By Job C. Henning, Managing Partner, Auxano Strategies and formerly advisor to the National Intelligence Council, co-director of the US Congressional Commission, the Project on National Security Reform, senior fellow at the Center for the Study of the Presidency and Congress, and advisor to Director, Net Assessment, Office of the Secretary of Defense
Jeffrey Saunders, CEO, Nordic Foresight, Associated Partner, Behavioural Strategy and former Director, Copenhagen Institute for Futures Studies, former advisor at the Office of the Secretary of Defense, Stability Operations
Michal Koran, President, Global Arena Research Institute, Czech Technical University - Czech Institute of Informatics, Robotics and Cybernetics, Assistant Professor Masaryk University, Researcher, and former Deputy Executive Director, Aspen Institute Central Europe
This article is a condensed version of the “There’s no returning to business as usual: strategic futures for a post-COVID-19 world.”
BACKGROUND
Government responses to the COVID-19 crisis continue to be volatile. Following a difficult spring of 2020, where governments sought immediate actions at virtually any cost to avoid a breakdown of healthcare systems. For much of 2020, core aspects of the disease itself remained unclear, which created anxiety. The disease also mutated and developed a new variant. Together, these uncertainties led to changing government policies and polarized political responses to isolation and reopening measures.
National responses have far-reaching political and fiscal implications with strategic dimensions. The global economy is experiencing the worst economic crash since the Great Depression. However, the true dimensions of the situation are partially obscured by the bifurcated ways different portions of the global populations are experiencing this crisis. White collar labor across industrialized and industrializing societies have been largely insulated from the turmoil, while large portions of blue collar labor are experiencing radical disruption in earnings, savings, stability, and mobility. National budgets and the social safety net, the core element of the modern liberal state, are now under stress. Global debt increased by 20 trillion USD since 2019 and now is expected to reach 277 trillion USD by the end of 2020. Developing nations seek financial assistance on levels not seen since the 2008 crisis, while the International Monetary Fund (IMF) has warned that financial institutions in the developed economy face liquidity crises.
Many call for a more multilateral approach to the crisis, but the geopolitical turmoil that wracked 2019 has continued. Few have articulated what a better multilateral approach should look like. Some warn about the threats to a globalized economy, ‘decoupling’ with China, the final demise of American hegemony, and an end to globalism. These are little more than ideological projections. Others make clarion calls for the emergence of a new order. As seductive as this Churchillian rhetoric may seem, such calls are unrealistic. They risk distracting us from the real options we face.
IMAGINING WHAT YOU CAN’T PREDICT
While there is widespread agreement that the post-pandemic world is likely to look considerably different, there is not much agreement on how it will change. The high level of uncertainties around key aspects of the crisis currently makes it very hard to model and forecast its impact on the global strategic environment.
Although we cannot predict it, we can imagine it. The following are six scenarios about what the world could look like over the next several years. Six months have passed since the original publication of the scenarios. Several trends have become more pronounced in the meantime, and they continue to unfold within and across societies, making it all the more important to verbalize, discern and differentiate among the distinct trends, factors, and indicators. This will enable us to make a better sense of the overwhelming flurry of social, political and economic developments following the initial COVID19 outbreak. The scenarios are:
· Scenario #1: The Panic Normalized
· Scenario #2: Taming Our Worst Impulses
· Scenario #3: Too Little, Too Late
· Scenario #4: No Return To Normal
· Scenario #5: An Atomized World
· Scenario #6: A Disaster Forgotten
Scenarios can help us understand the potential social, political, and cultural implications of the COVID-19-crisis and how it could have longer-term effects on our institutions, norms, values, and morals. By making our assumptions more explicit, scenarios can also help us understand many of the strategic risks our actions are incurring while realistically looking for possible positive outcomes. By forming a common view of what could happen, we might be better prepared to know what to look for and how to interpret data when we see it, recognize patterns, and start making more effective and coordinated choices today.
