In any modern military campaign, it is not enough to win a battle – however ‘battle’ is defined in an age of drones, remote artillery strikes and autonomous vehicles. A major part of the planning is called ‘the day after’ as this will define who wins the war.
Post-war planning may stretch out for many years: the post-1945 Marshall Plan designed by the US, providing state-enabled support for industries and economies damaged by war in Europe, was established in 1948 to last for 4 years, which is the same period as the US was involved in fighting the war. The creation of the International Science and Technology Centre (ISTC), which led to the creation of the European Union, was also a direct result.
If you do not plan effectively for ‘the day after’, the cost in failed states and lost people, assets and economic structure can be immense. It is in everyone’s interests to restore a functional society: however, how ‘functional’ is defined can be the point at which plans fail. Stalin had a different view about post-war Europe than Roosevelt did.
The COVID-19 outbreak has led indirectly to the closure of large parts of the economic structure in developed economies. It may also impact less-developed economies as badly, but, unfortunately, the data for these countries is patchy even in good times.
The direct impact in unemployment and lost economic activity is being compared to the Great Depression of the 1920s. The sooner countries can release economic activities, the more likely the immediate damage can be restricted to two or three quarters. However, some sectors are not going to come back in the same shape.
The Psychology of Shock
Everyone in the Western world has suffered a shock.
It may be the shock of seeing a disease spread rapidly where there is no specific treatment or vaccine, or one likely to be developed soon: or the shock of the social measures put in place to address its spread.
Here are some of the things you cannot do currently, in most countries. It’s worth making a record because in five years’ time, this may seem incredible:
- Take your children to see their grandparents
- Attend the funeral of a friend
- Attend the funeral of a close relative, if there are more than two of you
- Celebrate a marriage with guests, or family
- Let your children play with their friends, or even meet them
- Go for a walk in the countryside or on the beach
- Go to work, except in very restricted circumstances
- Vote: elections have been cancelled and not all parliaments are sitting
- Kiss a friend
- Attend any cultural event
- Attend or view in person any sporting event
- Attend a religious meeting or service
- Go out for a meal, a drink or a social gathering
- Leave your home, no matter how crowded, how threatening, or how isolated.
- Touch another human being, unless they currently share your living quarters.
These are profoundly disturbing circumstances. While the disease can kill, so can some of the measures now in place to control it.
The enforced total isolation of human beings is banned in most prison systems. The systems which were developed in the early nineteenth century such as the Panopticon total surveillance and separation system, as well as the hooding and isolation of prisoners, were discontinued because of the very high level of serious mental disturbance these caused.
There are numerous studies of the impact on behavior in rats, battery chickens and other social animals, of repeated isolation, stress, lack of control of surroundings, and lack of social contact. One response has been named ‘learned helplessness’, where an animal no longer even avoids a painful stress or attempts to escape it. This can be a fatal condition.
Isolation can lead to despair. Screen based or telephone communication may help at one level or reinforce the feeling of true separation at another. Twenty-four-hour rolling news with a fixation on counting deaths may further reinforce despair.
Fear for the Future
Fear is also extreme.
Many people have lost their jobs, with the closure of whole sections of the economy. Many companies are now facing bankruptcy. The economic cost, and the destruction of economic structures, is extreme.
When isolated and fearful, the ability to make good decisions is greatly affected. People may be confused, unable to weigh up options, or to identify new answers or options to problems. It may be easier to respond purely at an emotional level, even if this is destructive.
For an examination of the impact of physical reactions to stress, and the way this changes behavior in a business and financial context, a recent book by John Coates, The Hour between Dog and Wolf, examines aspects such as short term ’flight or fight’ reactions and the impact of long-term stresses.
Fearful people are risk-averse. People who grew up during economic depressions are less likely to invest, and, because they have seen the consequences of losing, are unwilling to put themselves in a position that they perceive as ‘risky’.
- Fearful people play the blame game.
- Fearful people stick to ‘tried and tested’ even when circumstances change.
- Fearful people can become frozen, unable to decide, and avoid decisions.
- The stress of fear can kill you: heart disease and strokes are affected by blood pressure, and that responds to emotion. Stress over a long period can result in atherosclerosis.
When fear is removed, the release can have an opposite effect; a kind of mania, which is equally bad for decision-making. If part of a society is frozen by fear and another part is manic, that can lead to some very destructive internal conflicts. In the 1920s, while half the US was under Prohibition, the other was in the Roaring Twenties.
The New Normal
We do not yet know what the new normal will be, because this depends on the level of damage inflicted by economic and social restrictions.
Air Travel
It seems likely that there will be significant damage to the air transport business, and to the supply lines for airlines such as aircraft manufacturers and their supplier companies. The employee count will drop significantly. This will severely impact some regions, such as Washington state in the US (Boeing), and Airbus manufacturing areas e.g., South West France.
Industries which depend heavily on air passenger transport such as tourism, trade exhibitions and conventions will be affected by a potential fall in demand. This will be due to price increases, but also because companies will be able to see the added costs in time and money for attendance, and judge if this has enough economic return. Tourism spending is highly sensitive to consumer incomes, which will be significantly reduced in many countries this year.
