Wharton management professor Mauro Guillen, pictured here teaching finance to high school educators, is helping to design a timely new online course.

Wharton Insights on the Impact and Implications of Coronavirus

As the world grapples with the social and economic impact of the COVID-19 outbreak, Wharton has found a way to use its expertise and vision to examine the real-time challenges facing companies, financial markets and political systems. On March 25, the school will launch “Epidemics, Natural Disasters, and Geopolitics: Managing Global Business and Financial Uncertainty,” a six-week online course available to all Penn degree-seeking students.

During a recent appearance on CNBC News, Mauro Guillen, a Wharton management professor who is spearheading the development of the course, as well as teaching parts of it, said, “I am inviting guest lecturers, the best experts we have in the school, [to talk about] the psychology of the crisis, the pressures on the health care system, and how companies should be responding…Every crisis is different, but there are still some solid, underlying management principles that can be distilled. That’s what we want to convey to our students, and to companies and policy-makers.”

Guillen has said that the Wharton faculty, including Zeke Emanuel, Wharton dean Geoff Garrett, Sigal Barsade, Katy Milkman, Jeffrey Siegel and more, is proud to launch the course because it draws from the current geopolitical climate and will “offer students insights into this crisis and all types of high-risk events.” With this in mind, Knowledge@Wharton High School spoke with Guillen to learn a few key insights about the crisis that next week’s course will explore:

A look at supply and demand. “This crisis is very different from 9-11, SARS (Severe Accute Respiratory Syndrome) or the 2011 earthquake in Japan, and also from the Global Financial Crisis in 2008 [see related links for more information on all of these crises],” notes Guillen. “We have simultaneously a supply shock and a demand shock. We have a demand shock because consumers are staying at home and not spending, or they are postponing big purchases. We have a supply shock because a lot of companies — especially beginning in China, but now in other parts of the world — sent their workers home so they couldn’t produce. The global economy works on a just-in-time basis, so if one company shuts down, that means that several other companies cannot operate because they need something that the other company is doing. This is happening on a planetary scale. So, one company that shuts down in China has implications for companies in many other parts of the world.”

How should the government help the economy? “We need to consider which government policies work best,” says Guillen. “The U.S. is a consumer-driven economy, and 65% of our Gross Domestic Product or GDP is consumption. Should the government spend more or cut taxes? The problem with cutting taxes is that the positive impact is felt over a series of months, rather than immediately. If the government spends money right away and gives people $1,000 or $2,000, which is something that is being discussed between Congress, the White House and the Treasury Department, then you can have that money right away in people’s pockets and that way the economy will not panic.”

The difference between uncertainty and risk. “Decision makers, like companies and investors, don’t like uncertainty because they don’t know what to do,” notes Guillen. “It’s important here to differentiate between uncertainty and risk. Risk is when you can calculate the probability of a certain outcome in the future. You can quantify what the risk is. However, uncertainty is when you cannot quantify. This is what is causing so much trouble right now in the sense that investors and decision-makers at companies don’t know enough. They’re trying to apprise the risk, but they’re having a lot of trouble with that.”

Learning from the crisis. “We need to evaluate ways to avoid a similar occurrence in the future,” says Guillen. “On the health care front, we need to have more testing kits, respirators and other types of health care equipment. We have to have more transparency and better information so that the world learns very quickly about an outbreak in a particular location and everybody acts accordingly. Companies need to diversify their sources of supply so they don’t just rely on one country or one supplier. People like you and me and workers need to be prepared for this in the same way we are prepared for a hurricane. We need to invest more in preparedness.”

Stay tuned for our list of crisis-inspired business and economics terms that everyone should know, soon to be published here in the Knowledge@Wharton High School business journal.

Conversation Starters

As the design of this new Wharton course suggests, crisis can be a time of opportunity and learning. Consider ways that you are finding opportunity amid today's changes and uncertainties. Log in and share your ideas in the comment section of this article. Feel free to also share how others are finding opportunity.

Mauro Guillen points out a few ways we need to strengthen our business and health care systems to be better prepared for this kind of crisis in the future. Using the related links, as well as other insights you've read about, what else are we learning from this crisis that will help us respond?

What is the difference between uncertainty and risk? Why must decision-makers understand that difference if they are going to make good and lasting choices? Identify both uncertainties and risks in your own life and consider how they might affect the decisions you make for the future.

