You know, there's a big question mark here in the States about how much of that, how much more the

US is going to put in. I guess there's also a question in Europe to about that. But uh, and there's a fear that you will see bankruptcy and even in a normal recession, bankruptcy filings go up by about fift that's in a normal recession. And the fear is that if you had sort of let unbridled creative destruction go, you you would have got clogged I mean really on bankruptcy courts, and that would would also hurt the economy. Maybe. How do you think that European governments are grappling with

this dilemma? It strikes me we're at a different stage of the crisis now when it comes to the economic response. You're not just trying to fill the whole. I think we've talked about it in the past. You know, you look at the hit to incomes that you think is coming from the virus, and you're just trying to match it to get money to households to try and keep

the economy afloat. But now are at a point where you're trying to encourage growth and also perhaps encourage businesses to adjust to a situation where we still have social distancing, where we haven't got rid of the virus. Have we seen that affect the programs that people are or how

long programs last? I mean, certainly in the UK recently there's been an ongoing debate about how long that furlough scheme, that John Protection scheme last, and actually it's supposed to still expire in October, even though a lot of companies feel that they will still need support from the government in October and will probably have to lay people off if it's not if their wages aren't going to be paid by the government. How is that trade off being

managed in Europe? In other parts of Europe, yes, we are starting to see some shifts from protection to something that is maybe a bit closer to re allocation or

thinking about re allocation. So if you take the case of hunts, for instance, the program the Fellow scheme has been made a bit less generous for employers already and starting from October it will be made less generous for both employers and employees, so that employers are encouraged to decide what they want to do with their workforce, either they take them back or they actually decide that they may not need as many people as they used as

much stuff as they had before. But also if the program is less generous, and it used to be at the moment, it's a bit more general that unemployed and benefits, So if it becomes less generous than unemployment benefits, then it creates an incentive for people to start looking like becoming an employed and looking for a new job that they may not have had with those very generous schemes. So we are seeing that altho, clearly they are still

maintaining self safe some safeguards. So in France it will be possible for employers to negotiate with unions and the administration to have a longer term plan where they can stay on this more generous scheme. But for that they will have to have a plan on how they see the development unemployment, how quickly they will bring back bring back people. Do they need to ra structure, do they train people for new jobs and things like that. So

this is a progressive, gradual shift. But that's going that's going on in Spain, for instance, they are playing more with the incentives. So if you are starting to bring back more workers, then it's more like a wage. They're thinking about wage subsidies, so going from retention schemes to which subsidies. If you start bringing back more workers, then you will pay less of um social contributions for the

entire workforce and things like that. So it's a it's a it's a difficult balance they have to strike because they have invested that bit a lot of money on this and now they want to make sure that actually they don't um lose everything by removing support. But they are playing by the year and they are moving step

based step depending on the evolution of the situation. But how do you think, I mean, overall, do you think they're still at the stage where they're going to air on the side of protecting too many jobs or you know, if you're looking down the track and thinking what it could be twelve months that the economy is operating seriously blow potential and a lot of these businesses are not viable in that environment where we still have COVID nineteen.

Do you think they should still air on the side of protecting jobs or should they be thinking a bit more about how to help people reinvent themselves. I think they will. They are clearly waiting for the summer to see. Uh and the tourism question is is a big one and it's a big unknown, So I think they are really waiting to see. These schemes are expensive. I think they will probably keep a lot of protection initially, especially if they have some hope that those jobs will become

vailable in the near future. UM it was the main limit to that, I think in their view will be the cost rather than the risk of impedding creative creative destruction. But I think they will air on the side of custion. Now, Rich, I'm going to give the give the last word to you because I know how many, many many years that

you've been covering the US economy. Thank you very much, thinking thin and I wonder, I mean it was it's been such an extraordinary amount of support coming out of the federal government, a lot more than we had in the global financial crisis, which itself was considered to be a pretty big US fiscal stimulus. Do you do you see that the support for that evaporating quite soon? Do