Scenario 1: The Panic Normalized
ASSUMPTIONS: Cyclical virus, little international cooperation, spillover to international trade, volatile commodity prices
The virus has mutated and continued to reappear cyclically, leading to varying mortality rates among demographic cohorts and immunity levels among the recovered. The cutthroat, every-government-for-itself competition for medical resources spilled into the economy and trade. Instability poisoned nations’ willingness to collaborate on the development and rollout of a vaccine. While the US and Germany pursued strong fiscal and monetary measures, other European and Asian countries ‘free-rode’ on the ‘markets of last resort’. Countries accused each other of using the crisis to limit competition, protect local industries, and manipulate exchange rates. The US administration used the situation to confront and compete with China.
New non-tariff trade barriers in both countries exacerbated bilateral trade issues. The number of national security and health exemptions asserted by member nations to multilateral trade obligations under the World Trade Organization (WTO) mushroomed, fatally weakening the institution.
Instability led to further economic downturns, capital flights, and higher capital costs. Commodity prices experienced sustained levels of high volatility, and collapsed energy prices did not recover. Higher priced oil and gas producers were driven out of the market, returning the US economy to importer status and causing US military posture to reprioritize the Persian Gulf. The ‘energy transition’ to a global decarbonized economy sputtered to a halt, definitively putting mid-century UN IPCC targets out of reach.
Extraordinary emergency stimulus deficit spending led to a fundamental renegotiation of the post-War liberal welfare state, austerity measures, and higher taxes. It set off a chain of sovereign debt haircuts and defaults in Eastern Europe, Russia, the Middle East, and Africa. All of this triggered declines in life expectancy in North America and Europe and the highest levels of social and labor unrest in decades.
In Latin America and East Asia, China and countries have experienced analogous epidemic crises, economic shocks, sovereign defaults, and austerity programs in prior decades. Having become more resilient as a result, they fared better. Additionally, China’s combination of technology-enabled autocratic governance and socially more compliant political culture enabled it to manage the crisis very differently than other nations.
As the pandemic subsided, there was a protracted period of economic stagnation and sustained high levels of underemployment. Populist movements spread globally among those most impacted by drastic cuts to welfare programs. Disruptive actors further weakened domestic social solidarity and destabilized international institutions.
There was a slow L-shaped recovery. It is not so much the ‘end of globalization,’ but the emergence of a more volatile, illiberal world order. The trend towards bilateral trade agreements accelerated. East Asia and Latin America have become more autonomous centers of power. Strong regional actors have more prerogative in their spheres of influence. The new competitions are not about ideology, but governance capacity, competence, and liquidity.
Scenario 2: Taming Our Worst Impulses
ASSUMPTIONS: A higher level of international cooperation among developed nations, vaccine development, COVID-19 virus is brought under control in high-income countries
Following a period of panic in the first half of 2020 and acute but short-lived global economic collapse on par with the Great Depression, nations began to focus on taming their worst impulses. While there was no heroic leadership, bottom-up pressure from within industrialized societies manifested itself resoundingly in national legislatures, which compelled executive leadership to act.
Nations began developing a more coordinated response to boosting critical medical supplies and developing fast-tracked risk-tolerant approaches to antiviral medication and vaccine development. This limited the contagion’s spread and mitigated the worst of the economic fallout. A new approach emerged that focused on monitoring and coordinating responses to outbreaks, standardization of statistical measurements and data sharing, reduced trade barriers on critical medical supplies, and coordination of monetary policies to ensure adequate liquidity.
Political and economic coordination curbed economic downturns and avoided a chain reaction of sovereign debt crises from spreading across the globe, enabling a V-shaped economic recovery in high-income countries with fewer lives lost. While travel among high-income countries was restored, these regions enacted long-term restrictions on travellers from less developed regions. Less developed countries struggled with lower levels of liquidity, increased cost of capital, and austerity measures.
The struggle with COVID-19 and associated effects became intractable across much of Africa and parts of southeast Asia. Widespread disruptions to the complex global supply chains exposed vulnerabilities that started to seem increasingly intolerable to industrial nations, whose companies began to reshore production to local and regional production centers.
