Quo Vadis Post COVID?

Summary

The answer is beginning to emerge. Chose wisely

  1. we do know how the infection and death rates will interact with economic recovery, and it is quite possible to plan for it
  2. this planning works at international, national, regional, and sectoral level
  3. excellent consultancies are making complete programmes of recovery freely available
  4. the basic model is “protect – recover – retool – accelerate”
  5. yet the assumed trade off between economic value and human life is fundamentally false, and pure GDP is no longer an effective or reliable measurement
  6. massive investment is required in all scenarios, and this is creating a choice between rebuilding and remodelling our society and economy
  7. there will be permanent shifts in business and consumer demand
  8. there will be huge impacts from consumer and business indebtedness
  9. low carbon and circular economy / donut economics show us a way forwards, but it requires a scheme at the scale of the 1948-51 Marshall Plan
  10. Any response must be coordinated with neighbours, and the EU is well placed for this in terms of geography and scale
  11. technology can provide agile and scalable solutions
  12. academic studies are now getting down into the detail of working from home, post COVID psychology, and long run economic models and will provide more detail as to how to recover

The block copy from the sites below shows the pattern of thinking. (c) respective creators, all rights acknowledge.

https://www.mckinsey.com/business-functions/risk/our-insights/covid-19-implications-for-business

The whole article and all its links are very high quality.

https://www.mckinsey.com/industries/public-sector/our-insights/how-to-restart-national-economies-during-the-coronavirus-crisis

Gives a solid evidenced approach to making our way out on a regional basis

https://www.bain.com/insights/topics/coronavirus/

Has a complete overview

https://www.bain.com/insights/covid-19-protect-recover-and-retool/

CEOs working urgently to balance dozens of critical priorities each day are starting to focus on two leading questions: “How can we ride out the crisis to emerge stronger than others in our industry?” and “How can the organization learn through this experience to win in a new world?” To guide the decisions and actions that will answer those questions—through the welter of competing demands, the sometimes chaotic conditions and the paramount importance of doing the right thing—some leadership teams have committed themselves to two guiding principles: act now to protect and run the business today, and plan now to retool the business for the future (Figure 1).

It helps to understand the different phases of the journey, but CEOs and their teams won’t follow a straight line. During the journey, some phases will overlap and even circle back again, requiring simultaneous action.

https://www.forbes.com/sites/nishandegnarain/2020/04/22/not-back-but-forward-what-the-post-covid-19-economic-recovery-models-are-getting-wrong/

A common theme across all these models is that they contain some variation of the trade-off between effectiveness of health response on one axis, against the effectiveness of economic response on the other. The outputs are usually a plot of economic output against time based on the speed and trajectory of the health and economic responses.

These models all get one thing wrong – they all use GDP as the yardstick to ‘return to normal.’

This is a dangerous assumption against which success should be measured. In a large survey conducted in the UK last week, only 9% wanted life to return to pre-crisis ‘normal.’ If surveys are conducted around the world, it is likely that similar levels of discontentment with the pre-COVID world would emerge.

Already there are worrying warning signs that several Governments have been lowering environmental standards and bailing out unsustainable polluting industries, to accelerate their way out of the coronavirus crisis. This is a false trade off and may accelerate second order effects, given that the origins and events that led to this global pandemic lay with how the modern economy has undermined natural ecosystems.

https://www.business-humanrights.org/en/covid-19-recovery-plan-must-focus-on-building-sustainable-economy-in-line-with-european-green-deal-eu-leaders-ceos-ngos-urge

The coronavirus crisis is shaking the whole world, with devastating consequences across Europe. We are being put to the test. We are suffering and mourning our losses, and this crisis is testing the limits of our system. It  is also a test of our great European solidarity and of our institutions, which acted fast at the start of the crisis to deploy measures to protect us. The crisis is still ongoing, but we will see the light at the end of the tunnel, and by fighting together, we will beat the virus.

