In just four months COVID 19 has changed the world; from the first reported cases in Wuhan in China at the end of December to today, our world has been reconfigured. Our language has a new vocabulary that now includes terms such as ‘social distancing’, ‘lockdown’ and ‘flattening the curve’. We have been forced to change our working days and habits as we adjust to a new reality. Much has been written about how nations are managing this unprecedented global crisis, the steps that individuals need to take to stay safe, as well as, the large scale monetary and fiscal interventions to ensure that the economy can be nursed through this difficult period. Less has been said about how business leaders will need to respond in the aftermath.
According to the International Labour Organisation 80% of the global workforce of 3.3 billion people have had their workplace fully or partly closed. For many it has forced us to work from home using remote working technology, such as video conferencing and screen sharing. This has challenged our working rituals, most notably the morning commute and the standardised working day of 9 – 5; both legacies of early 20th century labour laws. As home becomes the new work place individuals have had to juggle caring for elderly relatives and home schooling with work calls and videoconferences. We have rapidly gained an intimate insight into people’s homes and habits as we look at them on screen and can hear children, dogs and partners becoming part of the call. The boundary between work and home is more permeable than ever. We believe that this enforced change to our ways of working and rituals has accelerated an inevitable change to our working and home lives.
In this article we look beyond today’s period of shock to imagine what we believe could happen beyond the immediate crisis; a sense of what the future could look like in 2 – 10 years as we rebalance our lives and businesses? As management consultants that have worked with business leaders for more than 20 years, our methodology has been to identify and elaborate a number of key themes and apply imagination rather than economic analysis. Many of the themes have been present throughout our work but today they have been given a sharper focus and urgency as the choice to change has been taken away from us. You may disagree with our analysis, however, we hope that it will at least help you to think about, and plan for, a world that has been fundamentally reconfigured.
“Classically a market correction signals the end of a period of exaggerated and unsustainable growth in which ‘irrational exuberance’ or greed drives up a market. At this point the market becomes unstable and finds a new equilibrium based on the underlying fundamental economics.”
We have termed this reconfiguration the ‘Big Correction’ as we believe, in some ways, that is currently what is happening to how we lead our lives. Classically a market correction signals the end of a period of exaggerated and unsustainable growth in which ‘irrational exuberance’ or greed drives up a market. At this point the market becomes unstable and finds a new equilibrium based on the underlying fundamental economics. It is this frame of reference that may help to uncover some underlying fundamentals that will shape the post COVID 19 world.
Beyond the expected post pandemic, economic spike, within the next 2 – 10 years we believe that some current trends will accelerate, some new trends will emerge and some current actions will continue.
The trends we expect to accelerate are:
· The collapse of the high street and the move to online everything
· A re-evaluation and realignment of how we lead our lives and the place of work within it.
· The rise of home working and flexible working
· The rise in economic nationalism and protectionism
The trends that we expect to emerge
· A change in the nature of the workforce
· A reshaping of business purpose
· Enhanced control of social media
· Increased operational resilience legislation in some key sectors
· Wage growth
· An increase in direct taxation
The actions that will extend beyond the current situation
· A shortening of supply chains
· The shift to interventionist politics
· Economic protectionism
· The return of the welfare state
This will have implications for the economy, the shape of the workforce, how we use technology, our sense of geography, it will reshape politics and, finally, what we expect from the media.
1. The implications for the economy
In the UK, the Government has created a £330bn rescue package, predicated on what they term a ‘V’ shaped recovery, in which the steep decline is replaced by an equally rapid recovery. The priority being to ensure that businesses, staff and infrastructure are undamaged ready for the period of recovery. America has taken similar steps with a broader $2.5tn package of measures to sustain the economy. Both of these initiatives are based on borrowing against the future and growing the national debt. To put this in perspective, last year (fiscal year 2018-19) the UK’s public sector net debt was equivalent to 80.8% or percent of the country’s GDP (i.e. £1.8 trillion); the equivalent figure in the US was 106.90% of GDP or $23trillion. The new stimulus packages will further grow the national debts and burden future generations.
Unfortunately that money needs to be paid back, which means that government debt servicing costs increase at a time when productivity has collapsed. A fiscal response means finding that money from within existing budgets by either reducing the available spend, typically on public services, or growing income through increased taxation. A monetary response is to increase the supply of money to stimulate growth, these measures include quantitative easing as well as interest rate manipulation.