The resulting global economic dislocation benefited the ‘core’ of the global economy. Although manufacturing was ‘reshored,’ it did not create a large number of new jobs. It led to a new wave of ‘South-North’ leaders, ideologies, and parties in the ‘periphery’.
The biggest losers have been underdeveloped and developing countries.
Scenario 3: Too Little, Too Late
ASSUMPTIONS: Weaker and slower international cooperation, long term negative economic effects, return of corporatism, stultified attitudes and behavior
The divided European Council and the dysfunctional US Federal government were unable to lead a global effort alongside their G-20 counterparts. When G-20 leaders finally announced their coordinated pandemic responses, their actions were too little, too late. The global economy collapsed, unemployment soared above 25%, and liquidity crunches roiled markets. Many countries struggled with limited access to liquidity, increased cost of capital, and austerity measures. Delayed responses led to devastating humanitarian crises in middle and low-income countries.
US global leadership waned, and China filled the vacuum. While ASEAN countries resist China’s expanding influence, China’s ‘lender of last resort’ status in Africa, Latin America, and Europe has grown. The industrialized countries navigated the worst of the disaster, only to witness a protracted U-shaped decline and recovery. Europe and North America currently face a more volatile post-pandemic world guided by weakened governments, institutions, and international influence.
Across western societies, people now prize security and a fixed income. That meant an effective end to the ‘gig economy,’ as hundreds of millions of people without adequate health insurance, savings, and retirement are permanently scarred by the economic collapse. The most coveted positions are once again either working for the government or at a major corporation, where one has job security and often lifetime employment. The reduction in competition among firms led to higher levels of collusion among firms and stronger relations with the state. Undisciplined corporate investment and lower levels of R&D spending resulted in declining internal rates of return.
Large groups in democratic societies in Asia, North America, Latin America, and Europe became disillusioned with representative democracy, but no compelling alternatives have emerged. Democratic participation and civic life is at an all time low. The world entered a long desultory period of slow growth, reduced innovation, and ‘cultural retreat. There were no winners.
Scenario 4: “No Return to Normal”
ASSUMPTIONS: Isolation measures unsustainable, testing undeveloped, virus cyclical, effective steady state response, slower and more distributed economic growth, evolved attitudes and behavior
In the face of unsustainable economic and fiscal costs, countries were forced to lift isolation measures and reopen their economies quickly. This happened before antiviral treatments and antibody testing capacities were widely available. It quickly became apparent that the global isolation efforts in the first half of 2020, and the massive costs associated with them, have pushed a ‘hidden bow wave’ of infections into the future. Despite massive investments in vaccine development, an effective, scalable vaccine was still years away. Worse still, antibodies do not provide sustained immunity from COVID-19. A significant portion of the global population has become reinfected. Mutations have caused the virus to become a cyclical disease.Countries episodically reinstated and then lifted isolation measures.
Western culture has fundamentally changed. People no longer want to shake hands with strangers and tend to avoid crowded public spaces. People who thought they could not wait to go back to work in office buildings have discovered, through periods of isolation and concentrated time with family, an interest in renegotiated work/life balance and demonstrate less willingness to sacrifice for corporate and material interests. The culture of consumer capitalism may have peaked.
Saudi Arabia and Russia’s price war had the unintended side effect of making modernizing investment in their own petroleum industry infrastructure unsustainable. Oil prices never recovered. A combination of changed habits and attitudes and innovation unexpectedly led to far lower financial costs for the ‘energy transition’ than previously projected. The signatories of the Paris Agreement are now on track to meet mid-century UN IPCC goals.
As isolation measures came and went, it was not possible to return to business as usual. Business models evolved with a steady shift away from concentrated offices, business travel, and in-person meetings. There was an evolution of the ‘gig economy’ to a more durable form of economic activity. Corporations continued to be important, although they dramatically shrunk in size and their role shifted to become a coordinator of talent, a balance sheet, and guarantor for performance.
It has now become easier to offshore more knowledge work tasks. Knowledge workers now experience growing competition from knowledge workers in middle and low income countries. While causing wage stagnation and decline in industrialized economies, the developing world experiences sustained strong wage growth.