Never have we faced such a challenging situation in peacetime. The fight against the pandemic is our top priority and everything that is needed to stop it and eradicate the virus must be done. We welcome and strongly support all the actions developed by governments, EU institutions, local authorities, scientists, medical staff, volunteers, citizens, and economic actors.

In this tremendously difficult situation, we are also facing another crisis: a shock to our economy tougher than the 2008 crisis. The major shock to the economy and workers created by the pandemic calls for a strong coordinated economic response. We therefore welcome the declaration of European leaders stating that they will do “whatever it takes” to tackle the social and economic consequences of this crisis. However, what worked for the 2008 financial crisis may not be enough to overcome this one. The economic recovery will only come with massive investments to protect and create jobs and to support all the companies, regions and sectors that have suffered from the economy coming to a sudden halt.

After the crisis, the time will come to rebuild. This moment of recovery will be an opportunity to rethink our society and develop a new model of prosperity. This new model will have to answer to our needs and priorities.

https://www.techuk.org/insights/opinions/item/17224-covid-19-what-does-it-mean-for-the-economy

Permanent shifts in business and consumer demand  

While some businesses may snap back to how they used to operate before, the lockdown and changing habits under it will likely create demand for new products and services. For example, many may continue to work from home, while the delivery of goods and services online may see a sustained increase.  

Any permanent shift in demand will require business to adapt to meet this. We have already seen more businesses seek to increase their presence online, while also designing innovative new products that can be delivered at a distance such as exercise classes, interactive tutorials, and online social events. This is a welcome shift, making some events, products and services more accessible.  

Improving and sustaining an online presence will be key not just during this crisis, but also afterwards as some businesses and individuals continue this kind of consumption. For business owners this means demand for how they used to deliver goods and services may never recover, and as a result, they will need to seek to make a permanent shift in how they run their business with a greater focus on online delivery.  

Increased corporate and consumer debt

Much of the business support on offer from the UK Government comes in the form of loans, while many individuals may take our private loans or use existing credit facilities such as overdrafts or credit cards to help make ends meet while COVID-19 suppresses economic activity. The result of this will be higher levels of both consumer and corporate debt.  

This increased debt burden could have a major impact on how the economy restarts after the impacts of COVID-19 lockdowns are eased off. Excessive or unmanageable debts could reduce the recovery of demand, potentially preventing the quick economic bounce back many Governments and economists are forecasting if consumers and businesses have to spend more money managing the debt burden. 

Managing how debt is put on, and how it will be paid off afterwards by both business and consumers will be vital to ensuring a quick recovery. Government will need to work closely with banks to identify the best measures to do this and to allow people and businesses to better manage any debts put on as a result of COVID-19. 

https://www.wri.org/blog/2020/03/coronavirus-economy-low-carbon-investments

The good news is that a mounting body of evidence demonstrates that pursuing low-carbon and climate-resilient growth is the best way to unlock lasting economic and social benefits. Bold climate action could deliver at least $26 trillion in net global economic benefits between now and 2030 compared with business-as-usual according to the New Climate Economy. This includes creating more than  65 million new low-carbon jobs in 2030, equivalent to the combined workforces of the U.K. and Egypt today.

https://www.weforum.org/agenda/2020/04/marshall-plan-spain-europe-coronavirus/

“In this crisis, there can be no half-measures,” the president of the European Commission, Ursula von der Leyen, said. “And that will be the case for years to come as we seek to lift our economy out of the crisis valley. To do this, we will need massive investment in the form of a Marshall Plan for Europe. And at the heart of it should lie a powerful new EU budget.”

According to the Economist Intelligence Unit, the global economy will shrink by 2.5% in 2020 as a result of the pandemic. While in Europe, the effects could be even more severe – a drop in Eurozone GDP of up to 7% has been predicted.

Von der Leyen’s calls for a new Marshall Plan to help those of the continent’s economies that have been hit hardest by the coronavirus were echoed by the Spanish prime minister, Pedro Sanchez, who said: “If the virus doesn’t stop at borders, then financing mechanisms cannot do so either.”

