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Covid-19 is accelerating the New Normal

NewsCovid-19 is accelerating the New Normal

Whether or not a successful vaccine is introduced, it will take years or decades for the significance of 2020 to be fully understood.


In a world where major changes normally happen at a glacial pace, the size and speed of events brought about by Covid-19 this year have been dizzying. They have come so thick and fast that it’s hard to remember just how radical some of them are. In many ways life will return to a semblance of the past. But in more areas than one might expect, life will never be the same. This is what crises tend to do. In the midst of pain and despair they bring about new thinking and frequently accelerate much needed reform. The 1918 global flu epidemic helped create national health services in many European countries. The Great Depression of 1929, quickly followed by the Second World War, set the stage for the modern welfare state. In joining this list, Covid-19 will accelerate change in economic and social thinking. Towards the New Normal.

In geopolitics, the pandemic has exposed and magnified the level of dependency in many countries on critical supplies from China. A recent study showed that the US, for example, is strategically dependent on China for 424 categories of goods, 144 of which have applications in critical national infrastructure. For the UK, the figures are 229 and 57. In future, because of China’s tendency to exploit political and economic vulnerabilities around the world, critical supply chains will be re-evaluated. The huge public anger against China for inflicting coronavirus on the world and the subsequent political reckoning will result in many industries being brought back into national infrastructures. This will inevitably increase as Beijing’s techno-nationalistic agenda of “Made in China 2025” is accelerated. Policymakers will take steps to end their country’s long period of asymmetric openness to China. New defensive instruments will be developed, ranging from investment screening, trade enforcements and trade reciprocity, all of which will become the New Normal.

At the national level, governments around the world have pumped trillions into their economies, have cut interest rates and applied other forms of monetary stimulus. This will lead to greater State intervention and scrutiny of business in the future. Some will outright nationalise, some will take equity status, some will provide loans and others will choose to regulate. Coronavirus has returned Keynesian economics as a New Normal.

In business, supply chains will be re-evaluated to test their resilience. Just-in-time inventory and distributed component sourcing may well have to be reconsidered from the lessons of the disruption caused by coronavirus. Companies will build and strengthen backup and safety plans, incorporating resilience metrics into their valuation.

Perhaps the greatest change to a New Normal will be at the human level. With a cost to the global economy of as much as $8.8 trillion, more than $1,000 for every person on the planet, everyone will be poorer as a result of the pandemic. No problem for the wealthy, but devastating for the vast majority who will become impoverished and see their lives turned upside down. The sharp decline in working hours globally due to Covid-19 means that 1.6 billion workers in the informal economy, nearly half of the global workforce and the most vulnerable, stand in immediate danger of having their livelihoods destroyed. Without alternative income sources the workers and their families will have no means to survive.

In India, where it is estimated that 90% of the workforce is in the informal sector, the World Bank’s commitment of $2 billion for the support of the poor and vulnerable will limit the immediate problem by providing a basic hand-out. But this will only apply a sticking plaster to the wound. A more permanent solution will be required, possibly in the form of permanent cash hand-outs.

Until recently, the idea of providing cash hand-outs, formally called “universal basic income” (UBI), was often dismissed as far-out and utopian. But during the anti-pandemic lockdowns, many developed countries have introduced something similar. Although currently seen as temporary, economic forecasters have for many years argued that UBIs in the future will be essential when robots take over the workplace. In 2017, the McKinsey Global Institute estimated that automation will affect up to 800 million jobs worldwide by 2030, a figure now considered to be a huge underestimate in the post-coronavirus world. After all, humans are bio-hazards, machines are not. Covid-19 will greatly speed-up the replacement of humans by machines, resulting in mass unemployment by the end of this decade. How will people survive this dramatic downturn in their lives?

Finland ran a two-year experiment in UBI in 2017, paying 2000 randomly selected unemployed people a regular monthly income of $600, with no obligation to seek a job and no reduction in their payment if they accepted one. On Tuesday, the Spanish government is expected to approve a programme to grant a basic income to the poorest segments of the population to help them weather the economic fallout of coronavirus. As many as 1 million families will receive the new benefit, which will cost the government between 3 and 3.5 billion euros per year. UBI programmes are expensive and rely on the productivity of those in work to make them possible. But with an estimated 436 million enterprises worldwide facing serious disruption, the World Food Programme has warned that 265 million are at serious risk of starvation. Economic recovery could marginally reduce this number, but it is expected that millions of enterprises will never recover, leaving hundreds of millions needing permanent support. UBIs will become the New Normal.

White collar workers will not be exempt from change. During the pandemic there’s been a huge shift to home working, particularly in the field of digital commerce and telemedicine, which for many will become the New Normal. No more wasted hours in slow-moving traffic or squeezing into trains, gasping for breath in carriages designed for half their current load. Instead, a leisurely breakfast followed by a few steps to the desktop, or laptop on the sofa. It was announced this week that staff of Britain’s communication giant, BT, will be able to choose whether to return to work in call centres or just carry on from home. Twitter has gone one step further, announcing that home-working arrangements designed for the pandemic would stay for good. On Thursday, Mark Zuckerberg announced that half of Facebook’s 45,000 employees worldwide will work from home within a decade, joining the growing wave of companies deciding to move to permanent remote working. This will result in thousands of staff leaving giant tech hubs, such as Silicon Valley, resulting in vast redundant infrastructure.

It’s clear that the current pandemic is creating a moment in history, equivalent to the 1918 flu pandemic or the two great wars. Covid-19 will accelerate high speed digital connectivity, linking us with our schools, doctors, shops and even our gyms, changing our whole way of life. On the darker side, few governments will resist the temptations to retain the surveillance technology designed to fight the virus, leading to an erosion of privacy and human rights.

Whether or not a successful vaccine is introduced, it will take years or decades for the significance of 2020 to be fully understood. Geopolitical relationships will be re-evaluated, governments will move in a more inclusive direction, UBIs will eventually be normalised and our style of work will be transformed. This crisis is a once-in-a-generation global turning point, when many of the fundamentals of our social and economic life will be remade and a New Normal established.

John Dobson is a former British diplomat and worked in UK Prime Minister John Major’s Office between 1995 and 1998.


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