A great deal is currently being written and published about how to survive and even thrive during the current crisis. This is not what we want to write about. Our intention is to look further out and ask questions about what will happen after the crisis is over.
Sooner or later, the Covid-19 pandemic will abate and things will start to return to normal. But what will this new “normal” be? It is easy to say “things will never be the same again” but what, exactly will be different and why? Nations have an opportunity to think now about the kind of “normal” they want to plan for. In much the same way that the Beveridge report of November 1942 paved the way for the evolution of the Welfare State after the end of WWII, what is the equivalent thinking now that will identify the key issues that need to be tackled as the global economy comes out of hibernation? What questions need to be asked and answered? These are the things that interest us.
We are not alone. The UN Secretary General, Antonio Guterres recently wrote:
“We simply cannot return to where we were before Covid-19 struck, with societies unnecessarily vulnerable to crisis. The pandemic has reminded us, in the starkest way possible, of the price we pay for weaknesses in health systems, social protections and public services. It has underscored and exacerbated inequalities, above all gender inequity, laying bare the way in which the formal economy has been sustained on the back of invisible and unpaid care labour. It has highlighted ongoing human rights challenges, including stigma and violence against women.
Now is the time to redouble our efforts to build more inclusive and sustainable economies and societies that are more resilient in the face of pandemics, climate change and other global challenges. The recovery must lead to a different economy. Our roadmap remains the 2030 sustainable development goals.”
There is much unknown about the length of the crisis and the way in which it will play out (both locally and globally). Predictions about the coming year must be qualified by the fact that:
- There is much we still do not know about the Covid-19, in terms of how it operates at the individual and collective levels, its incidence and prevalence across the population, and its mortality rate (the UK figures for reported deaths are not good at distinguishing between those who die with the virus and those who die from it)
- Decisive medical breakthroughs could come at any time over the next year (or not come at all)
- The policy response to the pandemic will not be static and calculations about the trade-offs involved will change over time. A policy of saving / extending lives whatever the economic cost is unlikely to be seen as sustainable either in economic or in health terms: an extended lockdown will produce not just an economic recession but an economic depression, with severe effects on the life expectancy and general health of the population as a whole
None of these qualifications should stop us thinking now about likely outcomes and the key questions that need to be asked.
To our minds, the current crisis has thrown into stark relief certain fundamental assumptions that have underpinned business and society over the past several decades. Thus, key questions that need new answers include:
- What constitutes “essential” work and what is the basis of value – what work is now perceived as adding value?
- What is the legitimate role of government in apportioning the costs of dealing with the crisis across groups and generations?
- What is the new nature of the psychological contract between employer and employee?
- What reassessment of “globalisation” will be necessary in light of the risk and “fragility” highlighted by the current crisis?
All of these should now be up for debate. This article is our opening contribution to that discussion. We are keen to engage with others who are interested in these ideas. Over the course of this and future articles we want to explore them in some detail and encourage a debate with others on possible answers.
Who we are:
Adam Gold founded Adam Gold Consulting in 2004. He has over 30 years experience in management consulting working at Board Level with private sector clients across Europe and Africa.
Adam can be contacted at: firstname.lastname@example.org
Christopher Lake is the co-founder of Syllogism, the recruitment, strategy, and ethics consultancy. A former fast stream civil servant, he was Tutor and Fellow in Politics at Magdalen College, Oxford from 1995 to 2000.
Christopher can be contacted at: email@example.com
The value of work and levelling up and down
The question of which workers are essential to the orderly functioning of our society is not one most of us have given much thought to until very recently. Come an international crisis, we could have predicted that doctors and nurses would be on the list. Likewise firefighters, police officers, and ambulance drivers. But supermarket workers and delivery drivers? Carers and cleaners? It turns out that people we have taken for granted – whose employment conditions we knew were unattractive, whose work itself seemed unglamorous and unrewarding, whose occupational status was low, and who (in large cities at least) seemed to be disproportionately drawn from the ranks of migrant workers – are our new besties, expected to turn up on time and in good spirits and to be willing to place themselves in harm’s way, exposing themselves to large numbers of unhealthy people. Who knew that working at Tesco would one day merit danger money?