Scenario 5: An Atomised World
ASSUMPTIONS: Ineffective pandemic response, national competition prevails, declining public trust in government, legitimacy crisis as public seeks alternatives to institutions
The pandemic exacerbated economic, ideological and technological divisions within and among countries. The delayed and ineffective pandemic response in the United States, Europe, and Asia combined with an unabated competition for medical supplies and overwhelmed health care systems eroded social cohesion. The rich became richer because they had access to cheap capital that enabled them to buy distressed assets and benefit from rescue packages. The poor bore the brunt of the crisis through higher levels of unemployment, lower levels of social spending, deferred retirement, higher rates of early mortality, and high levels of consumer debt. Middle and low income countries suspended investment in energy, mobile data, education, and health care infrastructure, causing them to fall further behind high income countries as a result.
The great ‘digital divide’ deepened between elites and the rest and among regional powers who have effectively “balkanized” technology platforms. Societies became more “atomised”, and citizens turned to emergent transnational communities, which created unpredictable economic and political spheres beyond the reach of many governments. This led to a period of episodically robust, but uneven innovation. It also led to increased digital crime, fraud and disinformation. These trends also led to renewed coordination among international labor movements that organize citizens on the wrong side of the ‘digital divide’.
Western societal commitments to liberal values turned out to be shallower and less durable than previously believed. While there was no cataclysmic descent, western democracies, middle eastern states, and authoritarian governments like China and Russia began to converge around technology and governance, and the expansion of pandemic surveillance authorities and capabilities to control populations, resulting in stronger states and weaker, more fragmented civil societies.
Tech giants were the only true winners from the crisis, with surging profits and little regulation.
Scenario 6: A Disaster Forgotten
ASSUMPTIONS: Isolation measures unsustainable, crisis fatigue, no effective steady state response, conservative retrenchment, no investment in resilience
After lifting unsustainable isolation measures, societies essentially threw up their hands, deciding the problems could not be solved without breaking their economies. Some saw it as a vindication that the dangers of the crisis had always been exaggerated or presented out of context. The ongoing effects of COVID-19 become another element of annual death statistics.
As audiences became exhausted with coverage of hospital emergency rooms, the press shifted narratives to financial markets, the economy and upcoming elections. Countries have been left with gaping holes in public sector finances, with unsustainable debt levels and much less ability to respond to future economic downturns. The ‘Baby-boomer’ generation retired later and experienced higher death rates. Gen Z was deeply seared by the pandemic experience, its first defining moment.
A new generation of political leaders in the United States and Europe came to power around a fiscally conservative consensus dedicated to economic growth and balanced budgets. Popular movements associated with figures like Bernie Sanders have been deflated as the extraordinary level of stimulus spending made large government initiatives no longer seem revolutionary and created a new disillusionment with ‘big government spending’. New social programs now compete with other budget outlays under a period of austerity and skepticism. Paying down the interest and principal have had the effect of sharply reducing discretionary spending in any event.
Western societies feel hypocritical in their initial concern over the suffering of the pandemic, superficial in their embrace of social justice, and far less resilient than they believed themselves to be. However, preparations for future pandemic responses have been swept under the rug. Little was learned.
SENSEMAKING
One of the dominant themes in the scenarios is that the experience of this crisis is not going to be a quick ride, even with the introduction of the vaccine. It will take many months inoculate the populations of high-income countries. If vaccine nationalism takes hold, poorer countries will have limited vaccine access for its populations well into 2024.
Governments need to do more to prepare populations for what to expect and begin to introduce gradual policies and long term plans for a world that does not return to normal any time soon. Governments need to develop ways to do this in financial and socially sustainable ways. It will be hard or impossible to maintain a ‘war footing’ vis a vis this crisis. The disaster is not visible to everyone and most people do not directly feel its effects or agree on its importance.
The crisis has created a significant number of conditions that favor larger, more powerful governments and corporations, as well as more coordinated activity among them. Businesses with larger balance sheets and more influence with governments are far less likely to be terminally damaged by the crisis.
