Important note: all opinions below are my own, and do not reflect the ultimate truth. As more evidence emerges, these opinions will continue to be re-iterated in my never-ending search of getting closer to that ultimate truth.
As of the day of this writing, the world finds itself in a critical tipping point in a number of fronts. A global disease threatens the lives of millions, exposes the fragility of the systems created in the 20th century that have shaped our way of life, and forces us to change at breakneck speed in order to adapt to a future that is still uncertain in just about every angle you look at it.
Series of events that led us here
Information flows are the oxygen that fuel our modern knowledge economy, one that relies in radical transparency and thoughtful disagreement in order to effectively evolve. However, fast-forwarding to the American presidential elections that happened in 2016, the reliability of journalism started to erode as social media ad and content targeting took place on platforms such as Facebook, where campaign managers actively explored voters’ online data tracing to target and convert them with the help of consultancy services from UK-based firm Cambridge Analytica. The scandal reached its boiling point when the CEO and Founder of Facebook, Mark Zuckerburg, had to testify before the Congress of the United States on April 11th of 2018, exposing how unprepared, confused and uneducated the regulators in government were as it related to the new realities of the world.
This loose summary of recent political events led to where we currently find ourselves today: a polarized political environment due to the rise of populist political agendas across the world that undermines the trustworthiness of journalism, science and information leading to alienated citizens and ineffective mechanisms of collaboration between the public and private sectors, while threatening the state of modern democracy as we know it.
The world today is more interdependent than ever before due to globalist policies, increased travel, and interconnected supply chains. These changes have successfully grown the pie instead exclusive individual pieces, proving that the global economy doesn’t have to be a zero-sum game. Since the year 2000, the number of people living in poverty has been reduced in half as the role of developing countries in the global economy raised from 33% to 48% as of 2019. However, with the rise of populist regimes across the world (e.g., USA in 2016) we began to see the introduction of additional tariffs on international trade, closing of borders, and international conflict increase as a form of false reinforcement to its scared citizens that their country is taking action to care for them.
Finally, as the fears of global warming begin to become more real, the future of the energy sector is forced into a generational transformation towards sustainable forms of renewable energy that countries around the world find themselves at different stages of the journey. With the volatility of oil prices around the world increasing, profitability of extracting, moving and selling this commodity becomes uncertain, while countries take measures to increase the incentives on the research and development of new technologies in the renewable arm of the sector while introducing policies (e.g., carbon tax) to reduce the usage of fossil fuels and encourage the transition towards greener sources.
All of these recent changes in the political, economic and social spheres have been pushed to its breaking point when the SARS-CoV-2 was officially declared a global pandemic on March 11th of 2020, leading to a series of domino-effect consequences felt across the world. As of April 11th, most countries have officially entered “Economic Depression-status” where unemployment rates and stock market losses reach double digit highs.
What role do governments need to play
As the virus began the spread, we saw countries react differently: some immediately closed their borders, others cancelled all travel, others placed their citizens under mandatory lock down, and more. At the time, “what” to do was still not well understood and in hindsight we now know that the sooner the country took lock-down measures the lesser the impact on their health systems and economies.
However, due to the novelty of the virus and how it behaved, paired with the specificity of the demographics of each country, the data on fatality and contagiousness was not very reliable. It ranged from 0.2% (South Korea) to 10% (Italy) mortality rate, as the speed at which governments reacted and the age of the population played major factors on determining the number. Since humans aren’t very good at understanding exponential curves, a lot of countries assumed everything was OK when they only had a few hundred cases growing very slowly, even comparing this virus to a “normal flu” or H1N1.
These were irresponsible comparisons (since these people weren’t looking a fatality rate % nor length of time, only at absolute numbers of cases and deaths) that led many to believe this wasn’t a big deal and in turn exacerbated the curvature of the trend.
So, once the markets started to crash, people’s retirement savings began to disappear into thin air, companies’ cash flow statements began to dry up and millions were getting laid off, people were looking to their governments for help – rightfully so. As the multi-billion (and in some cases, multi-trillion) dollar aid packages started to be announced it was clear that the new socio-economic realities of the 21st century demanded governments to change. In a world where we mandate people to self-isolate to stop the spread of a virus, many simply cannot do that as they depend on their next pay-check to cover rent and to put food on the table. Conversations about a UBI (Universal Basic Income) started to sound more realistic in the face of such new realities.
