REALIGNMENT FOR BUSINESS IN A POST COVID19 WORLD

Introduction – Macro context

The COVID 19 pandemic will form a schism in the timeline of history.  History will be divided into the time before and the time after, the COVID19 Pandemic.   There have been comparable events in history (each with their own pre and post features ) – the First World War;  the Spanish Flu Pandemic of 1919;  the Great Depression of 1929;  the Second World War;  the Cold War and the Global Financial Crisis of 2008/9.   Regionally there have also been major events like 9/11 in NYC and the end of Apartheid in SA in 1994 – where-after life was never the same again, especially for Black South Africans.  

In 1992 Francis Fukuyama suggested the end of history following the Cold War and the collapse of communism (Berlin Wall / Soviet Union) and its manifest failure.  The worldwide spread of liberal democracies and free-market capitalism and its lifestyle then signalled the end point of humanity's sociocultural evolution to become the final form of human government. 

Since then, especially over this last decade following the GFC,  the framework of this liberal international order has been gradually eroded by the combined forces of globalisation, poverty and the unresponsiveness of mainstream political parties to local discontent.  There has been an unambiguous resurgence of the political right with autocracies emerging from Hungary to Brazil, and India to the USA.   The European migrant crisis, the weakened southern economies of the EU and the meddling of Russia have all fuelled the fire of nativism, populism and protectionism.  This has led to states turning inward and building barriers to protect their ‘own’ - evidenced by Brexit, Trumps wall, Hungary’s border closure and Italy’s anti-immigrant position under Salvini.

COVID19 has become the common, invisible enemy - leading to the urgent need for co-operation between states as they scramble to combat the virus.  Unprecedented gestures have been made such as China sending doctors and supplies to Italy to assist in the fight and South Korea has made its IP for testing kits available for free.   Governments are having to have to co-operate in respect of international travel,  public health approaches,  scientific expertise and so on.   Not unlike the Marshall plan after WW2,  Governments will also soon have to cooperate around economic measures such as fiscal stimuli and trade.    Thus at a macro level the post COVID19 world will see a world that is more cooperative and less confrontational.   The USA and China have already started diplomatic moves in that direction (despite Trump characterising COVID19 as the Chinese Virus ).

For the sake of public health Governments have had to deliberately induce a shock to their economies.  To use a medical metaphor  – they have had to put the patient into a coma.  The resultant decline of economic activity in the UK and the USA is comparable to that in the Great Depression with the USA registering its sharpest ever drop in employment numbers (over 3,5m applied for UI benefits in the 3^rd week of March).    Governments which have hitherto relied on the invisible hand of the market to ‘maximise utility and profits’ have found that their own engagement in the market is not only desirable,  it is imperative and urgent.  The level of fiscal stimuli that Governments (those with the wherewithal) have had to make ( $2tn USA / $800bn Germany/ £400bn UK etc) is without precedent and vital to retain the health of their economies.   This level of Government intervention would make any socialist happy. 

The measures adopted by Governments to combat the virus ( social distancing and physical lockdown) together with their financial interventions in the market will lead to a permanent shift in the way we live and work.   Governments will feel emboldened to take a more active role in the shaping of economic activity going forward and they will be supported by their citizens.  Expect some form of universal health care to manifest, albeit slowly, in the USA where thus far it has been anathema.  Expect a swing to more Keynesian policies with protections for low paid workers and the self-employed, who will disproportionately be the most severely impacted in the current crisis.

It goes without saying that there will be an increase in ‘distributed’ working resulting from the vast (involuntary) experiment currently underway, which will inform its effectiveness or otherwise.  Expect a material shift (10-20%) from the status quo.  This will impact public transport (reduced requirement) – even a change in the spatial planning of cities as the dynamics change.  In order to be successful there will also need to be a change in culture as employees will need to place greater trust in their colleagues, relying on work done by someone in the adjacent town,  not the adjacent cubicle. 