The crisis could have sustained effects on the global economy’s ‘Periphery’ as previously cheaper manufacturing locations lose contract manufacturing, reinforcing reshoring trends of manufacturing moving back to advanced markets due to AI and automation. Where China fits into the ‘Core’ vs. ‘Periphery’ of the global economy in this regard will influence how the crisis affects the Chinese economy and society.
Technology’s role in the post-crisis society is less certain than first impressions might suggest. While it could be embedded in society in ways that make distance learning and remote work commonplace in our economies, it also could feed on-going trends that make big tech and governments gather more information on individuals. Some of this is no doubt necessary. Some of it will challenge western notions of privacy and freedom unless populations demand accountability and protection of their freedoms, state leaders fight to maintain transparency, and their citizens’ rights to privacy and confidentiality.
IMPLICATIONS FOR THE NONWOVENS INDUSTRY
The COVID-19 pandemic has and will continue to have mixed implications for the nonwovens industries. On the positive side, demand for Personal Protective Equipment (PPE) and disinfectant wipes for medical personnel and ordinary citizens have surged across the globe (by as much as 12% in the United States) as mask mandates and recommendations became commonplace. Nonwovens producers have benefited from relaxation of restrictions on single-use items – much to the chagrin of environmental campaigners.
On the negative side, the pandemic has catalyzed short-term and long-term transitions that will have significant implications for nonwoven producers in personal care and in the construction industries. When the COVID-19 crisis first became apparent in February and March 2020, many assumed that the lockdowns would lead to a baby boom in many high-income markets as couples would have more time to recreate and procreate. It now appears that the economic uncertainty surrounding the pandemic has had a more powerful effect on people’s reproductive choices. Researchers in the United States and Europe now expect that the number of babies born could decline by as much as a third, leading to 300,000 fewer births in the United States. These projections are corroborated by the decline in Google search terms for pregnancy tests and for information about morning sickness and ultrasounds. This decline will have a significant impact on demand for diapers, baby wipes, baby food, etc. Some producers have shifted towards the production of premium-based products for targeting wealthier parents, whose reproduction plans are not easily derailed by economic uncertainty. The consequences of the baby bust on nonwovens producers will last at least three years as this smaller cohort progresses through diaper dependence to toilet trained.
The length of the baby bust is dependent on how long economic uncertainty lasts, but it does not represent a structural change. The COVID-19 pandemic has wrought a structural change in how organizations plan for and will utilize commercial real estate as retail shifts towards an e-commerce model and as companies implement work from home and work near home operating models. This structural change has already had fundamental impacts on the commercial real estate industry and construction industries as well as the nonwoven producers that support them. The world’s largest real estate company, JLL, expects has reported that “direct commercial real estate investment fell 29 percent globally to $321 billion in the first six months of 2020 compared to the year-earlier period”. And many in the industry expect that urban areas will have a surplus of building stock for much of the next decade. The decline in commercial real estate will have cascading effects on producers of nonwovens for carpeting, furniture, rugs, and other related industries.
CONCLUSION
The Roosevelt administration did not recognize the impending invasion of Pearl Harbor, nor could the Bush administration recognize the rise of al Qaeda, even though both had access to the relevant data. Similar problems underlie many failures in the corporate world, as companies failed to recognize how a competitive environment was changing around them. Pattern recognition can help decision makers and societies avoid future catastrophes.
The post-COVID-19 world will be the start of a new epoch, and these scenarios are illustrative about what the world could look like over the next several years, vignettes that suggest key contours. The patterns they present can help decision makers and societies avoid future catastrophes. Ideally, they serve as a prelude to a larger, rigorous phased multinational effort with multi-domain expertise.
We will face challenging moments that suddenly change the course of the global crisis. By pointing us towards certain kinds of data and mentally preparing us for possible ways the future could unfold, we can gain a better understanding of specific risks we are assuming, as well as become better prepared to recognize pivot points. This will help us collectively act in ways that maximize the odds of desirable outcomes and increase our ability to manage risk and operate in an environment with very imperfect knowledge.