Coming out of this, we will need to look again at our whole understanding of which workers we can and cannot do without when the chips are down and of how to reward those workers (not just with garlands and applause but with something material and tangible) in ways that reflect their social value. The idea that someone can be an essential worker and at the same time be on (or close to) minimum wages, with little job security, will be at the centre of the political reckoning that comes in the wake of the pandemic – a reckoning in which the newly appointed leader of the Labour party, Keir Starmer, has signalled his intention to be on the side of the “overlooked and underpaid”.
The pressure to level up the pay and employment conditions of key workers – and, by extension and analogy, others who have done their own unglamorous bit in the crisis or who simply find themselves in a similar economic boat – will be one part of the equation. The other part will be a pressure to level down the stratospheric rewards of our nation’s high- rollers. Partly this will be done through the tax system: the well-paid are going to be at the top of every political party’s hitlist to pick up the tab for the massive state intervention the pandemic has summoned forth.
Of course, taxes (regarded as neutral instruments for raising revenue) can change without deeper assumptions about the moral legitimacy of high rewards changing with them. In fact, we believe those assumptions themselves are coming under renewed scrutiny. The move to encourage top football players and managers to take a temporary 30% pay cut, as part of doing their bit for the crisis, is a symbolic challenge to the whole direction in which reward structures in globalised, capitalist economies have been moving in recent decades.
The questions this raises are profound:
First, why stop with the world of football? Why should the 30% injunction not apply also to bankers, corporate chieftains, and high-tech mavericks, whose talents are far more hidden from public view than those of sporting stars? In fact, why should every high-earner not take the strain?
Second, at what point will those who have (enthusiastically or otherwise) taken a 30% pay cut feel confident enough of public opinion to insist that the time has come for the 30% to be restored? What will national economic conditions need to look like for an appeal to the legitimacy of the status quo ante to sound anything other than self-serving and morally blind?
Third, for large numbers of our fellow citizens, their sense of economic crisis and insecurity did not begin with the coming of the Covid-19. It has been with them for years, perhaps decades. For this constituency, the call for the well-paid to do their bit for the crisis raises the question of why this crisis should be privileged over the deeper crisis of contemporary capitalism – a crisis that has left many workers feeling at the mercy of globalisation – in which the well-paid carried on regardless with the blessing of the prevailing economic orthodoxy.
Justice between generations: the debate we cannot avoid
At the moment, our politicians are behaving as most of us would want them to behave in a time of national crisis. Their demeanour is sober and constructive: cheap political point-scoring is seen as being in bad taste.
These, one might think, are ideal political conditions in which to debate the deeper questions the pandemic has raised about the principles that should underpin our collective life and about the lessons to be learned from the current crisis. But precisely because our politicians are in crisis-mode, preoccupied with the here-and-now and finding it hard to see life beyond it, the deeper questions must, politically-speaking, be left for another time.
Our hope must be that, come that time of national stock-taking, enough of the current spirit of seriousness will still be in the political ether to allow our leaders and representatives to survey the state of the nation in ways that do justice to the gravity of what we will by then have been through and what we will from then on be living with. The debate about how we divide up the economic pie – knowing what we will about whose labours the crisis has revealed to be truly essential to our national well-being and those whose labours have been revealed to be not essential at all – will clearly be at the top of every political party’s agenda.
The dynamics of our adversarial system may make it difficult to locate the political debate along an axis where, arguably, it needs to be located – in terms not of who should get what within a particular generation but of what one generation owes another.
The need to think clearly and humanely about intergenerational justice has been with us for a long time: increases in life expectancy made this need pressing even before the pandemic wrought its havoc. Once all the data relating to Covid-19 are in and analysed, one question the professionally cold-blooded members of the policy community will have to ask is: was the benefit to the elderly worth the cost to the young?
This question is not one that ordinary citizens – be they grandparents or grandchildren – can easily think about from the personal standpoint of their day-to-day lives: the emotional connections across the generations are too strong for us, as individual citizens, to apply the utilitarian calculus to them.
The question of intergenerational justice is more one to be considered from the impersonal perspective that policy-makers and legislators must occupy – the perspective from which are made aggregate judgements of cost, benefit, and well-being across the population as a whole. To draw on the analogy with war that has been deployed so often in the current crisis, the impersonal perspective is the one taken by generals required to make decisions about where to deploy their armies, knowing that the saving of some lives will require the loss of others. What appears heartless from the personal perspective can be a vital piece of actuarial calculation from the impersonal one.
