By Arden Brummell and Greg MacGillivray
The COVID-19 pandemic has drastically altered the economic, political and social landscape. As the pandemic fades, what are some of the major forces reshaping the future and how will this affect our lives?
Digitization has a long history, encompassing mainframes to personal computers, the internet, smart phones, big data, artificial intelligence (AI) and automation. With the pandemic, the pace of adoption of digital technologies — by individuals, businesses and governments — has occurred at record rates.
Zoom has become a household name, apps have proliferated and businesses have introduced online ordering, payment and delivery systems at the speed of light. Governments have shifted to online service delivery at unprecedented rates. The health care system has embraced electronic medical records and online medical appointments, while the legal system has welcomed virtual proceedings and the electronic transfer of documents.
Once learned, these innovations cannot be unlearned. We expect they will lead to an extended period of innovation and improved productivity.
The pandemic has created unprecedented levels of debt and savings. Businesses and individuals accessed government funds and deferred spending to survive. All levels of government as well as businesses, not-for-profits and individuals incurred mountains of debt.
There is a view that government debt levels do not matter. Japan’s debt is 250 per cent of GDP while Italy’s exceeds 150 per cent, and both countries still function. Will this continue? How do we manage this debt?
With the economic recovery, some businesses have returned to prosperity while others face bankruptcy with insufficient cash to service debt. Can households make mortgage payments? Can banks rein in lending to minimize defaults?
Governments can manage debt in two ways: monetize the debt through inflation or raise taxes. Monetization occurs when inflation reduces the cost of repayment. Current dollars are being replaced with future dollars that are worth less. The irony is that governments want low interest rates to reduce the repayment costs — yet it is low interest rates that tend to induce inflation.
Voters resist increases in taxes. Governments, however, may be able to expand the tax base by focusing on easy targets such as global technology firms or the excess profits of banks and energy companies. Managing debt will be a major challenge for governments, businesses and individuals.
Role of government
Will the influence of government increase? Since 9/11, and with public support, governments have consistently sacrificed individual rights to provide security. Think airport security. Think anti-terrorist legislation.
The pandemic has reinforced the role of government as protector of the common good by imposing restrictions on society. This role is likely to increase across society, with greater government control of health and education systems, regulation of business, and limits on personal freedom.
The pandemic has reinforced the value of a highly centralized, integrated health system. Regulation of business has increased – not only in areas of health and safety but in environmental, social and governance (ESG).
There has been a regulatory push to enhance competition as the market power of major corporations has becomes more visible. Mergers are being rejected. At the same time, new government initiatives to stimulate innovation and productivity underscore the perceived importance of governments in directing change.
Expectations of business
Capitalism has been blamed for causing inequality and injustice, which has worsened with the pandemic. Market power is under scrutiny. There has also been a push for business to manage its impact on people — employees, customers and communities — and the ESG movement has accelerated.
Businesses need to innovate, adapt, develop new skills, build resilience and enhance efficiency to remain sustainable. The pandemic heightened these requirements to survive.
Managing new labour relationships and new working arrangements, like work from home, will necessitate new measures of worker output and performance. Adapting business to ever-evolving digital services will continue to be a challenge; investments in automation will further complicate employer-employee relationships; and competition will surge with the advent of new business models. There’s no such thing as business-as-usual anymore.
Behaviour and values
Work from home, Zoom calls, online gaming, Netflix, dining in. Will these new lifestyles vanish as the pandemic fades? Some will inevitably persist with the proliferation of online services.
Social distancing has faded and masks have been mostly discarded. A thirst for travel is in vogue despite lingering travel restrictions and rising fuel costs. Pent-up savings have shifted to mass consumption, with a surge in spending, coupled with supply chain disruptions, leading to inflation, which, along with surging housing prices, may be tamed by rising interest rates.
A more worrying trend is the increase in social and political division. Income inequality persists, and political divisions seem more intense than ever, as truth and social values are in flux. How they might play out is highly uncertain.
Environment and energy
Climate change concerns, temporarily muted by the pandemic, have re-emerged and gained momentum, with a push to net-zero emissions by 2050. Environmental concerns have shifted from conservation to active environmental management at a global scale.
With high energy prices reinforcing carbon taxes, the energy transition will gain momentum, driven by both policy and by individual and business response to market forces. Maintaining a reliable, affordable energy supply will be a challenge.
Role for policy to guide forces shaping the future
Policy can guide each of the forces we have identified, and shape them for the better.
First, governments can incentivize businesses, non-profits and governments to embrace new technologies, to spur innovation and productivity.
Second, governments can encourage business and individuals to shift to a lower debt regime, through measures such as interest rate increases.
Third, governments can support business as they adapt to rising ESG requirements.
Fourth, governments can leverage market forces to accelerate the transition to a low-carbon future.
Fifth, government policy that reinforces a shared aspiration and mutual tolerance can help heal social and political division and build greater cooperation. The focus should be on transition, not outcomes.
Arden Brummell and Greg MacGillivray are Managing Directors of Scenarios to Strategy Inc., a Calgary-based firm that helps improve organizations through strategic conversation and action.