History proves that human fate consists of intertwining sequences of events that compose an all-time transforming entirety. Dynamic changes have often led to complete revaluations of existing paradigms on which societies were based. The ever-changing reality does not bypass the economy, which, in fact, faithfully reflects the various turbulence encountered by humanity.
Recessions and depressions caused by economic crises are natural parts of the economic cycle. Yet, it is rare to hear that any country is ready for the collapse of its markets.
Word "crisis" originates from the Greek language, where it originally meant a breakthrough, a solstice, or a turning point. The essence of the economic crisis is a sudden change in the prevailing situation. Sudden rise in unemployment, a massive drop in production, the collapse of stock exchange rates make up just several of the numerous pessimistic symptoms of this phenomenon. It's an extremely complex process, both from the perspective of its causes, course, and its effects, haunting the economy and society for years.
Economic literature honors us with many definitions of the crisis. At the outset, however, it is essential to note that the modern economy takes place in monetary conditions. There are particularly close correlations between crises in the real economic sphere (production, investments, employment) and crises in the financial area (currency, budget, or payment). Despite such close ties, a distinction line should be drawn between the economic crisis and the financial crisis.
The dramatic collapse of the economy abounds in a variety of adverse social-economic effects. One of the first associations that comes to mind when we hear the term 'economic crisis' is unemployment. Destruction of capital, investment stoppages, and inflation are all among the drastic consequences of the crises. Moreover, market turmoil and public anxiety can plague societies even for years after the economic disaster. As you can see, the multitude of negative consequences leaves little illusions: there is nothing irrational about the perception of economic crisis through the prism of its destructiveness. But is the statement that every cloud has a silver lining applicable in this case?
It is not without the reason that Eckhart Tolle used to say: "in every crisis, there is a hidden chance." We should bear in mind that crises can also have numerous positive consequences. Those effects do not have to outweigh the damage to the economy and society, to have a long-term positive impact. The most critical outcomes of economic collapses form two main groups: lessons for future policymakers, entrepreneurs and regular citizens, and opportunities arising from the ground of significant changes.
First and foremost, one of the biggest benefits of economic crises is a significant clean-up of the market. After the turmoil, only the most durable players, whose businesses are run properly and based on stable foundations, remain in the market. Later they can contribute significantly to the process of rebuilding the economy and restoring its future stability. On the other hand, companies based on excessive debt or considerable leverage must suspend or even cease their activity. As the famous French economist Patrick Artus said: "When the sea retreats, it comes out who was swimming without a swimsuit." Therefore, we can conclude that the crisis works as the natural selection mechanism described by Charles Darwin, not in nature but in the economy. This process is directly related to resource reallocation, which results in more productive ways of using those items.
Economic crises also serve as cruel but effective teachers providing lessons for governments, entrepreneurs, and ordinary citizens. Changes in the theory of Economics and policymaking are amongst the most fundamental layers of these lessons. The Great Depression undermined the mainstream economic thinking of the 1930s and led to new revolutionary theories and paradigms.
Meanwhile, the Global Financial Crisis of 2007-2008 resulted in multiple improvements in financial institutions' legal and economic regulations, including the financial intermediaries that hadn't been under strict control before the crisis.
New approaches to the theory result in improved economic models, which - taking into account more factors that were previously overlooked – are better in predicting possible risks in the future. We shouldn't also forget that crises increase people's awareness of specific economic processes and phenomena, which results in the more prudent management of resources and (at least temporarily) stops the wastefulness. Moreover, crises often tend to be a burning motivation for citizens to diversify their sources of income to avoid an unpleasant encounter with unemployment. That can also potentially increase the entrepreneurship among the society while it is not a surprise that the more enterprising citizens are, the better for the economy.
The economic turmoil also serves as a stimulus forcing households to seek savings (which - once the crisis is over - can serve as a cornerstone of new economic growth) and reminding entrepreneurs to analyze their companies' receivables more frequently.
In addition to valuable lessons for all participants of the economy, crises also test the authorities' management capabilities. This builds greater public awareness and raises more precise requirements for politicians in the future.
Economic crises can also result in an increase in consumer patriotism with various initiatives launched to support local entrepreneurs experiencing hard times. Those initiatives strengthen the national economy from scratch and create opportunities for long-term development.
In the light of the ongoing events, it is worth bowing down to the currently unfolding crisis, baptized by economists as a pandemic crisis. It is a particular collapse of the economy, which, in its nature, significantly differs from its predecessors. That is because its base is not in the economy itself, but it instead originates from the complete pause of economic activity around the globe. Of course, perceiving the global health crisis as an opportunity (especially in the economic context) can be very controversial. However, current events are undoubtedly one of the most significant breakthroughs in human history. That makes them the generators of substantial changes with significant consequences for the global economy. Excellent opportunities have spread over the sector of new technologies. The e-grocery industry, mobile payments, and many other security measures are the basis of the so-called "low-touch economy." They are parts of the 4th Industrial Revolution, which has been happening for some time now.
As you can see, economic crises do not only have negative consequences. Their costs and benefits are closely linked, creating a painful but necessary adjustment to a changing economic reality. Crises are inevitable, but when they happen, it is worth looking for their positive effects. Their opportunities should be used to the maximum potential, and the lessons from the crises ought to be learned. Only in this way economies can develop and evolve constantly, adapting to the changing times we live in. As the famous French playwright Eugène Ionesco claimed: "When there is no crisis, there is stagnation, petrification, and death."
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