The continuing spread of the US wildfire that is COVID-19 has done nothing except strengthen the pressure for change and transformation. The possibility of three or four years of disrupted and destroyed family, personal, household, and business activity will almost surely have long-term consequences. The scare will persist.
As the pandemic has its way, the years will add to the nine years in which racial and ethnic minorities have accounted for all of the nation’s population growth. In 2019, the white population declined for the 3rd consecutive year. US demographic shifts have already resulted in a much more diverse and older population. Millennials, Gen Zers, and those of like mind will be more influential. In addition, the Chinese economy will be four years closer to achieving size parity with the US.
Much change is already obvious. The pace of digital transform has exploded. Work-From-Home has become the norm for a significant portion of the workforce. Weak, zombie companies are at risk. e-commerce has become even more important with department stores chains among those at greatest risk. The education sector – elementary, high school and university – is suffering as severely as any industry.
US politics and policy are already responding to the pressures. While the growing support of the Black Lives Matters movement is in large part a response to the police killing of George Floyd and other Black women and men on top of four centuries of slavery and bigotry, the nonwhite community has suffered at the hands of the virus both because of the lack of adequate healthcare and the confinement to “essential” jobs. Street protests continue to reflect a long list of grievances.
President Trump’s failure of leadership coincides with that of Brazilian and Russian leaders where COVID-19 continues to spread and stands in contrast to the strong leadership in nations such as Australia, New Zealand, Korea, Italy and Germany where the “curve has been flattened”.
The pressure for change and transformation is only intensifying. Demographics, global competition, failing and bankrupt companies, digital transformation, failed political leadership, and street protests have all created a cauldron of stew that is likely to boil over in a massive social, political and economic metamorphosis.
Such “shocks” of recent decades have most often resulted in unfavorable outcomes. The 2008 – 2009 recession and the China shock have taken a toll on mid-wage worker’s income. The oil-shocks of the 1970s were followed by deep recessions. Perhaps the one exception is the aftermath of the second world war.
During the war, the US manufacturing sector was converted to wartime production. After the war, new ways replaced old ways. New technology and modern facilities were built to return to productive activity. Young men gained new skills and learned new behaviors while serving the military. Education levels increased as the GI Bill provided low-cost education benefits. Women benefited from their wartime labor market experience. The post WWII US-Soviet cold war led to a substantial investment in space and military technology, creating significant intellectual capital.
The stars aligned. The following four decades of strong growth, productivity improvement, and income gains, were, in part, a consequence of the global transformation wrought by the devastating and disruptive events of the second world war.
The future is uncertain. But, for successful social, economic and political transformation in the decade ahead, a reduction in racial bias and bigotry is necessary, as is an improvement in middle class incomes. Perhaps most importantly, stronger productivity growth with greater equality in the distribution of the resulting income gains will be at the heart of a successful transformation. Achieving the optimal balance between productivity growth and a more equal income distribution will be critical. Middle class workers will need to become a more vibrant and growing community.
Meaningful industrial as well as social and political change will be essential. The pharmaceutical industry might be exhibit A of a response to a pressure cooker of demands. If the industry is successful in creating a SARS-CoV-2 vaccine in a year, the industry will have shrunk a decade’s long process with an enormous productivity burst. The lessons will be well learned and immediately incorporated in other healthcare and medical opportunities.
While the specifics of the future are difficult to discern and subject to chance, there are some constants. The ability of workers to increase compensation above prevailing levels of firm bargaining power will need to be reconsidered. Similarly, the ability of workers to share in profit generating activities to a greater extent will deserve a new look. The ability of new hires to share in compensation levels of insiders will, likewise, be an issue.
Similarly, the advent of artificial intelligence tools and cloud computing capabilities as a productivity enhancing opportunity will require significant investments in physical and human capital as well as dramatic transformation of existing business processes. Improved worker skills and an ability to draw on worker experience, even in the absence of education credentials, will be critical. Immigration process reform and greater availability of child care, the pandemic has taught, will also be a requirement for future success.
It is already clear that sources of corporate earnings pressure are shifting. Global supply chains are seeking a better balance between efficiency and resilience, creating in new employment and wage opportunities for US workers. “S-curve” adoption of digital technology in information, transportation, power, food and materials awaits only the adoption by reluctant consumers and slow to transform enterprises. Increased global competition will very likely accelerate the pace of change. The pre-COVID-19 recognition of stakeholder – employees, partners, vendors, communities – value as well as shareholder value is quickly creating performance objectives that are measurable and achievable.
Much change is already plain to see. Still other change is subject to chance and the random ways of fate. But success is available to those who wish to grab it.
Martin Fleming's Blog 