To get Europe back on its feet and put an end to any potential expansion of the Soviet Union, the US Secretary of State, George C. Marshall, created the European Recovery Program. It sent nearly $13 billion of aid to Europe between 1948 and 1951, including shipments of food, fuel and machinery, as well as investments in ongoing industrial development. That would be around $142 billion today.

https://www.weforum.org/agenda/2020/04/post-pandemic-economy-favour-fastest-movers/

This combination of scalable and agile capabilities is what will define the short and medium-term success of businesses, whether large or small. But in the longer term, change will have to be more fundamental. Resilience, combined with agility, must be the new focus of business leaders as we all emerge from this crisis.

To create long-term resilience, we will likely see further robotic automation and artificial intelligence (AI) within our supply chains. These technologies reduce manual intervention and hand-offs, cutting transmission risks, and reducing the reliance on humans to work face-to-face. They can also enable production to scale and shrink in response to sudden demand.

Indeed, government interventions may have unintentionally accelerated this trend. Many countries’ fiscal stimuli amount to the largest scale experiment in Universal Basic Income (UBI) to date. UBI is considered by many to be a prerequisite for a successful AI-driven economy – by enabling businesses to potentially replace humans without impacting their welfare.

This crisis will cull a lot of outdated practices, yet many more than we might think will continue. We will always want to travel, to eat out, to be entertained, and to have experiences in person. Just do not expect any of these activities to be unchanged. Or to be delivered by the same brands, and by the same means to which we’ve become accustomed.

We will emerge from this period stronger, wiser, and more connected as a global society. Resilience will be at the forefront of every strategy, yet it is agility that will ensure competitiveness, and an ability to respond to the unexpected. To achieve this, businesses will have to re-evaluate where they must be strong and where they must be flexible.

https://cepr.org/content/covid-economics-vetted-and-real-time-papers-0

SCARRING BODY AND MIND: THE LONG-TERM BELIEF-SCARRING EFFECTS OF COVID-19 by Julian Kozlowski, Laura Veldkamp and Venky Venkateswaran

The largest economic cost of the Covid-19 pandemic could arise if it changed behaviour long after the immediate health crisis is resolved. A common explanation for such a long lived effect is the scarring of beliefs. We show how to quantify the extent of such belief changes and determine their impact on future economic outcomes. We find that the long run effect of the COVID crisis depends crucially on whether bankruptcies and changes in habit make existing capital obsolete. A policy that avoided most permanent separation of workers from capital could generate a much larger benefit than originally thought, that could easily be 180% of annual GDP, in present value.

WORKING FROM HOME ACROSS COUNTRIES by Charles Gottlieb, Jan Grobovšek and Markus Poschke

We study how the share of employment that can work from home changes with country income levels. We document that in urban areas, this share is only about 20% in poor countries, compared to close to 40% in rich ones. This result is driven by the self-employed workers: in poor countries their share of employment is large and their occupational composition not conducive to work from home. At the level of the entire country, the share of employment that can work from home in poor countries compared to rich countries depends on farmers’ ability to work from home. This finding is due to the high agricultural employment share in poor countries.

LONGER-RUN ECONOMIC CONSEQUENCES OF PANDEMICS by Òscar Jordà,2 Sanjay R. Singh3 and Alan M. Taylor4

How do major pandemics affect economic activity in the medium to longer term? Is it consistent with what economic theory prescribes? Since these are rare events, historical evidence over many centuries is required. We study rates of return on assets using a dataset stretching back to the 14th century, focusing on 15 major pandemics where more than 100,000 people died. In addition, we include major armed conflicts that resulted in a similarly large death toll. Significant macroeconomic after-effects of the pandemics persist for about 40 years, with real rates of return substantially depressed. In contrast, we find that wars have no such effect, indeed the opposite. This is consistent with the destruction of capital that happens in wars, but not in pandemics. Using more sparse data, we find real wages somewhat elevated following pandemics. The findings are consistent with pandemics inducing labour scarcity and/or a shift to greater precautionary savings.

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