Monetary and fiscal policy can work hand in hand as monetary policy decreases interest rates to help businesses to borrow money and grow whilst fiscal policy demands tax increases against the expected growth. The coordinated monetary and fiscal policies by central banks around the world since the 2008 banking crisis and ensuing market crash has led to an exceptional period of low interest rates, with steady increases in taxation which in turn has stimulated one of the longest bull markets in history.
In our view the current strain on all public services means that government priorities will have to shift towards increased investment in public services and the welfare state, making finding money from within budgets impossible, arguably the only choice is increased taxation. Within 2- 10 years we can expect a continued increase in taxation both directly, through income tax, and indirectly through VAT revenues, this in turn will drive wage growth.
Whilst making the most of every opportunity that comes from the central banks economic stimulus package, in 2 – 10 years business leaders need to plan for wage growth greater than inflation and an increase in taxation.
2. The shape of the workforce
The median age of the workforce is likely to fall. Personal security, specifically health, will have a greater influence on the behaviour of the workforce and consequently, in the long run, we are likely to see a shift toward a younger workforce. In the short term, younger healthier workers are likely to go back to work quicker and be generally more resilient in the face of the virus, while more elderly and vulnerable workers will continue to self-isolate or just choose not to work.
In the short to medium term this will increase pressure on the reduced workforce, not least of which will be a loss of knowledge and experience, which will need to be mitigated by training and the sharing of knowledge, so that while workers may be lost, experience and knowledge isn’t. In the longer run, the elderly working population, those working beyond the state retirement age, is also likely to decrease, which will lead to full employment and require further pension reconfigurations. In the worst case this decrease will be due to virus related deaths, but also fears of future contagions. Increasing numbers of workers, approaching retirement, may decide to give up work earlier than planned, unless they are able to work from home.
Homeworking will see a surge in growth. The TUC estimates that today around 4 million UK workers would like to work from home for at least some of their working week but aren’t given the chance. According to TUC figures from May 2019 there are currently 374,000 more employees working from home than 10 years ago. The analysis shows a 27.7% increase in the number of homeworkers in the last decade, prompted in part by a desire to see more of their family and improve work-life balance. At present, however, not enough bosses are giving their workers the option of homeworking. This is likely to change.
Just as the February 2014 strikes by staff on London’s underground network enabled a sizeable fraction of commuters to find better routes (commuters were forced to experiment and around one in 20 stuck with their new routes after the strike was over), enforced home working is likely to lead more people to work from home as a matter of routine in the future, and businesses will to be accepting, even welcoming of it.
Homeworking will benefit older workers who may wish to isolate themselves, but it will also benefit working mothers. The short to medium term pressure on a younger workforce may, to an extent, be mitigated by a continuing increase in working mothers, enabled by the move toward greater home and flexible working, but also a balancing out of maternity and paternity leave, to ensure a more equitable balance.
According to the Office for National Statistics (ONS), more than three-quarters of mothers are already in work, a record high for the UK, and this has been rising steadily since 2009. The proportion of working mothers with dependent children jumped to 75.1% in June 2019, compared with 74.2% the previous year. However, figures also show that while almost three in 10 mothers (28.5%) with a child aged 14 years and under said they had reduced their working hours to accommodate or limit the expense of childcare. This compared with just one in 20 fathers (4.8%).
Manual labour, once the preserve of a migrant workforce, has fallen with the onset of Brexit and all but collapsed under lockdown conditions. As immigration restrictions have intensified we can expect an increasing bifurcation of the workforce. On the one hand we will see a growth in unskilled manual work, such as delivery drivers, shopkeepers, shelf-stackers and agriculture workers, alongside a continuing decline in manufacturing and service sector jobs. But on the other, we will see continued growth in the knowledge economy, including occupations such as programmers, physicians, pharmacists, architects, engineers, scientists, design specialists, accountants, lawyers, and academics. Knowledge workers will benefit from being able to learn and adapt, and in many cases exploit homeworking, while unskilled workers will continue to be required in manual roles which cannot be automated and, increasingly, to replace immigrants in these roles.
Certain elements of the workforce, such as the ‘Gig Economy’ and zero hours contracts, may become unsustainable and there will be increased pressure to regularise and protect workers who currently exist in these domains. In the absence of Unions workers may instead look to the past to organise themselves, setting up on-line forums that may work like medieval guilds, sharing information on the most reliable employers and enabling workers to learn new skills and acting as a repository for members employment records.
Business leaders will need to think about how they develop, train and educate their emerging workforce, how they account for home working and flexible working, and how they will manage and implement employment rights for gig workers and a low skilled manual workforce.
