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The Economic and Social Footprint of Coronavirus, Part 3 – Exploring National and Societal Futures

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By Rohit Talwar, Steve Wells, and Alexandra Whittington

 

The COVID-19 virus is now truly global – having spread to 210 countries and territories around the world. While some countries such as Spain have started to ease lockdown conditions, others are extending theirs or refusing to commit to an exit strategy. Globally, concerns are mounting over the depth of social impact, unemployment for some countries is rising to levels higher than in the Great Depression, dire warnings are being issued on the global economic outlook, and here in the UK, the government’s Office for Budget Responsibility is warning that the economy could shrink by 35% by June. In the midst of this unending stream of bleak news, countries are also having to think about the mechanics of recovery and how they can balance attending to an immense agenda of short term priorities with the need to ensure a path to a sustainable and viable medium to long term future.

In this third and final article in our series, we examine five critical areas in which robust, bold, and innovative thinking will be required to map a path forward on these challenges.

 

I. Country Viability – Prior to the pandemic, many countries were already in economic and social intensive care. Some nations will inevitably be pushed to or over the brink by a combination of the health and social costs of dealing with the situation coupled with the bill for economic support to businesses, individuals, and financial markets. This is being further exacerbated by the loss of tax revenues, declining foreign earnings, the level of business failures, and the growth in long term unemployment. Richer nations may coalesce around institutions such as the World Bank, IMF, and OECD to try and effect bail outs for some badly effected countries. However, for some, there may be no viable future as independent nations. Tough choices may be required about whether they seek to merge or effectively be taken over by others with better governance, operational capacity, infrastructure, and resources.

 

II. The Social Fabric – Governments will need to think hard about the goals for society in a post pandemic world and the actions required to get there. Across the globe society is feeling the impacts in different ways. Some people are clearly finding new levels of inner peace and purpose with a calmer, less disrupted pattern to daily life. However, for others we see a rise in problems such as mental health issues and domestic violence. The generational divide could become a critical focus of policy making. Could the lockdown exit strategies further reinforce tensions, with the young and healthy being given preference over the old, the infirm, and those with complex health conditions? Will some countries opt to drive down retirement age to help accelerate this process and seek innovative new solutions for how to fulfil their pensions responsibilities going forward? Finally, some may also look to accelerate advances in the field of human augmentation to effectively engineer more resilient and disease resistant humans.

Health and care systems will also need to be reimagined, drawing on the lessons of the pandemic. In the short term, once the crisis starts to subside, an already frazzled health sector will be hit with a wave of pent up demand from those whose consultations, diagnostic tests, and treatments had been put on hold. The new design will need to think about how to engineer in greater flexibility, how to mobilize testing for future diseases, and how to drive the population to use data, science, and technology to improve self-care.

Education systems may also never be the same again. Those who adapted well to electronic delivery and were able to continue delivering lessons and enabling learning in the digital realm could emerge with far richer models that blend the physical and digital more effectively. This will be greatly enabled by the rapid improvement in digital literacy for many teachers and parents. However, for those less well resourced, the process of catching up on missed months of learning could create major challenges. These could have adverse knock on effects for public examinations for some time to come. This could indeed deepen educational divides in and between countries.

 

III. Incomes and Unemployment – Despite the media noise, in practice no country has implemented an unconditional basic income (UBI). Instead a complex mix of temporary payments, minimum incomes, payment of furloughed workers, loans, and a variety of other mechanisms have been implemented. The issue of what to do next is put into sharp focus by the steep rise in unemployment, coupled with the potential for further job losses through business failures and automation. At present the debate continues to rage over whether a UBI is politically and socially desirable, how it can be funded, whether it makes sense to pay to it to those who don’t need it, and the potential impact on people’s willingness to work. With a prolonged recession or depression in the cards for many nations and indeed the entire planet, the need to think about UBI and other alternatives is already on the agenda and will be rising up it fast.

 

IV. The Business Ecosystem – Governments will need to plan for a range of scenarios around business failure and the resulting employment impacts. Many of the clear potential winners and losers at the sectoral level have been discussed elsewhere. The challenge is understanding the possible scenarios for that middle ground of businesses that have effectively been put on hold for now – in sectors ranging from hotels and aviation to luxury goods, entertainment, and dining. As yet, the number of clear business failures has been relatively limited. However, the longer the lockdowns continue, the more the viability of some or many of these firms is called into question.

