The Future Is Not What It Used To Be

 
Post-Pandemic Global Economy (Part I)

Unfinished Walls of Sienna Duomo

The Tuscan city of Siena is today famous for its medieval charm and the twice a year unique horse race called Palio. Before Florence, it was the banking capital of medieval Europe (world’s oldest surviving bank, Monte dei Paschi, in business since 1472, hails from this city). In the fourteenth century, leaders of Siena decided to build the largest church in the world. Unknown to them, a deadly plague had arrived at Crimea in 1347 even as they started expanding their Duomo. In the next few years this plague, the ‘Black Death’ would ravage the entire continent. Siena was one of the worst affected cities in Italy and it could never recover its fortune. Even today, two huge walls stand apart from the main church – a grim reminder of how a pandemic can alter economic fortunes forever. 

Investor and columnist, Morgan Housel writes, narrative declines are unseen but fatal. Narratives decline when physical strengh of a country, company or individual remains the same but the result or effectiveness of their actions suddenly changes completely. Then we are forced to invent new narratives. And we are forced to accept a new future, which we never even thought about.

Pandemic as a Portal

Historically, pandemics have forced humans to break with the past and imagine their world anew. This one is no different. It is a portal, a gateway between one world and the next.                                                                                                          Arundhati Roy

Black Death left an estimated 75 million dead in Europe. Despite landowners’ attempts to control, wages soared as the number of working hands fell drastically. In less than a century, wages doubled in rural England, a remarkable rate of increase for those times. This, in effect, paved the way for demise of feudalism in Western Europe.

Graphics Courtesy BCG 

Major disruptions, like Black Death, cause fundamental shifts in society and economy. Such shifts in the past have resulted in landmark changes in policies (Glass-Steagall Act after the Great Depression or heightened aviation security following 9/11), brought in new ways of working/lifestyle (increased suburbanization and women joining workforce after the Second World War) and resulted in serious changes in consumer behaviour (e-commerce taking off in China after SARS or sharing economy of Airbnb, Uber, Lyft in 2008).

The Future Is Not What It Used To Be

The world after COVID-19 is not going to return to the world that was.

During this pandemic-recession, individuals suffered mostly because of inequality and what is being described as working poverty among the majority of global workforce. Countries suffered because of absence of universal social protection and failure to create a robust public health system.

An ideal post-pandemic world thus, should move from relentless search for cost efficiency and profit maximization to resilience – not only in supply chains but also in healthcare, public service delivery and corporate balance sheets. It should also lead to a rebalancing of priorities for individuals in terms of lifestyle choices, consumer preferences and increased social and environmental awareness.

Disruptions do accelerate innovations and faster adoption of new ideas. Though it is too early to predict such new trends but we can map out the existent trends accelerated by this pandemic-recession:

Digital Everywhere – Digital economy expanded its footprint at an astounding pace in 2020. Globally there was a spectacular surge in digital payment, online shopping, socialization and entertainment. Digital has now enabled a sweeping change in behaviour through extraordinarily rapid shift to remote working and learning. Lockdown and a fear psychosis over infection prompted a rise in contact-less economy. The same fear psychosis had prompted the initial e-commerce take off in China during the SARS epidemic (2003). The newest area of growth has been telemedicine. Chinese telemed apps like Ping An or Ding Xiang Yuan have seen new user base rising by millions. In the USA, the Federal Communications Commission provided special bandwidth to expand telemedicine access during the lockdown.

Future of Work – The future of work has arrived faster than anyone could imagine at the beginning of 2020. It has also brought with it exceptional challenges. Millions of people who lost their jobs in the USA during this crisis, are unlikely to get back into full employment ever. Research at the Brookings reveals that during the last three recessions, pace of automation increased with each of them. Rise of digital economy, remote working and other factors are going to further aggravate income polarization. McKinsey had estimated in 2017 that by 2030, globally 400-800 million jobs would be lost to automation, this may go up even further now. Workers would be more vulnerable than ever before. For a significant section of the population, gig economy is going to be the basis of their working life.

Big Tech and Privacy Concerns – At one point in the US stock market, Zoom at a market cap of USD 54 billion, was worth more than the four US airlines (United, Delta, American and Jetblue) combined. This is an extreme example of how the world turned to technology to survive lockdown. Almost every working professional downloaded Zoom or similar online meeting app. Millions of new users joined Google Classroom even as teachers, more than students, struggled to adjust to the new environment. Social media was truly a lifelines during this crisis.

Overall, technology led in terms of safety, productivity, supplies and even in charity. Technology may help in myriad ways, including early warning of future disasters and smarter governance, but an unavoidable casualty would be privacy. FAANG (Facebook, Apple, Amazon, Netflix and Google) and Microsoft did not only lead the swift stock market recovery but also gained more market dominance. Before the crisis, there was serious concern that their mammoth size pose a threat to consumer rights, democracies and social compact. Such concerns are likely to return once normalcy is restored. In the meantime, there is more demand for data localization and for guiding internet flow into national channels.

Rise of China – One of the certainties of the post-pandemic world is the rise of China as the pre-eminent global power. Even though the virus originated in China but by successful and early containment, China managed to be the only major economy to register growth in 2020. As the second largest economy, not only China is miles ahead of competitors but the recent events have shown the great resilience of the Chinese economy. Ridiculed as a country of copycats till recently, China is the new global tech power house and home to a large number of fast growing and innovative corporate giants.  With the launch of the RCEP, China would now be setting the global trade agenda as well.

De-globalization - Since the 1990s, the dominant theme had been the death of distance. Rise of middle class everywhere with global aspirations and a taste for global consumer culture defined this era. This was underpinned by the relentless innovations in communication (satellite, optical fibre, mobile telephony, internet and web technologies) and global supply chains. Now barriers are rising against the movement of people, products and money. Global merchandise trade is slated to fall in near future. Spread of pandemic, global recession and concern over China-centric supply chains may lead to a significant re-drawing of trade routes and greater regionalization.