Investment guru Mohamed El-Erian warns that small-business devastation during the coronavirus crisis threatens the existence of capitalism in the United States.
“If you want capitalism to be sustained, you need buy-in from a lot of people. You cannot get buy-in if it’s all about large corporations,” the chief economic adviser at Allianz told CNBC.
“Remember what small businesses do. They’re not just large employers, they also are the main way to have inclusive capitalism, an inclusive market-based system,” said El-Erian, also a Bloomberg Opinion columnist and Newsmax Finance Insider.
As of Aug. 11, there are about 155,000 total business closures reported on Yelp since March 1, CNBC reported, citing the reviews company’s data. About 91,000 of the closures, or 59%, are permanent.
El-Erian, former CEO of investment powerhouse Pimco, also warned about the divergence in companies’ ability to issue debt, CNBC said.
“If you’re an investment-grade issuer, you’ve been able to issue $1.4 trillion, a record for a year,” he said. “We’ve hit in 2020 in just eight months, at record-low yields.” However, he added that “if you’re a small business, the Fed numbers show you that bank[s] have tightened lending conditions on you.”
“I’m really worried. This dispersion may be good for the stock market, may be good for national champions, but will have huge economic and social implications down the road,” he said.
About 2.7 million job losses in the U.S. can be attributed to shuttered small businesses since the start of the pandemic, or about 18% of the total, according to a Goldman Sachs Group Inc. study that found that those firms have been surprisingly resilient so far.
The report shows that the majority of employees let go in early temporary closures are now back at work, Bloomberg reported.
The job losses from small-business closings as of July are down from a peak of 10.7 million as of April, suggesting reopenings helped propel the better-than-expected employment reports of recent months. One caveat: active small businesses probably cut jobs as well, so the overall effects of the pandemic on employment are probably much higher, according to the Aug. 16 report.
Among optimistic economic signs is an all-time high in business formations filed with the IRS, including so-called high-propensity applications that are likely to lead to new wage-paying businesses, according to the report. Most small businesses that responded to a July U.S. Chamber of Commerce survey reported being able to sustain operations for at least another six months without permanently closing.
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