Furthermore, even when the recovery starts, business revenues may not return to pre-crisis levels for many – particularly given increased unemployment and uncertainty on the part of those still in jobs. Hence, government planning has to prepare for several possibilities – starting with an immediate wave of business closures once lockdowns end. This will likely be followed by a second wave of failures as spending levels become clearer in the months after lockdown and the starts ups that look the least promising in the new post COVID-19 order fail to secure follow on funding. These could then drive further successive waves of closures and the impacts ripple through supply chains.

Of course, these failures need to be set against the potential for job creation by those who see the opportunity to start new ventures. Downturns provide an environment where investment capital may be cheaper and a range of government incentives may be on offer to start a business. The issue will be around the potential skills mismatch between the needs of these new ventures and those of the people losing their jobs in failing and shrinking businesses.

The drastic hit to revenues that many businesses are taking now will inevitably impact their targets and budgets for the current financial year. A poor current financial year will in turn drive spending budgets for the following financial year. Hence, the knock-on impacts for business spending will again hit firms further down the value chain. The pain will be unevenly spread – for example we can expect to see higher levels of investment in process automation and artificial intelligence as firms seek to increase their ability to continue operating irrespective of potential future pandemic impacts on their workforce.

 

V. National Economic Development Plans – The last few years have seen many developed and developing nations alike from the Middle East and Africa through to Asia and Latin America laying out bold visions for the future. These range in scope from 2025 to 2050 and many contain blueprints for the type of society, economy, and industry sectors they want to evolve. The crisis has put a lot of that thinking on hold. However, the same bold thinking and imagination will be required to map a slightly different path to the future – and to potentially accelerate ideas that were previously considered a decade or more away.

We believe these plans now need to address three separate timeframes and their associated challenges:

The next two years – This is about the recovery plan, building resilience, and reducing exposure to future shocks. In a world of disrupted supply chains, the old logic of industry specialization and import reliance may come under challenge. Hence many nations may look to become more self-sufficient and build up their own capabilities across the entire gamut of products and services they might previously have sourced from overseas. This means building small footprint factories using the latest technologies and looking to accelerate techniques such as 3D printing on an industrial scale.

This will also be a period of accelerated capacity building, developing domestic skills across the board for both the public and private sector. Competition for the best talent globally will also increase as nations seek to build local expertise centres in areas ranging from rapid construction and vertical farming to synthetic biology and new materials. New partnerships will be required with IP owners and expertise centres around the world. At the same time, many manufacturers may be looking to contract their geographic footprint and may be happy to enter into such IP focused arrangements which reduce their reliance on having to manufacture in uncertain times.

The next three to five years – Here the focus should be on building from the foundations laid in the previous two years. Turning the R&D investments and capacity building into viable businesses that create local jobs and drive the economy. Done well, this will allow greater focus on investment in the R&D that will drive the next decade of growth, initiating deep transformation of lifelong education systems, and developing new civil society infrastructure and governance mechanisms. Whilst the actions may not start for two or more years, planning for them and laying the foundations needs to start alongside the near-term recovery actions.

The next six to ten years or more – This is the period in which many of the most promising ideas in science and technology could bring about transformative developments. From Hyperloop transport systems and driverless vehicles to truly artificially intelligent systems and engineering more robust and disease resistant humans – the possibilities are immense and mind blowing. These developments do not move at a linear pace and some nations are keen to make them happen on a faster timescale. Hence, in the next two years, nations need to be driving the R&D that will allow for the capability development in the following few years that in turn will drive the commercialization of these fields in the six to ten year frame – or earlier.

Many may think their plate is already full with just navigating the day to day of the current crisis. However, with crisis comes the opportunity to pursue a bold and innovative rethinking of the core mechanisms across society, the economy, and government. Now may well be the best time to start that thinking.

 

This article was published in FutureScapes. To subscribe, click here.

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Image: https://pixabay.com/images/id-3788209/ by Uki_71

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