Seen in this impersonal, aggregated way, the young (as a group) will end up paying a high price for the measures our government (and others around the world) has introduced in response to the pandemic. The disruption to the education system is only part of it. Unemployment among the young looks set to skyrocket (with all the negative consequences this will have for the physical and mental well-being of those concerned). And it is the young of today who, in the end, will have to pick up the bill for the vast public debt the UK government is taking on through its extensive intervention in the economy. As if this was not enough, it is the young who are in the firing line to deal with the devastating effects of climate change.
In an ideal world, our politicians would not shy away from occupying the impersonal standpoint and from considering who as a group we are (and are not) being fair to in allocating our national resources. The political obstacles to conceiving of this question in terms of allocations between generations – allocations that raise morally vexing questions not just of what quantity and quality of human life is worth what quantity of taxpayers’ money and economic sacrifice, but of the opportunity costs for one generation of concentrating the resources of the state on another – are formidable. Even airing the question may be the stuff of political self-destruction. But the sooner we are brave enough to say what is still the unsay-able, the better. When it comes to intergenerational justice, honesty is going to be the best policy.
The changing nature of the psychological contract
The concept of a psychological contract between employer and employee is now commonplace. In its essence it refers to:
“The perception of both parties to the employment relationship, organization and individual, of the reciprocal promises and obligations implied in that relationship” (Guest & Conway, 2002, p. 22)
What, if anything, has been the impact to these implicit reciprocal promises and obligations of the recent shuttering of organisations and / or significant increase in homeworking? For many organisations, what has happened in the past 2 to 3 weeks calls into question the fundamental nature of the contract between employer and employee.
Two key issues arise:
Firstly, organisations have scrambled to digitise their operations thus enabling effective homeworking. In the short-term this has enabled many organisations effectively to continue the work of employees (albeit remotely). But, in the longer term how will this affect the way in which the employee regards their relationship with their employer?
Organisations are not merely the efficient undertaking of the systems and processes that enable them to deliver their product or service. There is also a social component which cannot be ignored. This issue was experienced some decades ago in several of the large consulting and professional services organisations which started to encourage homeworking as a means of reducing demand for office space and hence lowering their costs. Whilst cost efficient, this nonetheless impacted on the ability of firms to inculcate and then sustain common culture, standards, attitudes and all the unwritten rules and behaviours necessary to project a consistent image out to their clients and customers. It also weakened the bond between employer and employee making ambitious and proficient employees feel much more of a free agent.
We would predict that the same stresses and strains will now appear in other organisations as they adapt to this remote way of working. Nonetheless the drive to maintain a greater proportion of homeworking may be irresistible. After all, once it has been proved technically possible to do it, will employees want to waste time each day commuting and will employers in economically straitened times want to continue to incur the cost of office space which they now know is not necessarily required? We believe the cost imperative will drive a move to increased homeworking but that the consequence will be a significant increase in employee turnover.
Secondly, we anticipate that there will be a knock-on impact on organisations that are perceived to have behaved well or badly during the crisis. Interestingly we think this will play out in two quite distinct ways one of which is a novel extension to our understanding of the psychological contract and extends it to a wider “stakeholder” role:
- The way in which organisations care for, support and attend to the needs of their employees
- The extent to which they are perceived to have met their wider, societal obligations. It is striking the way in which this has come to the fore in the last few weeks. The extent to which some business ventures are explicitly recognising and responding to the expectation that they will give back to the wider community through their actions at a moment of national crisis is, we suggest, the very start of what could become a significant debate about the true role and obligation of the corporation to all its stakeholders in a modern economy
This is already being played out in the national press and we would expect it to be having an even greater impact on employees of these organisations. Thus, what impact will there be on the commitment of employees and overall staff retention for organisations such as:
- Greggs: confirmed all staff will be paid for contracted hours for “as long as is possible” and donated all unsold food to the NHS and local charities
- Timpson: stated it would keep its 5,500 employees on full pay while its shops remain closed
- Fullers: With over 400 sites this chain has stated it will not seek rent payments from its tenanted pubs now or in the future for the period that they have been closed due to the lockdown.