The impact on businesses will be consequential and across the board.  Industries that will ( already are ) be most directly impacted with possible disastrous and permanent outcomes are: 

• Hospitality / Travel / Tourism
• The gig economy ( Delivery drivers / Uber )
• Personal services ( hairdressers / grooming / dentists )
• Live entertainment ( Theatre / music / sport / movies
• Retail (non-food)

And there will be sectors that benefit:

•  Online services ( Gaming / Movies / Music )
• Telco services ( OTT services / ISP's / SAAS / hosting / data centres )
• Non-human tech ( AI / VR / ML / NLP / conversational chat bots / automation )
• Medical supplies 

Mental health decline in the general population will have major social costs.   This will be precipitated both directly and indirectly by the economic and social impacts of the crisis:  

• Loss ( of loved ones, of jobs, of savings, of the old way of doing things)
• Stress and anxiety / psychological exhaustion
• Isolation and loneliness
• Fear of re-engaging 

It is difficult to measure or predict how this will play out, but it will be skewed towards the lower income demographic who are already the most vulnerable.

How should Governments and business REACT to ensure survival post crisis?

Respond:  The key actors, being the leaders in Government and business, need to resolve what the scale, pace and depth of response required is, to maximise the outcomes.   Governments need to,  and in most cases have, implement stringent health care measures to contain the virus and to flatten the curve.  Health care systems are on a war footing and businesses have engaged by ramping up the manufacture of ventilators and PPE.   Businesses have established continuity and employee safety plans with remote working the default mode.   Leadership is being challenged in this crisis and leaders are either being shown up or coming through with flying colours. Either responding aggressively in time ( Xi) or aggressively too late (Trump, Johnson) or not at all (Balsinaro).  There has also been an interesting divergence in response from business leaders ranging from keeping workers on reduced hours and reduced wages to others just letting workers go without any compensation or safety net (Gordon Ramsay) with in some cases a U-turn under pressure (Tim Martin -Wetherspoons) .   

Engage:  Leaders must engage pro-actively and timeously.  The delays by Trump and to a lesser extent Johnson will have a disastrous impact on the numbers of cases.   The USA is now the epicentre of the virus and Trump’s inaction has been characterised as ‘the worst intelligence failure in American history’.   The financial stimulus packages need to be implemented as soon as possible as delays may lead to permanent damage – as businesses are forced into bankruptcy.   The liquidity and solvency challenges facing businesses will require drastic action by business leaders and their engagement with Government is critical in getting the money into the system.

Act:    Governments should act decisively and quickly. Some have, many have not.  The differing outcomes between South Korea and the USA show what a difference speed makes.   Similarly businesses have to suspend normal operations and should implement a contingency plan, whatever that may be.   This should be the time that businesses review the entire business model,  look beyond layoffs and implement reduced hours, grant special leave and whatever it takes to preserve jobs.   This  is also the time to consider investing in new technologies as there is little else to invest in at this time ( thus a low opportunity cost.)   These could range from chatbots to robots to conferencing tech to SAAS to automatic checkouts to delivery services etc.  Focusing on productivity in the absence of labour. 

Create:  Following a review of the old business model – now is the time to create a new one.   The schism caused by COVID19 will lead to a shift in preferences and expectations of individuals (whether as citizens, employees or consumers).   It is time to reassess old rules; the business imperative used to be efficiency – but this came at the cost of resilience.   Lengthy supply chains that facilitated ‘just-in-time’ manufacturing are ‘fragile’ and have been broken by this crisis.   The new business imperative should be ‘resilience’ – re-design the business model to ensure it is able to withstand externalities (like COVID19) - make them ‘antifragile’.   Globalisation has driven huge interdependencies that span continents – in the future businesses should be more locally focused, to build in resilience thereby making the supply chain more robust.

Transform:  A transformation of the role that Government and business play in society in the future is inevitable.  It is incumbent upon both parties to engage with each other to ensure that Society 2.0 ( the Post COVID19 society) is more equitable, fairer and most importantly, is more resilient to exogenous shocks like pandemics.   Business leaders need to anticipate what those changes could be –especially public policy as relates to health care, worker’s rights esp. welfare and distributed working and long-distance education etc.   Expect there to be a real change in the dynamic between Government, business and labour.   Society 2.0 will be less consumer driven, will be more caring,  will be environmentally friendly,  will be more sustainable.   Let’s hope we can find the right balance between the social and economic impact of COVID19 and that neither are excessive. 

Note: I have deliberately avoided discussion on the impact on climate change as that is a whole seperate topic!! 

London : April 2020.