Many people criticized their leaders for sending money abroad to support developing countries in the fight against COVID, without fully understanding why or the relative size of these packages. In Canada, Ottawa pledged $150 million dollars to the WHO (World Health Organization) as a foreign aid package to help combat the virus in refugee camps in Greece and other developing nations. To put this money into perspective, this only amounts to 0.5% of the domestic aid package offered to Canadians (which amounts to $27 billion CAD as of the date of this writing). And from a social responsibility perspective, if we don’t stop the spread in the developing world Canadians will never see this virus go away as it will continue to spread globally even after First World nations successfully beat it domestically. So, pledges such as these are absolutely necessary in the fight against a global pandemic.
In order for lock-downs to work and for countries to successfully beat this virus, it won’t be a domestic fight. It will require global cooperation among countries to mobilize and free up resources to the locations most in need. The virus does not discriminate, so unless we are willing to help each other we will see far more deaths than necessary.
What does this mean to the economy as we know it
Three days before COVID-19 was deemed a global pandemic, Saudi Arabia started an oil price war with Russia leading to a 65% quarterly fall in oil prices in the span of a few days. This was a double gut punch for those regions where economic activity is strongly tied to the price of oil. In turn, further polarization about the industry took place and massive lay offs happened overnight.
Many regions in the world have non-diversified oil economies, which leads to cyclical patterns of economic activity. As an example, in Canada the province of Alberta possesses roughly 10% of the world’s oil reserves. This has led the provincial governments to double down on the industry preventing its local economy from diversifying itself. This type of policy has exposed its people to three major weaknesses that further perpetuates economic fragility:
- A boom-and-bust economy that has major impacts in people’s abilities to retain a job over longer periods of time;
- Retaining talent that does not want to work in the oil industry, forcing many to leave the province, and;
- Entrepreneurs having little to no incentive in opening up non-oil businesses (tech, for example) in Alberta as tax break incentives are removed and applied to pipeline building projects.
When you look at Alberta’s energy grid, 91% of it comes from fossil fuels (43% coming from coal), whereas provinces such as Ontario and Quebec heavily over index on renewable sources. This is not to say that relying on fossil fuels isn’t economically the right thing to do for Alberta (although, questionable when speaking about a sustainable future), but based on the federal government’s tax break incentives for renewable energy usage there are clear advantages for business owners to source their electricity from renewable sources.
However, believing that we can successfully run a sustainable circular economy one day may also be misleading. As Vaclav Smil (scientist and policy analyst from the University of Manitoba) puts it in his book Growth: From Microorganisms to Megacities:
“Modern economies are based on massive linear flows of energy, fertilizers, other agrochemicals, and water required to produce food, and on even more massive energy and materials flows to sustain industrial activities, transportation, and services. Circularization of the two key flows is impossible (reusing spent energy would require nothing less than abolishing entropy; reusing water used in cropping would require the capture of all evapotranspiration and field runoff), and (with the exception of a few metals in some countries) high-intensity (>80% of total flows), mass-scale recycling of materials (above all construction waste, plastics, and electronic waste) remains elusive.”
But this is not to say that innovation couldn’t solve for any of that. It just remains highly unlikely that we will ever get there in any reasonable amount of time unless a massive spur of innovation fueled by huge amounts of capital investment begin flowing into creating solutions for such issues – which the world is no where near the place it needs to be in order for that to happen.
Now, from a pandemic-induced economic breakdown perspective, the short term pain of COVID-19 inevitably will be felt across every country and every level of the economic systems. In order to prevent complete chaos, governments have had to issue massive aid packages so people who have been laid off can continue to pay rent and put food on the table. This money isn’t lost money, as it’s being re-injected into the economy by these very people when they complete a transaction. However, these aid packages mean governments are having to print more money and are now offering close to zero percent interest loans to businesses so they can keep people on the pay roll. This cycle is inflationary in nature and we should expect currency devaluation and more volatility in global trade as a result.
Most recently, hedge fund manager Ray Dalio gave a interview on the TED Connects program about the future of the global economy. He sees what’s happening in the economy today and draws direct comparisons with the 1929-33 Great Depression, when the US saw unemployment rates reach 25% and GDP decline by 30%. Dalio, who predicted and successfully dodged the 2008 market crash by investing in bonds without credit risk, currencies and gold, thinks the impact of COVID “freezing” the economy will force us to rethink the way capitalism currently operates as we understand the need of government intervention and social safety nets in a 21st century new world order.