 Shaun Larcom, Ferdinand Rauch and Tim Willems, ‘The Benefits of Forced Experimentation: Striking Evidence from the London Underground Network’ CEP Discussion Paper, No. 1372 (http://cep.lse.ac.uk/pubs/download/dp1372.pdf).
3. How we use technology
As British wage rates increase it will make sense to invest in new technology. As we approach full employment the demand for labour, by employers, will exceed supply. In such a tight labour market, employers typically need to pay higher wages to attract employees, ultimately leading to rising wage inflation. In an environment where the cost of technology is decreasing but the cost of labour is increasing, it will therefore make sense to invest in more technology to get more out of workers. Once wages become too high, human burger flippers and call centre workers will no longer make economic sense.
Technologies will therefore change working habits, but the shift to homeworking and different working patterns will also see habits change technology, reinforcing the move to remote/online everything. The collapse of the high street, once blamed on out of town retail parks can now be blamed on COVID 19 and our shift to online. Remote everything will drive infrastructure changes from internet demand and bandwidth, to home deliveries and telemedicine. While online everything will lead to shorter supply chains and a decline in car use and an associated reduction in demand for hydrocarbons.
Homeworking and the demand for shorter supply chains will also see the acceleration of 3D printing, further reducing demand for traditionally manufactured goods. The Global 3D Printing Market was already valued at $8.08 Billion in 2017 and is projected to reach $49.74 Billion by 2025, growing at a compound annual growth rate (CAGR) of 25.5% from 2018 to 2025. Growth will be accelerated by the current mandated shift to homeworking and worker isolation.
The growth of virtual and flexible working will also further challenge the notion of 9 – 5 working and require a renegotiation of work-life balance. Some will want to spread the working week to accommodate other demands on their time, such as childcare, while others will want to condense it to afford greater chunks of leisure time. Home working will also increase cyber risk, raising questions as to how this will be managed and financed when key workers are,by necessity, using home or public networks.
Just as greater internet connectivity has meant the work of bureaucrats being passed to consumers, from on-line banking to holiday planning, so the new home-office will see a shift in costs from office to home. The question then is how office services, such as printers and scanners, be decentralised, and who will pay the bills for heating, deliveries, and the use of personal phones for work. Household bills will increase, but where will the burden for the new costs fall? Will it be offset by decreased costs of commuting and travel and simply accepted as an inevitable employee cost?
Homeworking will reduce the pressure on office space and a reconfiguration may force businesses to identify core or key workers, who will need to be centralised on a regular basis, and those who are more ‘peripheral’ and can work from home. This will further reinforce the trend toward the core-periphery model of modern companies, with a small core of permanent workers and a larger periphery of enablers and contractors. This will test the limits of team cohesion but, if the balance is right, the benefits could be those of strong team bonds in the core, supported, enabled and stimulated by a diverse peripheral network of teams and individuals.
Technology will also provide scope for employee platforms that will reinforce the potential growth of cooperatives and online communities of workers. Worker cooperatives and guilds may manage costs of home working in the hyper local economy, which could in turn lead to the growth in local service and support businesses.
Homeworking will be reinforced by advances in technology and changing habits, which will in turn drive further technological developments in a continuous cycle of reinforcement. In 2 – 10 years, business leaders will need to update their systems, working practices and policies to accommodate this move to greater virtual and flexible working. They will need to reconsider the role and purpose of the traditional office, the whole notion of the traditional ‘working day’ and ‘working week’, and how they will lead a new workforce that is configured and connected virtually across home and office.
4. Our sense of geography
Individually, home working and travel restrictions have reframed our perspective on geography. The vulnerability of globe supply chains has become apparent. Parts for computers, phones and cars have been stalled by China’s lockdown, in some cases pushing up prices and even halting production in factories across the globe. The lockdown in India has created problems for outsourced call centres and tech expertise. Fortunately, at the same time, demand has been depressed across the world and therefore the vulnerability of the supply chain has not been as stark as under normal market conditions.
Global connectivity, once regarded as a strength is now seen as a liability. Business leaders are having to come to terms with the vulnerability of their supply chain. The pre-pandemic trade war between Trump’s America, and even the Brexit vote, have been accelerated by the pandemic. The public outcry against the lack of face masks for NHS staff has been mirrored by an upsurge in calls to develop our manufacturing base.
In the future we can expect businesses to look closer to home for products and possibly even stimulate a return to a low cost domestic manufacturing industry. This will not lead to a rise in manufacturing jobs. While the crisis has revealed how vulnerable our food and medical supplies are, and will lead to a demand to strengthen domestic supply lines and our manufacturing base, this is unlikely to create more manufacturing jobs. Instead, the demand will be for more robotics and automation in manufacturing, accelerated by fears of virus vulnerable human workforces. There will also be increased demand for Artificial Intelligence (AI) in the service sector, again replacing vulnerable human operators where possible.
