Keeping away from K

Pundits argue over whether our recovery from the pandemic-induced recession will have an L, U, V, or W shape, describing the graph showing how the economy would rise up again after lockdowns killed millions of jobs. When I wrote about it months ago (“LUV after COVID-19,” 4/24/20), I expected it to look more like a U, possibly with an extended bottom. An Ateneo colleague calls it a “swoosh” recovery, shaped in the logo of a popular sports brand.

But another letter has joined this alphabet soup of recovery shapes, and it’s the letter K. A K-shaped recovery, explains James Chen in a recent Investopedia article, occurs when different parts of the economy recover from a recession at different rates, times, or magnitudes. It shows the performance of different parts of the economy diverging like the arms of the letter K, with some parts seeing strong growth while others continue to decline. While the other letter-shaped descriptors refer to the overall economy, the K shape highlights how certain sectors or groups bounce back, while others keep falling.

Signs of a K-shaped divergence in recovery prospects are already evident. I’ve heard firsthand accounts from firms that actually did better and saw even faster growth as the pandemic raged than before it started. One is in the business of manufacturing and trading processed food products; another is in the health care business, operating clinics. Both report earnings exceeding their pre-COVID-19 targets. This is no surprise, of course, being in industries that naturally continued to be active under quarantine, as the need for food products and health care never abated, and even increased.

Data on household consumer spending, which in the aggregate plummeted 7.8 percent in the first semester and 15.5 percent in the second quarter, report exceptionally increased spending on communication, utilities, food, and other essential goods. Consistent with this, the big stock market gainers were large firms in telecommunications, food retail, and power generation, while the rest all fell in value. The same is reflected in the GDP data showing strong positive growth of 6.6 and 6.8 percent in information and communication services and in financial services, respectively, while other services saw deep declines. Agriculture, the only other major sector growing through the pandemic, grew by a much more modest 1.6 percent (though impressive under the circumstances). The rising arm of the K-curve, then, describes the fortunes of technology-based industries, online retail, and financial services. Prominent on the downward arm are travel and tourism, entertainment, and food services, all immobilized during the lockdowns, and still facing a bleak outlook for some time to come.

The K-shaped recovery curve is also sometimes used to depict the divide between professionals and managers on the upward trajectory, while common workers in unskilled and semi-skilled jobs face continuing decline. In its most general use, the rising branch of the K represents the trajectory of the haves, and the falling branch that of the have-nots in society. A disturbing development that could be signaling this are recent reports that high-end luxury condo units dominate most recent sales in the property market. The United Nations and the World Bank already warn of rising global inequality and widening societal gaps in the wake of COVID-19, unless governments deliberately undertake measures to forestall the K effect. This means moving to address the forces that bring it about.

In education, the digital divide, or differential access to internet connectivity, is drawing a line between students who can resume learning in a now prominently digital delivery system, and the poor who cannot. Meanwhile, rising hunger among the economically displaced, now reported by the Social Weather Stations to afflict nearly one in every three Filipino families, further impairs the ability of the poor to raise their human capital and capacity to earn. This disparity in access to health and education is a formula for undesired social distancing that could well risk social upheaval.

Now, then, is the time to move to avert the K curve.

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