4 thoughts on “Wharton Insights on the Impact and Implications of Coronavirus

  1. Through this time of struggle, others are coming together to reflect on life and change their ways, jobs are planning and strategizing ways to improve and others are also doing what they can to catch up. This crisis is helping humans come together and realize certain actions we take, by doing this we are improving as humans. Uncertainty is not being completely sure about something or someone whereas risk is taking the chance to do something no matter the consequence. they must understand these decisions to be sure their choices are in their hands and it consequences on them. Uncertainties in my life as of now is how my life will end up and a risk factor in my life as of now will also be certain actions I take that will hinder me or cause me to achieve something.

    1. Thanks for your thoughts, Emmanuel! I completely agree that “this crisis is helping humans come together and realize certain actions we take.” We all have time to reflect on where we’ve come from, where we are and where we want to go. “Improving as humans” could be the opportunity amid so much change, uncertainty and sadness.

  2. It does seem like the uncertainty of this situation has caused a lot of chaos all over the world. I’ve been following the news for the past few weeks, and I’ve noticed that many different qualified public health or government officials have all had opposing viewpoints. For example, I remember that one person pointed out that masks were useless in preventing the spread of the virus. Then a week later, others started to say that masks were helpful and that people should wear them outdoors. These contradictory statements made it difficult for me to understand how to prepare against the coronavirus, and I’m sure, has made it difficult for others as well. At the beginning of the outbreak, I think uncertainty led people to make poorly-informed decisions since the information given was not well calculated, and the market was very volatile. People didn’t actually know if the risk of the virus was high or low, so I think many just randomly picked a camp and stuck with it. Some people hoarded masks, hand sanitizers, and toilet paper, while others just continued to go about their lives.

    Furthermore, I completely agree with Mauro Gullien that the US needs to diversify sources of supply. Not only that, though, but I believe the US needs to be more self-sustainable. Even if we choose to diversify imports and get them from different countries, this action might prove unhelpful in another global pandemic like Covid-19. Regardless if we get our PPE from China, or from several other countries, the fact is that the pandemic will cause all supplier countries to stop exporting PPE and instead, use it for their own citizens first. Currently, demand for masks has gone up because so many countries are competing against each other to get much-needed supplies. It has been very difficult for the US to get the PPE, and state governors are paying almost 10 times per mask as they would have before the virus. In the future, I believe that the US needs to diversify its industries as a buffer for such a future scenario, whether it’s a pandemic, recession, or natural disaster. That way, in the case of another world-wide catastrophe, Americans will be able to have prioritized access to necessary items.

  3. It appears that ultimately COVID-19 could be the ‘2008 crash of our generation’, with the fallout potentially being far worse: the financial crisis in 2008 was largely a result of a stop to bank lending, as opposed to the simultaneous decreases in both supply and demand mentioned by the article- every human, both a consumer and worker, has been significantly less capable of doing either. In the last week of February, Walmart saw a 16.5% decrease in foot traffic compared to the week before. Meanwhile, Ford, GM, and Chrysler have shut down production in the USA, with over 100,000 people potentially losing jobs, for the moment inactive with less pay. The jobs of those in the industrial sector as a whole are therefore at risk.

    Analysts around the world are predicting massive economic contractions, with Goldman Sachs suggesting a 24% contraction in US GDP from April to June 2020 (GDP fell by 4.2% after the crisis of 2008). Crucially, given the cheap lending conditions of the last 10 years, many firms are extremely overleveraged, especially SMEs which have little cash reserves but play a huge role in the economy. Rolling over this debt is especially hard when banks are unwilling to lend given the low chances of companies being able to escape bankruptcy when consumption dries up. There is more than $10 trillion of American corporate debt, 47% of the overall economy- a bubble that may burst with terrible consequences in the future, compromising any recovery.

    Fortunately, central banks are at the moment doing as much as they can to cushion the blow, although the eventual results are still yet to be obvious, with the Bank of England offering £100 billion in cheap loans to companies and the Fed providing significant backing to repo markets and commercial paper markets. Interest rates have approached 0, and only 4 days ago Donald Trump signed a historic $2 trillion stimulus bill- clearly, we now have far more resources to deal with the pandemic than past recessions.

    The coronavirus has resulted in several different waves of panic at every level of society, from the markets in which we buy food to the markets in which billions of dollars are traded on a daily basis. To avoid an economic calamity will require a vast amount of collective effort.

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