What will the “new normal” be
Reinvention of systems isn’t something new. Looking back in history this has happened many times. When there is collapse of the world order people come out of it more united and hopeful of a new future, and a new world order that requires reinvention and evolution from the old one emerges. The latest example of this being after World War II.
The idea that the profit system can accomplish everything has not proven to be right, because resource allocation goes to those who have the resources. For example, in our current system those who belong in the top 40% of household wealth spend 5x as much money in their kids’ education than those in the bottom 60%. This system is self perpetuating, reinforcing the funneling of capital and opportunity to those who already possess it in the vast majority of time.
But don’t get me wrong, I believe capitalism works but there comes a time when it needs reform. We should not be able to only grow the size of the pie, but we should also be able to divide it well. Otherwise the people lose faith in the system as the vast majority of them get left out of the benefits from participating in it.
The amount of wealth in the world remains roughly the same over time. The only way to increase value is through innovation and learning – both of which increase productivity (ability to create more with less). Investment in health and education are two of the best decisions any country can make in order to achieve that (studies show a positive correlation between additional years of education leading to longer lifespans). Sadly, we still see many countries (such as the United States) where basic health care isn’t available and education still remains an elusive idea due to the massive amount of money required to get one.
Massive transformation will also need extend to the way businesses’ organizational charts, incentives and key performance indicators are structured. What has become known as “Community Capitalism”, is an emerging business model that caters to the needs of a 21st century society. As the relations between consumers and enterprises change due to advancements in IoT (Internet of Things), the feedback loop has been shortened and so has consumer loyalty. In the past, customers were “one-time” buyers, but with the birth of the sharing economy (think Uber, AirBnb, Spotify, etc.), these same customers will need to become life-long users. And in order to effectively make that happen, organizations will need to restructure the way they collaborate with other stakeholders – which in this case could be other internal teams with conflicting priorities or even external companies that play in the same arena (think of a fridge manufacturer implementing IoT capabilities now having to collaborate with a data cloud company, the success of both depends on each other’s success). And the disruption doesn’t stop there: companies’ value offerings will need to be widened to the value they bring to the wider community – interesting ways some have been able to achieve that is by creating internal banks to provide favorable mortgages to staff.
So, a post-COVID world will give birth to a new consumer: one that’s scared, underemployed, with less assets and more socially conscious. Both service/product providers and employers will need to think of news ways to fulfill these concerns. A more fertile ground for social-entrepreneurship will also emerge.
Why am I optimistic about where we go from here
On the paragraphs above I expressed my concerns and thoughts on a number of changing fronts that are happening in society today. Although the COVID-19 pandemic sparked my desire to write this, the transformations I described are far broader than the health and economic crisis sparked from the virus itself, and in many cases were happening long before the outbreak.
Despite humanity finding itself in a key turning point for the future of its existence, I am an optimist at heart and believe we will get more things right than wrong. As seen in the past, when humans resist change for too long, a series of events eventually change humans against their will. This pandemic seems to be an example of the latter.
Recently, we’ve seen many organizations realize that the work they were asking their employees to do from the office was actually doable from any other location in the world. We’ve been forced to reflect about the need to measure input (hours worked) as a function of output (productivity). And in many cases we’ve learned that most can produce more in less time, whereas some need more time to produce less. This is a fundamental paradigm shift to the one that was introduced after the industrial revolution, where factory workers’ time spent on the manufacturing floor was directly correlated to their value added. In a knowledge economy of the 21st century, this no longer holds true and we are being pushed into questioning the fundamental assumptions that we’ve held our entire lives regarding the relationship between life and work.
We’ve also seen an outpour of gratitude toward frontline workers (nurses, grocery shelf stockers, truck drivers, and many more), which make up the larger part of the essential work needed to keep our societies running. This came as a breath of fresh air, as historically these workers have been undervalued and even marginalized by the holders of power in society.
However, one thing hasn’t changed: the human need to connect with one another. This fundamental need for human love has been displayed in heroic acts of kindness by people helping each other in times of distress. Whether by video chatting with someone going through mental health issues, or by donating your money and time to those in need, or by businesses offering free meals to those in the frontlines keeping the world turning, the very nature of being human has been put on center stage in every corner of Earth in the midst of this pandemic.
With that, I have faith that as a collective we will persevere, as we have many times in the past in the face of insurmountable challenges. By letting our very nature guide us through all of these changes, humans will design a future worth looking forward to, one where everyone has a role to play and a dream to aspire to.