DURHAM – In a keynote address to the NC IDEA Ecosystem Summit this morning, Greg Brown, the Executive Director of the Kenan Institute of Private Enterprise, presented the latest research on the economic shock communities across the globe are experiencing due to the COVID-19 pandemic. It’s nothing positive.
“The pandemic has had really devastating consequences of physical and economic health for people all over the world,” said Brown. “We moved to identify the challenges, provide some context for the data that was coming out, and explore solutions to the unprecedented issues that we are all facing as a result of the pandemic.”
According to the research conducted by the Kenan Institute, economic activity collapsed just prior to the official statewide shutdown orders. Brown said the data—an effective leading economic indicator—suggests that individuals and families responded in this way due to the fear and uncertainty that the pandemic presented. This research, said Brown, “is the Consumer Consternation Index, the idea for which was to pull together a bunch of data series to track the ability and willingness of consumers to take non-essential business activities, or, essentially, do things away from their home.”
Brown also summarized the latest report, a collaboration between the Kenan Institute and the North Carolina CEO Leadership Forum, Seven Forces Reshaping the Economy, during the keynote address. The report aimed to summarize, cohesively, what forces are currently at play in our current economy and what factors will reshape the future economy of North Carolina.
“Why is entrepreneurship important,” posed Brown. “What does starting a new venture mean?”
Entrepreneurship is a very inefficient process, said Brown, noting that new companies do not enjoy the benefit of economies of scale while simultaneously bearing the burden of high-priced, upfront fixed costs.
“Entrepreneurs say that they spend a lot of time doing tasks that are not related to their core business model,” said Brown. “The natural question, is, then, why don’t we have entrepreneurial efforts that don’t have to bear all of these frictions and deadweight costs?”
The answer, according to Brown, is that innovation is a key aspect of entrepreneurship, and based on the data, innovation seems to happen better with smaller, newer entrepreneurial activities. “There are big gains that come from entrepreneurial processes, even when it is messy,” said Brown. “Innovation is most important not when the economy is humming along and everything is hunky-dory, it’s most important when there is some shock that disrupts the economy, that disrupts business.”
That shock can be the innovation itself, as with the rise of the Internet, but often the shock is external, like a global pandemic. And, in 2020, said Brown, there are a variety of factors that are shocking our systems and structures, even beyond the pandemic.
When there is shock, there is also opportunity, though, said Brown, “any entrepreneur or small business in an industry negatively affected by the disruption, particularly the pandemic, is having significant challenges, and possibly a devastating shock to their business and their families.”
7 factors reshaping economy
That’s why the collaborative report tracked seven factors that are reshaping our economy right now and that present opportunity for disruption and innovation for our future. They are:
Changes in work, travel and migration patterns—“One of the lessons out of this that surprised a lot of people is that the technology, like what we’re using right now, has proven to be very effective for us, and that jobs can be done remotely,” said Brown.
Accelerating shifts toward on-demand and at-home retail—“The opportunity for entrepreneurs is that there is clear evidence that consumers are shopping for high-end, locally-sourced, more unique goods, so there will be more opportunities for specialty goods and unique items, and North Carolina is especially attuned to this,” said Brown.
Onshoring and widening of supply chains—“Supply chains require a lot of suppliers, so there are a lot of opportunities for smaller businesses to grow in the expansion and widening of onshoring supply chains,” said Brown, highlighting the unused or underused manufacturing facilities in the Triad region of North Carolina as a potential site of growth.
Renewed focus on diversity and dismantling systemic racism—“Anchor institutions, which have a large footprint in their local economies, can have particular import throughout their region, for example, by shifting procurement to areas and businesses that are particularly impacted by the COVID pandemic,” said Brown.
Upending of education and childcare—“Education technology is going to be a differentiator, and investment in these newer platforms will provide better student experiences and command a premium in the market,” said Brown.
Shocks to health care and pharmaceutical demand—“North Carolina is already in a strong position to capitalize on renewed interest in vaccine development and production,” reads the report.
Risk reassessment by capital providers—“The large financial services industry in North Carolina provides an opportunity for growth in asset management, credit, and equity intermediation, and other financial services in the lower middle market—not just in the state, but nationally,” reads the report. Brown highlighted the success of firms like Live Oak Bank, nCino, AvidXchange, and the growing fintech ecosystem in Charlotte, noting that these firms demonstrate North Carolina’s position as a national leader in financial innovation.