you see it as a temporary thing. Do you think we are going to see America sort of shift back to a more sort of an ethos that favors creative destruction or will we see that same kind of balance that maybe's talking about people actually wanting to protect rather than have companies go to the war. Yeah, difficult question, and obviously with an election coming up that would also

affect it. But um, I think there would There would still probably be more I think in the short term, and I think maybe is rightly that they will the emphasis will be on protection, though maybe perhaps in the in the in the longer term it might be more on reinvention. But there's a lot of moving parts going on, and the US is both Republicans and Democrats are moving arguably towards in a little bit more of the direction of industrial policy type, and that is not necessarily creative destruction.

That's government sort of playing a bigger hand. Uh So, But I would I would think that that the US ethos is still towards more reinvention than protection, and that would probably you know, um went out so to speak, in the longer run, I guess one of us. So I was just thinking one of the other question one might have is whether the US has gone a bit soft.

You know, we've heard a lot of talk about big tech giants kind of dominating certain companies and they're being a lot less competition and maybe less creative destruction in those sectors. We've there's the the mobility numbers have gone down, so people seem to be less willing now to change to move across the country for a job as maybe they used to in the pose used to associate that

with American workers. So is that is there is there an element of that rich that maybe it was never was not really as creatively destructive environment in the US and hasn't been for quite a long time. Well, I think that there's definitely an element, and that that they know that the differences between the two regions maybe maybe less.

Then it's sort of commonly portrayed. And if the Democrats win, you'll you'll have you know, an emphasis more on worker rights, more on union power, which will tend to look a little bit more like the European model and not anywhere near like that, but it would be moving in that direction. So the gaps between m hm us and Europe narrowing, and not just on this podcast. But thank you very much, Rich Miller and Vakuza. Thank you, Thank you m h

Now that story I promised you. From Japan, here's economy reporter Yuko Takeo speaking from a special location in Tokyo. COVID nineteen has turned two thousand and twenty into a year postperments, and Japan is no exception. I'm here outside Tokyo's Olympic Stadium, where thousands of visitors from around the world should have been enjoying the now postponed games and

cheering on the country's medal hopes. But even without the virus, there's one goal Japan's male dominated society never looked like achieving this year, filling leadership positions for women. Back in February, I've met fifty year old aspiring politician Multiple Missing at an event in the area of Customer Gazipi, the heartland of Japanese politics, whose name roughly translates to the gated

miss organized by the Academy for Gender Parity. Two female and Peace were speaking there about some of the ups and downs they faced in the high stressed world of Japanese politics. Later, Momuticle also taught me about some of the gender disparities that possist. If you're a man going into politics, often there's a positively you go kind of push for them. Their wife often helps them, and the

manpower at least doubles. But when a woman like me tries to do the same thing, everyone says, don't do it. Unless political parties decide they want to increase the number of women, it doesn't really. According to the World Economic Forum's latest rankings of gender based disparity in things like economic participation, health, education, and political empowerment, Japan ranks a hundred and twenty first in the world. That's below the

United Arab Emirates and Sierra Leone. Only ten percent of Lower House MPs are women unless than one percent of CEO is a companies listed on Japan's stock exchange. Our female that hasn't stopped prime ministicians areb from ruling the government's progress, especially in the jobs market. The women's labor participation rate has dramatically increased under abets tenure. Still, the coronavirus has a wound. Some of these games, revealing the

fragility of progress. In April, the number of working women fell for the first time in more than eight years.

This is an only a japan story. Around the world, the pandemic has hit women harder because they are more likely to work part time or beyond short and contracts, and they often work in sectors like tourism and hospitality, which have been worse out back in Marge I talked forty eight year old Nick Orson, one of the more than three million women who joined the workforce under Abbey's tenure.