- Jingye (the recent purchaser of British Steel): this Chinese company sent a private jet with medical and protective equipment (including face masks, goggles, thermometers and medical gloves) for workers at the Scunthorpe blast furnace steelworks and the nearby hospital
- NCP: has given free parking to NHS staff and all key workers
- Unilever: repurposing some of its production lines to produce hand sanitiser and then supplying it free of charge to the NHS
As opposed to organisations such as:
- J D Wetherspoon: Originally tried to stay open during the lockdown and then exacerbated its bad press by saying it would not commit to paying its 43,000 staff before it had received funds from the government (although its CEO subsequently relented)
- Easyjet: Pilots and cabin crew asked to take a pay freeze and 3 months unpaid leave despite the firm having proceeded with a £174million dividend payout to shareholders
- Travelodge: Despite explicit guidance from government that hotels looking after homeless families should not close, Travelodge closed its premises and turned vulnerable families out onto the street
- Cineworld: the company terminated the employment “with immediate effect” of staff working in their Cineworld chain despite the government scheme that would have covered 80% of employee wages
Our prediction would be that not only will staff retention prove much more difficult for organisations in the latter group than the former but that they may well experience customer boycotts when they reopen for business. There are, of course, costs associated with staff turnover and boycotts and it may well prove in the medium-term to have been distinctly unwise for these organisations to have acted in a way that controlled their costs more tightly in the short-term.
The Future of Globalisation and the Aftermath for China
We do not think it is fanciful to say that the onward march of globalisation has come to a grinding halt and is unlikely to survive without radical change. Already under threat from populist leaders (of both the left and right), environmental pressure groups and others, the impact of Covid-19 will lead to a major reassessment of its benefits and risks.
Why is this the case? Put simply, the current pandemic has called into the question the fundamental cost / benefit equation of such a deeply interconnected world economy. Over several decades, corporations have taken full advantage of this trend in a constant search for low-cost production and greater efficiency. Much as Great Britain was referred to as the “workshop of the world” in the 19th century, it is China and other low labour cost economies around the world that have been beneficiaries of this trend. In return, western nations have benefited from cheaper consumer goods. But the outsourcing of production to other countries combined with a ruthless drive further to lower the costs of production by just-in-time operations brings its own unique risks.
Even before the full extent of Covid-19 had made its impact on Western economies, numerous industrial sectors in Europe and North America were raising concerns about their ability to continue operations due to low in-country stocks of critical components and their inability to continue with domestic production due to the shutdown of the Chinese economy. Indeed, early on in the pandemic, there were unsubstantiated reports in the British press that Jaguar Land Rover were repatriating their staff from China and insisting they filled their suitcases not with their own possessions but with crankshafts and other components to enable the production lines in the UK to continue working!
Another aspect of this has been a growing realisation at governmental level that what were now strategic items were no longer being produced in country but also needed to be imported from the Far East from facilities that proved not to be locked-in extensions of national manufacturing but were, instead, perfectly capable of switching allegiance and selling to the highest bidder. This is not a uniquely UK problem. In, recent days the German government has openly accused the United States of an act of “commercial piracy” due to its diverting shipments of medical supplies from a supplier in Thailand by paying thousands of dollars over the asking price in cash on the runway.
All of this will, inevitably, result in a reassessment of the wisdom of this economic model as the world readjusts to a post Covid-19 situation.
The impact on China
We anticipate that China will be a significant economic loser from this reassessment.
First, at its simplest, we expect corporations will seek to hedge their future risk by establishing new supply chains in multiple low-cost environments rather than continuing to be dependent on just one supplier. From this perspective, we would expect countries such as Vietnam and Thailand to benefit from this supply chain diversification. Over time this trend could in fact act as a force for good in increasing GDP in several developing economies.
Second, China will also be impacted by the aftermath of its role in the creation of the Covid-19 pandemic. To date, many governments have been wary of pointing of fingers and laying the blame at China’s door, at least until the facts of the pandemic’s origin have been established beyond reasonable doubt. Talk of the Chinese virus has rightly been seen as disrespectful to the Chinese people who have died in Wuhan and to the suffering of those who continue to live in mourning and fear: even Donald Trump, in a rare glimpse of generosity, spoke of the “hell” the people of China had been through.