But also ‘capacity’ – in other words, businesses – will be reduced by bankruptcy and a change of attitude by investors and banks. There are estimates that up to half of airlines could either go bankrupt or end up in quasi-state or state ownership. Major exhibition and convention companies are unlikely to qualify for state aid.
A significant cost increase for air travel would put most longer-distance tourism out of reach for ordinary families, just as it was in the late 1950s and early 1960s. It does not mean a return to the type of holidays people had in the 1950s because today’s market is considerably older and has fewer children.
Countries dependent on airborne tourism will be badly affected. This includes some low-cost areas such as the Canaries and southern Spain, as well as long-haul destinations like Thailand or Dubai.
Person to Person Support
A shift to telemedicine and teleconferencing seems inevitable. However, both of these work best one-to-one, or a few-to-one. This will reduce travel, but not necessarily the demand for meetings. Teleconferencing is not a substitute for all physical meetings: it works best to a tight agenda, but not all problems can be solved that way.
While a presentation or annual announcement can be broadcast, at the moment it is very hard to get a ‘reading’ of the audience, as you can in a live situation. Large elements of communication such as body language and voice timbre get lost in simple video relays.
A medical appointment is not only an exchange of information about physical symptoms. The personal relationship between a doctor and patient is also important, and if there are social or mental health problems, these will not always be diagnosable or treatable remotely. Healthcare for children or the elderly, for example, can be complex and require discussion as well as description.
Closer to Home; a Premium on Access
Supply chains have been tested to destruction: the underlying assumptions of ‘just in time’ (JIT) systems and their risks across a range of industries have now been exposed.
The reason why JIT became such a key part of production planning was an absolute focus on minimizing costs. Costs can be weighted by risk, so this need not have meant ‘cheapest wins’ on all occasions, but the hunt for the lowest cost seems to have obscured this.
Restriction of sales to lowest cost providers, over time, creates monopolies. To depend on a monopoly supplier is a risk which needs to be added to cost parameters.
Interruptions to supplies can either be because a factory has been closed, its output is being diverted or delivery systems are being used preferentially by others. Mandatory factory closure is understandable, but other reasons will damage customer relations. Diversion or queuing means the supply relationship cannot be regarded as 100% reliable and finding alternatives becomes a financial imperative.
Supplies sitting in a container on the high seas because ports have been closed is another risk without an immediate solution. Risk factors with a large distance (=timescale) attached, are more difficult to solve (more ‘expensive’) than supply-only problems. This is a risk factor which had been forgotten but must now be included – because if it happens once, it can happen again.
Sport, Arts and Culture
Most major countries have now had an unplanned experiment on what happens when all forms of leisure and culture are either stopped or greatly curtailed.
Culture depends heavily on state or private support in all countries; most opera houses and art galleries do not make a profit and never have, and all depend absolutely on physical visitors. It seems very likely that some theatres, galleries, museums and cultural venues will not reopen. The arts depend on unpaid and low-paid workers. While you may be able to make ends meet as a low or unpaid actor or musician who pays the rent by waiting tables in a restaurant or coffee bar, if the restaurant closes too, that is no longer a solution.
Commercial arts like cinema could theoretically transfer over to screen-based systems, but an arts experience is not just about watching something in isolation. Group experiences, the five-sense experience and interaction are also key.
The music industry has become heavily dependent on live shows and festivals because streaming and similar services pay very little to artists. The main source of income for acts below the top tier has been removed, which is likely to mean a reduction in the number of people involved. If people want music, they will need to ‘keep music live’ (as well as theatre, dance, and performance).
Sport is heavily dependent on media rights and sponsorship, but both require very large, often international, audiences willing to pay for dedicated cable, satellite or streamed coverage. The gambling industry has a level of business which is not dependent on uncertain live events – fixed odds, bingo, and online poker, for example – but a high proportion is sports betting, and there have been no football, baseball games or horse races to bet on.
The harm to sport is, therefore, first of all, to professional teams which are now run as businesses, because their businesses have been closed and may remain closed for an entire season. Football, soccer and motor racing are faced with very curtailed seasons and a suggestion that it may be better to cut losses and write off 2019/20 leagues.
‘Customers’ of both sport and gambling may drift away while live events are unavailable, and their price sensitivity will have increased. The financial arguments for sponsorship and the price of media rights will reflect this. The financial structure of some sports, such as Formula One, is already said to be fragile. The loss of the Olympics for 2020 has also increased scrutiny of what exactly sponsors get for their money.
All of this has major implications for sports and leisure catering businesses: exponential growth is not going to happen in 2020 or 2021, and the kind of growth after that will depend on how fast economies and consumer incomes can recover. ‘Big arena’ sport may now be on a downward trend, for many reasons.
The Social Contract
Are we ‘all in this together’?
The lockdown in place across large parts of the developed world has meant a sudden change in attitude. Because a disease knows no class or status, there is no special standing given to rich or ‘important’ people, and an expectation that they should ‘share the pain’, whether as a pay cut or attending the same hospitals as other citizens.