With the use of public transport and cars restricted, families have been forced to look for new places to source their weekly shop. Farm shops, local producers and locally owned shops have stepped in to the gap left by supermarkets unable to keep pace with a worried public. Once regarded as niche, and a little quaint, this shift to supporting local shops and producers has struck a balance between cost and convenience.
5. Reshaping politics
In the financial crisis of 2008, the G20 met in Washington to coordinate central banks around the world to lessen the impact of a potential global recession. This has not happened in the response to the global pandemic. Politicians have been quick to close borders and blame other countries for the virus or lack of medical support. Trump labelling COVID 19 as the ‘China virus’ typifies the emergence of a growing isolationist agenda across the globe.
The 2008 banking crisis and ensuing market crash led to a coordinated monetary and fiscal response by central banks. In turn this stimulated one of the longest bull markets in history. COVID 19 has stopped this in its tracks. In the space of just two weeks US unemployment statistics rose from 211,000 to 3.3 million and a week later it reached 6.6 million claimants placing the US on the path to recession.
Populist politics emerged, in part, from the 2008 banking crisis and the perceived rise in inequality as a result of the central bank stimulated bull market. In the last few years this has given voice to a growing number of disaffected communities. In the UK this led to the Brexit vote; in the US Trump’s party slogan ‘Make America Great Again’ successfully put him in the Whitehouse; in France, Hungary and Austria there has been a steady rise in populist right wing parties that claiming to represent the ‘ordinary people’ against a liberal elite. The current crisis has magnified and accelerated this trend with borders hardening and trans-national movement halted.
In the near term, strong government is needed, however the crisis has challenged the orthodoxy of the ‘invisible hand’. Post crisis we can expect a new value to be placed on traditional public services. In the UK this means new investment in public services and a higher regard for health workers, policing and social services; in the US this could mean a renegotiation of Obama care. These domains fit more comfortably with the left leaning parties rather than those on the right.
At a national level there is likely to be renegotiation of the welfare state, which will include a political and personal debate about the concept of the welfare state and the nature of the social contract. This could include a redefinition of how we think about ‘personal security’, in terms of health, finance, employment, surveillance and privacy, including the ownership and use of personal and medical data.
National political parties will have to redefine themselves around this new welfare agenda. Right leaning parties may realign as the face of ‘caring capitalism’, whilst left leaning parties may have to rebrand themselves as the only party that will protect and develop the role of the new welfare state in keeping us all safe. Leaders of government will also need to think again about how they interact on the world stage and the interplay between nationalism, protectionism, and global responsibility and duty.
In this realignment of politics, business leaders will need to reconsider their business purpose. ‘Corporate Social Responsibility’ (CSR) is often expressed as a separate, non-core, charitable activity in corporations. In the new world social responsibility will be at the heart of business and be held in balance with providing shareholder returns. This will include a stronger definition of a corporation’s responsibility to society, especially taxation, providing for your employees, and developing meaningful sustainable growth balanced with shareholder returns.
6. What we expect from the media and the battle for truth
In the aftermath of the current crisis people will be more accepting of government intervention in the economy, just as we were in the aftermath of the Second World War, with the growth of the NHS and the welfare state. Acceptance of greater control will challenge the ‘invisible hand’ and will likely encourage a broader move to a ‘command economy’, which will be perceived as more able to ensure resilience and a quicker response in a crisis. It will also assuage growing perceptions of inequality and the arrogance global financiers and international bankers.
The move to greater control will be supported by an increasing role for AI in finance and the economy, but this will mean an even more vigorous debate about data. In the short term, government officials are anxious for information to help monitor and blunt the pandemic. In the US, White House officials are asking tech companies for more insight into social networks and travel patterns, and Facebook have created a disease mapping tool that tracks the spread of disease by aggregating user travel patterns. Such efforts, however, clash with people’s expectations of privacy. There is now a compelling reason to collect and share the data, because such surveillance may save lives, but it will be difficult to draw boundaries around what data is collected, who gets to use it, and how long the collection will continue.
One concern will be that data collected for one purpose could later be used for another. Will data used to fight Covid-19, for example, be reused later for something else? Transparency will therefore be crucial if typically private information is to be harnessed for public health. There will be demands for the government to be clear in articulating what specific public health goals it is seeking to accomplish; how it is limiting the collection of personal data to what is absolutely necessary to achieve those very specific goals; and how it is making sure that there are appropriate privacy safeguards put in place before data starts to change hands.