We predict that, sooner rather than later, the Chinese authorities will face a reckoning. The fact that China’s economy will have fared less badly than others in the pandemic – and that its relative economic position in the global order will thereby have improved – will insulate China from some of the negative consequences of this reckoning and may speed up the trend towards the country becoming an economic eco-system in its own right.
But a reckoning there will be. When it comes, it will be important to maintain the distinction that the Chinese virus description blurs, between the innocent suffering of the Chinese people and the possibly culpable negligence of the Chinese authorities. It is the authorities in China rather than the people in China who must answer for what has happened. Rolling those two constituencies together, under the rubric of the Chinese virus, is exactly what the Chinese government wants the rest of the world to do: blame shared is blame deflected.
The argument that China has come out well from the pandemic is already well-rehearsed. Its smack of firm government has kept China’s reported death toll far lower, per capita, than it will likely end up being in all but a handful of advanced countries. And its productive power has allowed it to assume the role of helping hand, exporting vital medical supplies around the globe. The Chinese narrative, in short, has been that it has won where others – not least its geopolitical rivals in the US and Europe – have lost.
We do not agree with this up-beat assessment of China’s standing in the wake of the pandemic. Once we get past the current phase of day-to-day crisis management, the Chinese authorities will surely face renewed international pressure to answer for their role in the crisis – a crisis that, by then, may well have become the greatest economic and humanitarian disaster in living memory for most countries of the world.
Where, it will be asked, was the firm hand of Chinese government when it came to preventing the outbreak to begin with? Knowing of the risks involved, was it not negligent of that government not to have had a firmer grip on public health and food safety? Has not the rest of the world ended up paying the price for the ecological trauma brought about by China’s rush to urbanise?
The job of deflecting charges of incompetence and dishonesty is going to keep the Chinese authorities busy for months to come. And even if they succeed in this task – even if they show they did everything they possibly could have done – the damaging image of China as a pandemic waiting to happen will stick.
One way or another, we expect attitudes to China to harden and perceptions of the risks posed by receiving large numbers of Chinese visitors to harden with them. This, in turn, will be bad news for those parts of national economies that have come to depend on a relatively free flow of people to and from China. Tourism and all its offshoots will certainly take a hit, at a time when the industry will need all the returning customers it can get. The effect on the balance sheets of many universities, deprived of Chinese students paying high fees, will be severe – we say more about this shortly.
One final geopolitical point: the greatest affront to the Chinese Communist party in all this will come if it turns out the country that handled the pandemic the best was Taiwan.
Prognosis and Conclusions
We have to assume the areas of the economy that will take the biggest hit over the coming months are those that rely on the mass assembly of people or their mass movement (particularly across borders) or (worst case) both.
The word areas is used to cover both the spatial and the sectoral dimensions of the issue. Spatially, big, international cities are going to come out worst from this and will be the slowest to recover: where once mass assembly and movement were their lifeblood, they are now a health risk. Until very recently, mega-cities were seen by many as the economic future. No longer.
Sectorally, any economic activity that has until now rested on attracting large numbers of people (often from different parts of the world) to be in close proximity to one another will be vulnerable. This is bad news for airlines, shops, restaurants, tourist venues, theatres, cinemas, sporting events – and universities.
Organisations that bring together these spatial and sectoral vulnerabilities – think of department stores and universities in central London – will be especially vulnerable.
Let’s examine one sector in more detail – the university sector. Being the start of the next academic year, let’s imagine that this is where we are in September:
- There remains a need for some measure of social distancing
- The government has reserved the right to re-introduce a lockdown if cases of infection spike in the autumn
- Given A. and B. universities have decided to teach on-line in the autumn term in the hope of re-opening for normal business in January 2021
In what may prove to be a trial run for the start (at least) of the next academic year, universities have, in response to the current lockdown, already switched the bulk of their teaching on-line.
So, if it comes to it, university teachers will be much better placed to educate, remotely, their students in the autumn than they are now. They will have a better understanding not just of the existing technology but of the technology they would find it helpful to have. And they will have a better understanding of the animal spirits of their students under on-line conditions and of how to motivate them and maintain their interest away from face-to-face contact.
