Are we ready for the econ­omy of the fu­ture?

Covid has de­liv­ered a quan­tum leap but it may prove to be de­struc­tive for many of us, finds Tom Rees

The Daily Telegraph - Business - - Business -

The fu­ture is ar­riv­ing early,” de­clares Bhanu Baweja, chief strate­gist at UBS. “The lessons con­sumers, busi­nesses and gov­ern­ments learn... will very likely stick.” He ex­pects e-com­merce, ar­ti­fi­cial in­tel­li­gence, health tech, cloud com­put­ing and au­to­ma­tion to all “take a quan­tum leap” as a re­sult of Covid-19.

If the econ­omy of the fu­ture has ar­rived early, are we ready for it?

What the new nor­mal means for the struc­ture of economies is still un­clear. What is clear, how­ever, is that huge tec­tonic changes are tak­ing place.

Busi­ness deals are made on Zoom, e-com­merce is a ne­ces­sity, restau­rants come to your door, and news­pa­pers are writ­ten in bed­rooms. Some ex­ist­ing trends have been flung years into the fu­ture while others are op­por­tu­ni­ties never pre­vi­ously imag­ined.

But all mean Covid-19 is likely to have an eco­nomic legacy more last­ing than many had first as­sumed.

“Many of these are pre-ex­ist­ing forces that will now gain sig­nif­i­cant mo­men­tum, some are newly born, while others are counter-in­tu­itive in to­day’s dif­fi­cult time,” says Baweja.

He ar­gues that the ed­u­ca­tion, e-com­merce, pharma and on­line food de­liv­ery sec­tors will be the most pos­i­tively im­pacted by ac­cel­er­at­ing and new eco­nomic trends. The aero­space, travel, bev­er­ages and lux­ury in­dus­tries will be the most neg­a­tively af­fected.

These mas­sive struc­tural changes could see a vast re­al­lo­ca­tion of re­sources as cer­tain in­dus­tries shrink, others are born and work­ers are forced to fol­low the money. Some changes will be tem­po­rary but last­ing enough to shift re­sources, such as in the tourism and hos­pi­tal­ity sec­tors, while others will be permanent.

“Covid has made a number of ac­tiv­i­ties ob­so­lete,” says Philippe Aghion, a pro­fes­sor of eco­nomics at the Lon­don School of Eco­nomics.

“A lot of firms are going under and on the other hand there is big de­mand for e-com­merce, e-con­sul­ta­tion by doc­tors, etc. Life will change a lot.”

A process of “cre­ative de­struc­tion” is tak­ing place where the old is be­ing pushed aside by in­no­va­tion and new firms that will power the re­cov­ery, tak­ing re­sources with them.

Aghion says the chal­lenge for gov­ern­ments is in the bal­anc­ing act of pro­tect­ing the vi­able firms that would be strong in nor­mal times and al­low­ing the strug­glers to fall away,

“You have to help those firms sur­vive but you have firms that are not so vi­able and you have to make sure you re­al­lo­cate labour,” he ex­plains.

He be­lieves gov­ern­ment in­ter­ven­tion is cru­cial in fa­cil­i­tat­ing the process of cre­ative de­struc­tion, en­sur­ing that work­ers are re­trained for the jobs of the new econ­omy.

Covid-19 has also re­vealed op­por­tu­ni­ties for more tra­di­tional com­pa­nies.

Busi­nesses have found that many jobs can be done al­most as ef­fec­tively from home as in the of­fice and many work­ers may be un­will­ing to re­turn to the pre-virus sta­tus quo.

“Any jobs where you sit in front of a com­puter for 95pc of the day is now a job that can be moved out of the city into the sub­urbs,” says John

Gather­good, pro­fes­sor of eco­nomics at the University of Not­ting­ham. “Think about ac­coun­tants, lawyers, health ad­min­is­tra­tion, head of­fices, the fi­nance de­part­ments of any firm.”

Some of the win­ners of this crisis will be those that can take ad­van­tage of that shift by slash­ing costs by re­duc­ing of­fice space, Gather­good says. He be­lieves that of­fice jobs moving on­line could also trans­form the labour mar­ket.

“It cer­tainly changes the flex­i­bil­ity with which peo­ple can work be­cause lo­ca­tion is no longer a key fac­tor,” he says. “It does mean the new nor­mal that we re­turn to might have much less em­pha­sis on cities gen­er­ally.”

If em­ploy­ees can be equally pro­duc­tive re­motely, then their lo­ca­tion be­comes far less im­por­tant. If even a frac­tion move to re­mote work­ing, that could ease pres­sure on trans­port and hous­ing in cities while bring­ing the need for some typ­i­cal city ser­vices out to the sub­urbs.

How fast economies adapt to the new nor­mal will de­pend to some ex­tent whether they are al­lowed to. Gov­ern­ments, par­tic­u­larly in Europe, have sought to deep freeze their economies with fur­lough schemes and state-backed loans.

This fis­cal bazooka has ini­tially cush­ioned the blow of Covid-19 on work­ers and smaller firms but has it held back the re­al­lo­ca­tion of labour to the new post-virus econ­omy?

The US opted to boost job­less ben­e­fits rather than in­tro­duce a fur­lough scheme, al­low­ing unem­ploy­ment to surge.

But econ­o­mists at Gold­man Sachs be­lieve the North Amer­i­can model has its ad­van­tages if the post-Covid econ­omy is dra­mat­i­cally dif­fer­ent.

If, for ex­am­ple, de­mand has shifted from the high street and restau­rants to e-com­merce and de­liv­ery, the US jobs mar­ket could be bet­ter placed to fa­cil­i­tate such a move. How­ever, Gold­man ad­mits the ben­e­fits of al­low­ing such a sharp re­al­lo­ca­tion are “quite lim­ited in prac­tice” and says the cost to move the work­ers to new em­ploy­ers is still “sub­stan­tial”. Many of those work­ers will not be trained for the boom­ing in­dus­tries of to­mor­row.

The move to the post-Covid econ­omy will have as many win­ners as losers but the trans­for­ma­tion risks be­ing most painful for work­ers.

Gather­good warns the “struc­tural change is hap­pen­ing too fast” for the econ­omy to adapt but hopes the younger work­ers most af­fected will be able to retrain for post-Covid life.

“The econ­omy is moving for­ward 20 years and leav­ing a lot of peo­ple be­hind – that is going to be the prob­lem here.”

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