For example, the use of mobile phone location data, which is currently used by intelligence services to track terrorists, could be used to trace people and determine if they have been in contact with known carriers of the virus. Singapore, for example, already does exhaustive contact tracing and publishes detailed data on each known case, all but identifying people by name. On the government website you can see every known infection case, where the person lives and works, which hospital they got admitted to, and the network topology of carriers, all laid out on a time-series.
In the future, in this period of rebalancing, to get on a flight you may have to be signed up to a service that tracks your movements via your phone. Airlines wouldn’t be able to see where you’d gone, but they would get an alert if you’d been close to known infected people or disease hot spots. There could be similar requirements for entrance to large venues, government buildings, or public transport hubs. Temperature scanners could become ubiquitous and workplaces might demand you wear a monitor (an updated Fitbit for example) that tracks your temperature or other vital signs. Where pubs currently ask for proof of age, they may in future ask for proof of immunity – an identity card or some kind of digital verification via your phone, showing that you have recovered from, or been vaccinated against, the latest virus strains.
We would of course adapt to such measures, just as we have to increasingly stringent airport security screenings in the wake of terrorist attacks. Intrusive surveillance will be considered a small price to pay for the basic freedom to be with other people and go about our business. But the true costs will be borne by the less well-off. People with less access to health care, or who live in more disease-prone areas, will be more frequently shut out of places and gig workers, from drivers to plumbers to freelance personal trainers, will see their jobs become even more precarious. While immigrants, refugees, the homeless and other undocumented individuals will face yet another obstacle to gaining a foothold in society.
In future, the new currency will be trust. There will be a backlash against fake news and a demand for trusted sources. In the wake of widely shared conspiracy theories that have spread false rumours about the origins of Covid-19, its effects and its cure, from an escaped bioweapon, to a disease treatable with oregano oil (or gargling with bleach!), there will be greater calls for the regulation of large technology companies (e.g. Facebook, Amazon and Alphabet) and even for the nationalisation of social media, with some nations following the Chinese example of erecting firewalls and internet exclusion zones.
In the UK, the quest for trusted sources will fire the debate about trusted institutions, the role of the Government, the BBC and public service broadcasting more broadly. Those institutions and broadcasters which demonstrate trust and authority will be ascendant. However, it is unlikely that we can put the genie back in the bottle, social media will continue to grow as a support network, an intelligence network, and as a surrogate for social connection. It also will continue to be a mixture of local, global and national, but demands for social media verification, policing and control will only grow stronger.
Trust between leaders and followers, managers and employees, is critical to effective teams and consequently fundamental to organisational and business success. The present crisis will only intensify the importance of trust, whether this be associated with gathering greater employee data or in the move to increased homeworking and the inability for leaders and managers to physically observe their staff.
In 2- 10 years business leaders will need to reconsider what they are trusted with and what they are trusted to do. This also means identifying the wider role of business; their role as trusted institutions to ethically source suppliers and manage data; and their place in the community as communication hubs and regional/national representatives of their consumers.
Individuals, families, communities, businesses and national governments are still trying to make sense of what is happening to them. If current projections are correct, we will only emerge from lockdown in two to three months, but this will be far from a return to normal. Post lockdown, while we are likely to benefit from a short term boost to the economy as people ‘celebrate’ the immediate cessation of the crisis and the continued Government economic stimulus package, business leaders need to plan for a different future in the mid to long term.
This will include:
· Making the organisational, administrative, technical and cultural changes necessary to support a permanent move to flexible and home working.
· Reshaping the role and purpose of the traditional office and redefining the traditional ‘working day’ and ‘working week’
· Identifying how to lead a new workforce that is configured and connected virtually across home and office.
· Reconfiguring global and national supply chains, while at the same time taking advantage of the opportunities afforded by a move to local supply and increased legislation to ensure operational resilience.
· A renegotiation of the social contract and a new political landscape with a creative tension between welfare state and ‘caring capitalism’.
· Rethinking business purpose and how best to meet organisational responsibilities to society and meaningful sustainable growth balanced with shareholder returns.
· Planning for wage growth greater than inflation and an increase in taxation.
1920 signalled the start of a decade of excess which became known as the ‘Roaring Twenties’. It ended with the stock market collapse of 1929 and a worldwide decade of economic depression which set the stage for dramatic political change. 2020 will be remembered as the year when everything changed – the ‘Big Correction’. The next decade will be defined by the fight against recession and a dramatic reappraisal of how we lead our lives, the role of business and a renegotiation of the social contract.