A few weeks ago The Economist published The World in 2021, it’s 35th annual look at the economic, political, social and cultural trends that will likely shape the coming year. Overall, 2021 will be a year of unusual uncertainty given the still ongoing pandemic, the uneven economic recovery, and the turbulent political environment in the US, Britain, and a number of other countries. “The great prize on offer is the chance of bringing the coronavirus pandemic under control,” wrote the issue’s editor Tom Sandage. “But in the meantime risks abound, to health, economic vitality and social stability.”
The World in 2021 highlights ten specific trends. Let me focus my discussion on three of them.
After the tech-celebration
“Welcome to the future - not 2021, as you might have been expecting, but 2025, or even 2030, depending on whom you ask,” notes The Economist. “The adoption of new technological behaviours in response to the pandemic, from video-conferencing to online shopping, means usage has already reached levels that were not expected for many more years.”
“We’ve seen two years’ worth of digital transformation in two months,” as companies adapt to stay open for business “in a world of remote everything,” said Microsoft CEO Satya Nadella this past April. A month later, McKinsey added that “we have vaulted five years forward in consumer and business digital adoption in a matter of around eight weeks.”
For years, companies found all kinds of reasons for not embracing telemedicine, online learning, work from home, virtual meetings and other digital applications. But, the pandemic has now made the case for accelerating the digital transformations that companies were forced to make to help them cope with the crisis. And, not only did these digital applications work remarkably well, but they offer a number of important benefits, like not waiting for a straightforward doctor diagnosis in a room full of sick people, or not having to travel for hours to participate in a 45 minute meeting.
“In all these cases, and in many others, the pandemic has accelerated existing trends of technological adoption,” adds The Economist. “Now people in many countries have been abruptly propelled into a future where all of these behaviours are far more widespread.”
This abrupt shift has been quite painful for many. Long established bricks-and-mortar retailers were forced into bankruptcy, including Neiman Marcus, Lord & Taylor, JC Penney, and Brooks Brothers. Many small businesses are barely surviving. If telepresence ends up reducing a significant fraction of professional office time and business travel, it will be accompanied by steep declines in a number of low-skill, low-paid supporting services, - e.g., food preparation and serving, transportation, building cleaning and maintenance, - which account for one quarter of US jobs, .
On the other hand, the transition may finally help transform health, education, government services, and other fields that’ve long been digital laggards. The abrupt shifts are also sparking new arenas for innovation. “Already companies big and small are devising fresh tools to improve the experience of remote working, collaboration and learning; to support new kinds of contactless and appointment-based retailing; and to provide new sorts of online social experiences, from virtual conferences to virtual tourism.”
“The big question for 2021 is: how much will things snap back? Clearly the world is not going to return to its pre-pandemic state… But nor will all the lockdown behaviours of 2020 persist… some new behaviours will stick, but not all, and the result will be somewhere in the middle. Exactly where will have enormous implications: for transport patterns, property prices and the layout of cities, among other things.”
A mixed economic recovery
The high degree of uncertainty surrounding the pandemic has been one of its most frustrating qualities. Many questions remain, even as vaccines become available. When will normal life return? What will the new normal look like? The answers we get from the most trusted of experts feel too vague, - their explanations full of caveats and probabilities, - as they well should given the uncertainties. “Just as epidemiologists have had to learn about the virus as it advances, economists must judge its economic toll on the fly.”
“As economies bounce back from the pandemic the recovery will be patchy, as local outbreaks and clampdowns come and go - and governments pivot from keeping companies on life-support to helping workers who have lost their jobs,” said The Economist. “Never in recent memory has so much uncertainty hung over global growth. That is not just because the prospects for the world economy in 2021 depend on how much the virus spreads and the roll-out of a vaccine. It is also because it is unknown just how much lasting damage the pandemic has done as it has slowed economic activity, shut down some firms and left workers jobless.”
How can economies formulate a rebuilding strategy in such an uncertain environment? Former president Dwight Eisenhower famously said when he was the overall Commander of Allied Forces in WWII: “In preparing for battle I have always found that plans are useless but planning is indispensable.” In other words, planning during highly uncertain times requires that companies, industries, and nations thoroughly map out their rebuilding strategies, and quickly and flexibly react to changing circumstances.
“Monetary policy is the most predictable part of the economic landscape,” adds The Economist. “There is no question of rich-world interest rates rising soon… Governments must judge whether the economic recovery needs more help… Across the rich world too rapid a turn to fiscal austerity is a risk, as governments fret about deficits, particularly if a rapid rebound in activity is mistaken for a full recovery.”
A wake-up call for other risks
“The coronavirus pandemic is a warning for humanity,” said The Economist. “It is a reminder that, despite all our technological progress, humanity remains vulnerable to catastrophes that shake the world. Many have taken to calling 2020 an unprecedented time - but the truth is precisely the opposite. We have long been vulnerable to devastating pandemics,” including the Black Death in the 14th century and the 1918 Spanish flu. “This catastrophe is simply part of a very long-running trend.”
How can we strengthen the nation’s resilience? Covid-19 is the biggest shock the US has experienced since the end of WW2, so perhaps we can look at post-war America for inspiration on what we should now do to strengthen the nation’s resilience. Let me briefly mention two key recommendations.
Increase R&D investments. Following World War II, the federal government significantly expanded its R&D support in the private and public sectors. These measures helped make the US the most prosperous and secure nation in the world, as well as the undisputed leader in science, engineering, medicine and other disciplines, and led to the creation or expansion of the NSF, NIH, DARPA, NASA and the DOE labs. According to a 2019 Task Force on national security, federal investment in R&D as a percentage of GDP peaked at 1.86% in 1964 but has declined from a little over 1% percent in 1990 to 0.66% in 2016. The Task Force recommended that Federal funding for R&D should be restored to its historical average of 1.1% of GDP.
Improve our digital infrastructures. Remember that in the late 1960s the government launched ARPANET, the digital infrastructure that eventually became the Internet, in order to enhance the resilience of the country during the Cold War with the Soviet Union. Fortunately, we never had to test the Internet’s ability to keep the US going following a military attack. Who would have thought that 50 years after its launch, it would be a global pandemic that’s now been testing the Internet’s ability to fulfill its original objective of strengthening the nation’s resilience. But, we need to do much better. According to a 2019 report by the World Economic Forum, the US ranked 27 out of 141 nations in ICT adoption, an embarrassing number for the country that invented the Internet and so many other digital technologies.
“We certainly will learn lessons from covid-19, improving our defences against similar pandemics. And 2021 will be our best chance to do so, when we have recovered just enough to be able to raise our eyes to the future, but while the shock of the past still stings… This is a rare opportunity to change course, because it won’t be long before the societal antibodies from this once-in-a-century pandemic begin to fade. We should make the most of it.”
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