Lessons from the Great Recession we can apply to the pandemic
Beginning in March 2020, the coronavirus pandemic pushed the US economy into recession. The last recession, which began in 2008 and is often dubbed the Great Recession for its depth and duration, is still fresh in a lot of people’s minds. But did we learn anything from the last recession that we can apply to help us through this one? And what can we learn from this one to be better prepared for the next one?
What is a recession?
The economy goes through cycles of expansion and contraction, depending on a lot of different factors. When the gross domestic product (GDP) declines two quarters in a row, most economists consider the country to be in recession. There are other indicators as well, such as interest rates and unemployment, but GDP decline is the bellwether.
Recessions can result from a combination of different factors. The Great Recession, for example, was caused by questionable lending practices, specifically in mortgage backed securities, which resulted in a collapse of the overheated housing market. (For context, watch the movie “The Big Short.”) The previous recession, in 2000, was a result of excessive valuations of technology companies.
The current recession was caused by the coronavirus pandemic, so it’s a little different than other recent recessions. But we can still apply lessons learned from the last recession to this one.
What did we learn from the Great Recession?
The Great Recession was, at the time, the most serious economic contraction since the Great Depression of the 1930s. Hindsight being what it is, we can look back and see what went wrong and what we should do going forward.
Much of the misery that came out of the Great Recession was due to the investment and lending practices of the big banks. A lot of investors put all their eggs in one basket, thinking they could make big money from mortgage-backed securities and other risky assets. We learned that betting it all on one type of investment doesn’t usually work.
This recession is different, but the lesson still holds true. Businesses have had to look at new products and services and different ways of delivering those offerings. From restaurant delivery to curbside pickup for department stores to online Zumba classes, businesses have had to diversify in many ways.
Government assistance is necessary
As much as business owners like to rely on their own efforts for their success, there are times when you have to accept a helping hand. In both the last recession and this one, the government has acted to support those who need it most with cash infusions and low-interest loans. Taking advantage of these programs may be the solution to surviving the recession.
Big businesses and small businesses are different
You already knew this, but the last two recessions certainly bear this out. In the Great Recession, a lot of attention was paid to big business, including big banks. They got a lot of stimulus and the expectation was that this would help them recover faster and start hiring again.
This time around, much of the focus has been on shoring up small businesses. The Paycheck Protection Program and the Main Street Lending Program have been implemented to help small businesses retain employees and stay in business.
The Great Recession lasted 18 months, making it the longest downturn since World War II. We don’t yet know how long this recession will last, but if it’s shorter – even given its depth – that would indicate that small businesses may play a greater role in the country’s economic health than previously thought.
What will we learn from this recession?
It may be difficult to look beyond this recession, but doing so will help us through the next one. And the best time to apply the lessons learned from a previous recession is before the next one hits.
Act quickly and decisively
The current recession came in hard and fast. The pandemic shut down many businesses and left owners reeling. The lesson here is to act quickly and decisively when there is a crisis. Those businesses that shifted early on to an online delivery model, for example, may have found they could retain most, if not all, of their customers.
“Every time there is a crisis, there is an opportunity for innovation,” said Virendra Chhikara, director of the Small Business Development Center at the University of Louisiana. He notes that SBDC locations nationwide provide resources for small businesses at every stage.
Business owners should keep in mind that as they’re pivoting their businesses to cope with the current conditions, there is always room for growth even when it seems unlikely. In fact, many successful businesses came out of economic downturns like the Great Recession.
Borrowing is necessary for many businesses and can be an integral part of your growth strategy. Just make sure that you don’t borrow so much during the good times that you’re struggling to pay it back when times get tougher. Review your loans and credit terms periodically to see if you can refinance at lower rates.
Be ready to rehire
Unemployment is one of the indicators of a recession, and rising employment indicates a recovery. Once the economic corner is turned, you’ll want to be in a position to ramp up your staff quickly. Understand your staffing needs, given any changes you’ve made in your business during the recession, and think about the characteristics you want in your employees, based on what you’ve learned in the recent past.
Be sure to take the necessary steps to protect your business against other risks as well with small business insurance.