COVID -19 : Lauchpad for Economy 4.0

COVID -19 : Lauchpad for Economy 4.0

COVID-19 is once in a century kind of event. There were plagues in the past, which used to make the world, standstill for 5-10 years but they were not recorded or discussed at such great length, perhaps due to lack of communication channels. No one knows the accurate answers on future of such pandemics, but this note aspires to make a brief attempt to analyze the projections on the future scenarios.

How long will this take?

There are many theories going on how long will this take for things to settle down. China published the Genome in beginning of January 2020. Scientists have replicated the synthetic RNA and trying to develop the vaccines or antidotes. But it seems that there are very less chances of getting anything developed, approved, mass - produced and then distributed in less than 18-24 months. Adding to this is the lack of complete understanding about the 2 most prevalent strains. As of now, they just know that the L Strain (which is close to 70% of the total infections) is more dangerous than the S strain.

There may be more than 2 strains but what if those (other than L and S) are more dangerous mutations?

Too fast vaccine approvals or a quick fix can botch up the things. It may have dangerous implications and such vaccines may lead to some super virus.

Wait for Herd Immunity – UK postulated this but even they backed out as by the time 60% gets infected, we may have perhaps 10% deaths.

So, the consensus, as of now (early March 2020) seems to be that Vaccine (with reasonable accuracy and effectiveness) will be with the commoners (elite may have hands on it earlier), at the best, around mid 2021. However, some molecules may come in between for better treatment or delaying the impact on lungs.

Oh! China won and South Korea, Taiwan, Russia and Singapore are doing well, so can we!

There are different governance structures around the world with different level of discipline and religious interferences in governance. The underlying fundamental principle of democracy provides the sense of freedom among its citizens, which they have enjoyed with nil (called reasonable) restrictions. Also, some countries like Iran have governance structure with strong religious tinge (which provides the validity to the ruling class). All these factors play out and make it complex and close to impossible to replicate Chinese success.

Human beings should actually be very thankful that this started in China and China already set up templates of lockdown and severe actions, which enabled most of the liberal and diverse societies outside China to reasonably accept the hardships.

So, some countries (one with democratic setups) may take way-way-way longer to come at the stage, where Chinese is right now.

What will be shape of the recovery Curve?

Markets work on investor psychologies, so it is futile to touch market recovery shape. However, there are 3 scenarios, which are currently being discussed among experts with respect to the economy

1.       Optimistic - U Shape

2.       Pessimistic – L Shaped

3.       Ultra-Optimistics - V Shaped

Assuming there will be a point of inflection, all these are plausible options. Though Causation cannot be derived from Correlation, still it seems the correlation of virus spread v/s temperature is strong enough. As of now, it seems the virus has not spread across countries in the tropics. Countries such as India, Bangladesh, Indonesia and Nigeria etc have huge population and minimal cases as of early march. Due to uncertainties over the factors responsible for spread, the assumption of a single point of inflection seems to be wrong. Instead the recovery may be in waves as under

1.       It may subside in summer; there may be a trough around June-July 2020. Complacency from euphoria of winning over COVID may set in around May 2020 (want avoid discussing stock markets, but it seems they might surge from May to July)

2.       If vaccine or some molecule does not come by October 2020 (mostly like scenario), then there might be another peak around December 2020 – February 2021 (once the winter sets in northern hemisphere).

3.       Seasonal (Weather) Waves of high amplitude, across multiple seasons, degenerating and culminating with herd immunity, if vaccine is delayed

4.       Waves may be different across geographies and across different demographics in same hemisphere. Within same hemispheres, countries like India, Nigeria, Indonesia may face the real test in December 2020

Though there are more questions than answers over shapes of these waves, the recovery may not have any uniform global defined path.

What will be the new economy look like post COVID-19 or say 2023?

100,000 years ago, group of monkeys descended from trees in Africa and they learnt new ways of fighting out the dangers on ground. These monkeys were, are and will be the most dominant and intelligent species. These monkeys kept on finding new ways of leveraging resources, other than their own limbs or tails, as was the case with lions or elephants, as under

Phase 1 – They leveraged stones and sticks and warded off their threats

Phase 2 – They leveraged other animals (cows and horses) to power their basic machines

Phase 3 – They leveraged coal (and solar recently) to increase powers of their advanced machines

Phase 4 – They may leverage advanced machines to produce more intelligence (AI)

Phase 4 produced something, which makes these monkeys more redundant in their own pursuit of complex and intelligent systems. Post AI, the redundancy of human beings have increased and COVID-19 is going to provide the impetus for this shift as under

1.       Knowledge Worker

a.       WFH (Work from home) may become the norm in 2 years as companies will try to reduce costs during recession, which seems to be certain as of early march

b.      In their pursuit, to derive value from WFH, companies will learn to automate more work

c.       To automate more work, new forms of AI may come up in future

d.      Transmission and application of Knowledge and skills, which need physical meetings or interactions, will be substituted with more complex AI. For Example – Complex IT skills of 2020 may become “Routine job of 2023” and may no longer need physical presence of skilled human being.

e.      Some New jobs will definitely be created in next level of complexity of the knowledge economy, but they may be lesser than the jobs, which ceased to exist

2.       Physical Worker

a.       Due to extended period of social isolation, it will become imperative to replace almost all the physical work by machines

b.      Some jobs will totally disappear due to social isolation. Many people knew what does a lift operator or phone operator means in 2005 and many of us know what a translator or receptionist or waiter in restaurant means 2020. But many of these jobs may not be traceable in 2023.

3.       Privacy and Social Aspects of Economy amid Government Control

Success of China in managing crisis and quickly revitalizing the economy has provided background for greater support for government interventions and strict control in economy as a whole.

a.       To control COVID-19, there will be increased scrutiny of data related to an individual (such as travel data, health etc)

b.      If this COVID-19 dust takes longer to settle, then citizen privacy may become a watered down term, even in very liberal countries.

c.       Liberal Societies has social pressure groups and their pressure tactics, which sometimes succeed in cases such forcing a pharma companies or cosmetics company to change their course of action. Due to prolonged period of social isolation and increase in powers of governing structures, the powers of citizens to express opinion of society may reduce.

d.      Globalization and Urbanization may subside for some time

e.      Call it bad or good; governments will be tempting to exercise greater control in some sectors such as healthcare, tourism, retail etc. Some countries may even nationalize some proportion of private hospitals or pharma companies (hope that happens in India)

If it takes longer than 18 months, then perhaps “Machines will take over”. The redundancy of human beings in the economy may increase drastically and irreversibly. There may be some short term pain with long term gain for human civilization as under

1.       There may be sudden decrease in pollution and carbon footprints, which will increase quality of life of human beings

2.       Human Beings will get more free to do more creative and research work rather than routine work

3.       Political boundaries of work will reduce a lot and hence pace of outsourcing of work to countries like India will increase (side comment on market - Body shopping of IT manpower will reduce simultaneously so it will have negative impact also)

4.       To prevent any social unrest from short term pain and with increase confidence in underlying data related to citizens, schemes like Universal Income may evolve in many countries.