She started working part time at a local bakery two years ago after her youngest sons started school can keep. I thought it would give me a change of scenery and we would need the money going ahead. My eldest is starting middle school, so we would need money for a cram school. There's fees are expensive, so our outgoings

are going to get larger. My younger son is doing more extra curricular activities as well, and these extra expenses of the two kids are a big way on our household budget, and the ro looked at what's going play. Fast forward two months and the Yokohama resident is no longer an example of progress under Albe. Instead, she's one of more than three hundred thousand women who lost their jobs in April and May. That was during Japan's state of emergency, when people were urged to stay home and

work from home as much as possible. When does things of the emergency was announced that bakery was temporarily closed. We were supposed to go back once the emergency was lifted, but without any revenue, the bakery, like many others, wasn't able to open again without a downsizing. The bakery disclosure cave as a shock, but really goes looking for new part time work, and she's happy that her two sons

can now go to school again. When the pandemic prompted school closures, the building of more childcare fell on women more than men. All that mirror developments in other nations across the world. Women in Japan were already carrying a higher burden than in other advanced For colomies one couples with young children, Japanese wife's spent six times the amount of hours in child care and health work than the husband's. In the US, France and Germany, the ratio is roughly

only double. Nichols says she's happy to have been able to watch her son's grow up, but she's also had to basically be a single parent for years when her husband's job first took him to Shanghai than another prefecture in Japan. Was toughest. When I like to say, my parents don't live that close, so there was no one I could rely on. The first year after my husband moved to China, I was really sick and my youngest

was about one year old. That was the toughest time, and it was difficult that my husband wasn't there when I was ill, but in a different part of Japan. Multiple the women I've met at the politicians event back in February, it's been trying to represent people like Rumical. That's a tough route given Japan's female representation in parliament rights a hundred and thirty five in the world according

to the World Economic Forum. Multiple built her career in the field of aerospace, and she beams when she talks about space. She worked at Jackson, Japan's version of NASA for nearly three decades, and it's planning on running for the next lower House elections. But as a working mother who has no previous choice of politics, she says it's not an easy ride. Yeah. In Japan, it's difficult to enter politics unless you have a political family, fame, or money.

Right now, it's mostly men in this world, so unless there's a major support, you can't step in. Another challenge is balancing it with everything else all the moments. I'm running for office despite being a single mother, so of course people have a lot of opinions. I've worried a lot over that. But my conclusion is that I can't bear to hand over Japan as it is to my children and their generation. I can't stand it when I pass it over to the next generation. I want to

be able to do it with confidence. I don't want to say I'm sorry, Japan is in this state. Please do your best with it. Took your governor Urico procle one re election earlier this month in a race which faced twenty one challenges, but while she has gone it praised for her faster response to the pandemic than the other administration. She's one of only two female leaders in Japan's forty seven prefectures. Caffee Matson, vice chair of Golden SAX Japan, coined the term women no Mix back in

she has normally. The commic argument to boost the female representation in both the public and corporates is so based on our analysis, if you could close Japan's gender employment gap and encourage were women to work full time as well as the part time, you could live Japanese GDP

by as much as fifteent, which is huge. Aspiring politician Motorco argues that more women in parliament will also have a host of positives policy making that's more in hune with normal people's lives, better representation of women's concerns, and more innovation through diversity. What decides the core of Japan's future is politics. I finally realized this at nearly fifty, after I'd lived for five decades. But if I'd realized this when I was younger, maybe I would have taken

that past sonn probl B News. I'm Muko Teco. Thanks for listening to Stephanomics. We'll be back next week with more on how COVID nineteen is transforming the global economy. Remember you can always find us on the Bloomberg terminal, website, app or wherever you get your podcasts. And for more news and analysis from Bloomberg Economics, follow at Economics on Twitter. This episode was produced by Magnus Hendrickson, with special thanks to Rich Miller, Mava Kusin, William Horrbin, and Paul Jackson

in Tokyo. Lucy Meekin is the acting executive producer of Stephanomics and the head of Bloomberg podcast is Francesca Levy.