We have now passed the point of where Covid-19 will accelerate the change of our society. The Corona crisis is a black swan event, and even if we do not know how deep and long the impact will be on our economy, it will be transformational and in this post I will outline why.

Covid-19 level of impact on our society in relation to drop in GDP

What are my arguments?

Let me start by presenting why I make the statement that the Covid-19 pandemic will have a significant impact on our society even in the best case scenario where we would soon start to recover both from the health impact as well as the economical crisis:

  • We where about to change anyway entering the 6th wave of innovation (se below) where late adopters of digitalization (80% of companies) will be left behind by the most agile one
  • The pandemic grip of our society until we get a widely distributed vaccine, where the experts suggest best case is next 1-3 years:
    • The impact of containment measures even if they probably will be less intrusive over time as we find better method and tools
    • The concern about being infected for the elderly (+70) and the one with pre-existing conditions
    • Among family and friends the concern about anyone loved that are in the risk group
  • The fastest decline in the global economy surpassing even the depression of the 30´s, where even if it bounces back faster than the financial crisis of 2008, it has has traits we have never seen before:
    • The drop has been so sharp that analyst says even the forward looking KPI’s (for example consumer confidence or buyer index) are not able to adequately monitor the drop and the main backward looking measures (for example unemployment or GDP ) has not yet fully started to pick up the depth of the economical downturn
    • The largest ever increase of unemployment in the US with +6 millions filling for unemployment benefits by 4/4
    • First time ever mass impact on Small and Medium sized business (SMB) across the globe that usually are the buffers in a downturns due to their flexibility of adapting and finding new market positions
  • The relationship changes between states and their citizens:
    • Trust in the public sector to handle the crisis especially for the health sector
    • Citizens of democracies accepting authoritarian government type of restrictions on their personal freedom of movement for the greater good
    • Social distress in developing countries due to governmental containment measures
    • Non democratic governments exploring the situation (like Hungary)
  • The impact of half the world population living under various degree of containment measures:
    • School and business shut downs
    • Isolation affect on peoples mental health
    • The emergence of new stay at / work from home habits, products and services
    • Realization of the need to stockpile food and emergency supplies
  • The digitization taking a leap forward reaching both:
    • Countries with for example e-learning for schools but also monitoring the populations compliance with containment measures
    • Companies and organisation learning how to work in virtual teams from a distance
    • New groups of users for example elderly using smart phones video conference to keep in touch with friends and families or ordering food online (like my 82 year old grandfather figured out how to do by himself, I am very proud)
  • The return to normal in China and Asia show things are going back to a new normal:
    • Maintained social distancing, the use of face masks in public and live by the smart phone traffic light system for how you are allowed to move and travel
    • The surveillance state has taken a new level and many other countries are trying to copy with various respect for the personal integrity
    • Impact on the Chinese economy with expectation, for the first time ever post the revolution, a quarter with recession numbers, including a weak international demand
    • Increased skepticism for foreigners and concern for import cases of Corona
  • The science community coming together towards a common goal to save us against an invisible enemy:
    • Experts that has warned about the risk for a pandemic since mid 90’s and Bill Gates bringing it to our attention since 2015 are now being listened to where we will hopefully plan much better for the next pandemic
    • New ecosystems of researches and companies being created
  • The Anti-Globalization movement, already in acceleration with past year trade wars, has just had it’s perfect storm with:
    • Disruption of global supply chains
    • Nationalistic behavior for critical health care equipment even within the EU and between the US and the rest of the world
    • The dependence upon China has been a wake up call with China’s increasing soft power for many sector notably the manufacturing of medical supply
    • Increasing protectionism with a concern China will use the opportunity to buy companies at the brink of bankruptcy
  • The environment connection is already there even if the short term impact is limited:
    • Skies are clearing, Venice waters are blue and clear, animals and pedestrians are taking back the streets and I do not any longer hear all the planes take off and land from my garden
    • There is probably a correlation between Corona impact and air pollution, pollution that by the way kills ~8 million people per year
    • There will be two opposing forces:c i) one that drives the need to relax environmental transformation to help recover the economy and ii) I hope the stronger side winning the argument that the recovery from the Covid-19 is a golden opportunity to make a environmental leap forward
    • How eager will people be to travel after they have seen how people got stuck abroad, lost money on already booked travels and the data on how the epidemic was spreading across Europe from after ski in the Alps

What you have to believe to accept my line of thinking

The natural edge project 2004 adaptation of Schumpeter’s ‘Business Cycles’ (1939)

I think the adaptation of Schumpeter’s ‘Business Cycles’ from 1939 by the Natural Edge Project in 2004 is really good as a the hypothesis for why the crisis would be transformational in all scenarios. As you can notice the assumption is that each cycle will become shorter. The 5th era of 30 years of digitization is at it’s end and that the 6th one that has just started would last som 25 years, The theory is also that the complexity of innovation is increasing.

So what is next?

I think it is a little to early to predict with any precision what the outcome will be but that does not prevent taht we can figure out a few things (that are also good ideas for new posts):

  • The continued need, impact and length for containment measures has the capacity to further push the curve in my graph above to the right and thereby increase the transformation force for any given downturn scenario
  • The deeper and longer the financial downturn last will further fuel the level of transformation (as it follows the curve in the graph)
  • Existing mega trends (for example digitization) will generally accelerate while some might lose momentum or take new turns (perhaps Globalization being counterbalanced with Regionalization). A few trends could be unaffected while we will over time will se how the crisis also has caused new mega trends to emerge
  • The defining moment for our planet will be what happens with the transformation towards a more sustainability society, a hopefully smarter society

PS: Some claim Covid-19 is not a black swan (something we could not see coming) and instead that we where just lucky that we closely escaped SARS and Ebola that could had been as bad as Covid-19 but we did not really learn from it.

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