The fallacy of the broken window, the bars and the coronavirus
Some say that emerging sectors are emerging with the coronavirus. But, on the other hand, we are destroying one that has been generating wealth and employment for decades, the hotelier or restaurateur. Perhaps the solution is to save him to help us when this is over. The fallacy of the broken window is current.
In 1850 Frederic Bastiat wrote an essay in which he explained the fallacy of the broken window. In it he showed that, in economics, the most damaging thing is what is not seen. Today, with this COVID-19 we should remember her. The hospitality sector will be affected by this situation and it is very important in much of the world. Spain and Italy are clear examples. For these reasons, serious studies should be carried out to allow him to recover as soon as possible. It is urgent.
The fallacy of the broken window. The new sectors and the hospitality industry
Let's briefly explain the famous fallacy. Imagine that in a fictional society a child breaks the glass of a business. Quickly, a series of experts are launched to promulgate the benefits of this act. The merchant must buy another and that will benefit the glazier, production, employment and economic growth. But Bastiat explained that in economics the most damaging effect is the one that is not seen ...
This French legislator and economist gave the example of that tailor from whom the merchant could not buy a new suit. The money, which is a very rare commodity, was to be used to fix the window. This was more urgent. However, the positive effect on that tailor could have been much greater than that of the glazier, since it did not start from a previous destruction. Ultimately, it is most likely that society (as a whole) would have had a loss, specifically the value of a broken window. Useless destruction is never a profit.
The new emerging sectors, the glazier
At the dawn of this coronavirus epidemic, sectors such as technology are experiencing unprecedented growth. Virtual relationships have grown in importance, surpassing the forecasts that existed before this crisis. On a personal level, video conferencing is frequently used due to quarantine. In the labor relationship, teleworking or telemedicine is spoken of as systems that have come to stay.
Therefore, it seems that these companies will end up benefiting from this situation. Of course, those that allow online purchases or manage food delivery services would also be included. The big companies in food distribution cannot be absent. Among others we have Amazon, Uber Eats, Alibaba, Carrefour ... Interestingly, we see that practically all are large multinational corporations.
Continuing with the fallacy explained by Bastiat, these would be the glaziers. This part of your sales comes from an accident. A virus (COVID-19) has broken a window and it must be fixed, because in this case they are human lives and that comes first. These big winners, of course, are generating a lot of jobs and wealth today. It doesn't seem so bad does it? It would not be if there was money for everyone and it is not the case.
The hospitality sector, the tailor
The hospitality sector accounts for slightly more than 7% of GDP and the same percentage of employment in Spain. In Mexico it contributes 2% of GDP and generates more than 800,000 jobs. In Colombia they reach one million people employed. It is not only leisure, it is above all and above all wealth and employment. In addition, an important part of this job is unskilled, which means that it would be very difficult to find alternatives for those who are left unemployed.
We show the average annual expenditure on restaurants and hotels per household in Spain. Remember that a dollar is 0.91 euros. We see that even in the recession (2008-2013), where the variation rates were negative, its minimum stood at just over 2,000 euros per year. Its maximum was more than 3,000 euros. The trend, yes, is decreasing and that highlights the delicate situation of the sector. We also include the added value that this sector generates in Argentina. In this case, the trend seems to be increasing, although it stabilizes as of 2016. Both are two clear examples of the importance of bars.
In addition, in Mexico, Francisco Fernández Alonso considers that catering establishments have lost up to 90% of their profits and 50,000 stores and 280,000 workers are in danger. This man is president of the National Chamber of the Restaurant and Seasoned Food Industry (Canirac). He knows what he's talking about.
Even an emblematic company in Mexico, the Modelo group and its Corona beer, is suffering the consequences of this virus. In addition, this golden liquid is a drink widely consumed throughout the world and is a very reliable indicator of the evolution of the restaurant sector. In Spain, the association of the companies that make it has warned that 67% of the demand comes from bars. We can extrapolate it to other countries and we will have a global idea of the problem.
All this is aggravated because these establishments are closely related to tourism. This is another engine in the economy of the countries mentioned. This last graph shows the total spending of international visitors in Mexico. It can be seen that, although it has a slight downward slope in the period studied, it is more than significant. Also, very necessary in the economy of this country.
But there is more, gastronomic or oenological tourism (Spain, Italy, France and even Chile) were seeing years of hope arrive. At last it seemed that the 2008 crisis had been left behind. That is why it is necessary to look for alternatives that allow them to survive in a situation that is destroying them. Because they can be the ones who end up helping us others. In fact, they have been doing it for decades and not only because of the good times we spend in them.
Economics can help you see what you don't see
The economy is the great forgotten in the educational system. In fact, it is one of the reasons for being of Economipedia. Many continue to believe that the State can give the "money-making machine" in an unlimited way and that we come first. However, that debt ends up being paid with more unemployment, less benefits. more poverty and this will not help to get ahead. Furthermore, crises generate human dramas, let's not forget. No other suits us.
This coronavirus (because there have been others), called COVID-19, has put us in a difficult position. Should we invest in technology and "Internet" for all "or dedicate efforts to help hospitality establishments? Should we take advantage of the occasion to launch that "Green Deal" or green pact that Europe proposes and thus take the opportunity to "stop" this massive tourism that is doing so much damage to the environment?
There are sectors that are making money for an epidemic that will pass. But we do not know if that wealth is here to stay or is a bubble that will deflate later. The restaurant sector can bring new wealth and employment. As in the fallacy of the broken window, the other, the glazier makes his profit from a previous destruction, but not the tailor. Shouldn't we also worry about the latter?