Not everyone has got the memo on this.
Companies and industries which appear to be careless of their workers and customers, or which are (unbelievably) borrowing money and using government funding while paying out large dividends and bonuses, can be expected to be identified.
While there may be no immediate punishment (although some governments are likely to take action) this is now part of a business’ CV. Some businesses may decide this is just ‘a cost of doing business,’ but it runs counter to environmental, social and governance (ESG) considerations, which are increasingly important in the investment world.
Consumer industries are especially sensitive, and businesses can be ruined by a throwaway comment under pressure. If there has been reputational damage, companies cannot assume people will forget: high-intensity events create stronger memories.
Never the Same Again? The High Street
High streets are going to look very different, in a lot of countries. Very few retail businesses can stand being shut down and without income for months.
But this is not because ‘everything’ is going online. The failure of online services to cope with the increase in demand has shown the hole in this theory: there is not an infinite supply of delivery vans, or drivers. The number of delivery vans is far, far smaller than the number of households, and the cost of running them is high – invisibly so at the moment because retailers have often been absorbing or disguising delivery costs to consumers, in the interests of gaining market share.
The Office Worker Market Shrinks
Some sectors have suffered a sharp drop in demand anyway, notably fast fashion. As the head of fashion company Next, Lord Wolfson, noted, you don’t need a new dress to sit in front of a home computer.
Other sectors are heavily dependent on office workers. A high proportion of the food-to-go market – and we’re about to find out how high – is bought for consumption on the day by workers away from home. Fast-growing companies like Greggs bakery and the coffee chains like Starbucks have grown on the back of passing trade for breakfast and daytime eating.
However, although this will not be an instant change, office workers may be reduced considerably in numbers over the next year. Companies are under pressure on costs and rental/office costs are a big part of this. If homeworking works, there are financial reasons to retain it.
This does not mean the end for Starbucks: an office worker who was buying a daily latte at a city center outlet down the road from their office, may still go to a Starbucks to meet others on their local high street, when they are working from home, but they probably won’t do it every day.
Travel, Leisure and Transport
The franchise model, which is behind the expansion of many catering and leisure outlets, may also come under pressure. Many franchises require a large upfront financial commitment by a franchisor, but the lockdown will have severely damaged some of these businesses, if not closed them entirely.
Budget hotels are also likely to stay in business because many of their guests are location-determined, like builders, or occasion-led, like wedding parties, but convention hotels could be hit hard, and ‘experience’ leisure hotels will have to work hard to prove their value to consumers with reduced incomes.
Commuting supports the business case for many mass transit systems, but also the car market. Train, bus and tram systems are currently set up as commuter-based systems, bearing the cost of ‘social’ transport either through subsidy or cross-financing. A reduction in commuting could mean less mass transit unless licenses and franchises are redesigned to account for this change of use.
Although company cars are now becoming less usual, fleet sales still support the sales of new cars and determine the range and type of models being offered. A move towards homeworking will reduce the argument for the provision of company cars even more.
Fear of Contagion
COVID-19 will not be the last global contagion.
Air travel means that diseases can travel at the speed of the fastest airliner. An infection can now travel around the world in 24 hours.
The spread of COVID-19 was exacerbated by the New Year migration in China, the biggest annual movement of human beings on the planet. Over 300 million people move from where they work, mainly the coastal industrial centers and cities, back to inland areas where their families live and where they are often officially registered as residents.
Wuhan, where the outbreak was identified, is a large industrial city with 8 million inhabitants, about the same scale as London, and, in July 2019, was the center of protests by its citizens over air pollution. Like much of China, about half of men are smokers. Although not uniquely vulnerable to a new respiratory infection, the movement of people creates the conditions for rapid spread.
Other annual migrations include Christmas in Europe, Thanksgiving in North America, and the annual Hajj and Umrah pilgrimages across the Islamic world. Many millions of people take part in these, across age ranges, and many travel between continents.
Fast disease spread can now happen even if the disease itself is not that infectious, and get to a high level of incidence in unconnected countries without travel directly between them. This is unlike other epidemics which spread through a population by one-to-one contact, not because a contact has been ‘dropped in’ from another population.
If air travel is reduced, or medical monitoring and testing of people before they get on a plane is increased, there will be better control, but if a disease is new or of unknown impact, then testing is only as good as our understanding of it, and depends on a test both being available, and accurate.
What is obvious is that the world cannot afford to shut down every time a potential epidemic is identified. The damage caused to people by control measures may exceed the damage caused by a disease. How will we rate, strategize and manage the next outbreak?
After The Event
There are lessons to be learned from this experience, but there is no way to make this into ‘a good experience’. People have died, businesses have been destroyed, and social and family structures have been put under enormous strain.
Every company needs to look at what it did, when, and what the result was. There will be resistance to doing this because it will be revisiting painful events, and not every decision made at the time will have been right, in hindsight. In fact, if you cannot find any examples of decisions you got wrong – you are not being honest with yourself.
The best we can do is to use and understand our experience, because it has been extreme, and because it is shared. If we can’t learn from that, what could we learn from?