New markets may open up of students who have been either unable or unwilling to partake of the traditional university experience – say, because they have work or family commitments or because they cannot afford to travel to and live in the UK or because they are socially phobic or have other kinds of special needs. Universities may find that, even when things return to normal, a mixed economy of on-line and in-person teaching is more appealing to many students than the unbroken diet of nominally in-person teaching (aka sitting in an over-crowded lecture theatre) that passes for the current student experience.
That, at least, is the glass half-full view: by cutting away the need for mass assembly and movement, universities will be able to mimic business-as-usual and thereby to ride out the pandemic with their balance sheets and strategic plans intact.
Think, though, about how shaky the foundations are upon which this view rests:
- It requires that the global economic recession (quite possibly, depression) generated by the pandemic will not result in a substantial drop in applications for entry in 2020/21. This is implausible: students and parents across the world will be under financial pressure of a kind we have not seen for a generation or more. Demand is going to fall.
- Even if demand does not flatten, a university education that was wholly on-line (even if only for a matter of months) would not be as attractive to prospective international students as one in which they lived and studied away from home. Notwithstanding the prestige of a UK university degree, we have to assume that overseas students will not be willing to pay the fees associated with the full-blooded university experience. Without the prospect of fees being reduced, students are going to hold off applying. This will be a big hit to the margins universities work with, made worse by the loss of accommodation fees.
- Even if demand stayed strong and overseas students were willing to pay in-person fees for an on-line education, the days in which the UK authorities were willing to allow large numbers of overseas students into the country may be over. More and more, overseas students will be seen as a potential risk to the health and economic well-being of the UK. A new health regime may see students being tested for viruses on arrival to the UK: while that may not deter those coming from China (indeed it may re-assure the authorities in China – more of which below), it may be more of an ordeal for students coming from parts of the world where the pandemic could yet be rampant (such as India). Indeed, the UK may simply decide to impose blanket restrictions on those travelling from parts of the world where the pandemic remains rife, until such time as those countries have put their public health houses in order.
- Moreover, we have to reckon on the fact that these health concerns will cut both ways. The Chinese authorities, for instance, will not want to despatch large numbers of virus-free students to the UK if they believe there is a risk that even a small proportion of those same students will return to China virus-filled. So, overseas students will be caught in a pincer-movement between a UK government that is risk-averse when it comes to letting them in and home governments that are similarly risk-averse about letting them go to the UK, en masse, in the first place.
- Even if none of the concerns essayed above holds true, the politics of the pandemic and its aftermath will be important. We have already said that we expect attitudes to China to harden. With that hardening will come a perception on the part of the Chinese that the UK is no longer the welcoming place it once was for Chinese students and visitors more generally. This too will dampen demand.
So, for business-as-usual to obtain across UK universities all of the following conditions must be met:
- Disposable income to spend on student fees will not be substantially reduced by the global recession (or depression)
- Students will be willing to pay the same fees as before for (as they would see it) an inferior educational and student experience
- The numbers of students coming to UK universities will be largely unaffected by public health concerns either on the part of the UK authorities or their home authorities or both
- There will be no backlash against China, with Chinese students seeing the UK being as welcoming a place to study as they did before the pandemic
We believe it to be inconceivable that all of the above four conditions can and will be met. From this, the conclusion we draw is that a number of UK universities will experience a significant funding crisis in 2021 and that some may find it financially impossible to continue without a government bailout. Furthermore, we do not believe that this financial crisis will be unique to UK-based academic institutions. Any university that has developed a strong reliance on an expat student base will be subjected to the same pressures. Only those with substantial existing financial resources will be able to weather the storm.
We started this article by outlining what we saw as some of the key questions that need to be considered now if we are to construct the future we want. Our concern is that without reflection on these questions it will be too easy for parts of the economy (and corporations with a vested interest) to try and return to the status quo ante. They would end up acting as a drag anchor.
“The best way to predict the future is to create it” is a quote frequently attributed to Abraham Lincoln (although there is no historical evidence at all that he actually said it). Nonetheless it holds true. Our contention, and challenge, would be that the issues we have raised in this article need to be considered and widely debated if we are to create the institutions and society we want in response to what, we hope, is the once in a generation crisis brought on by Covid-19. As we said in our introduction this article is our opening contribution that that debate and we are keen to engage with others who are interested in these ideas.
We can be contacted at:
Adam can be contacted at: firstname.lastname@example.org
Christopher can be contacted at: email@example.com