How Long Until The Economic New Normal?
There are many conflicting views emerging on the timing of an economic new normal. Regardless of the source, all of it at some level is speculation. There is too much uncertainty to do prediction justice. That doesn’t mean that talented prognosticators can’t take a shot. This great Article from MIT Sloan Management Review is a must read. Author Alec Levenson argues that it will be a long time until an economic new normal. Some of his rationale is summarized below:
The main thesis of the article is: A full economic recovery from the COVID-19 pandemic is unlikely, and the new version of normal for work and organizations is further off than we think.
He states: It is likely that full recovery of economic activity, including GDP growth, jobs, and unemployment, will take at least a year, and likely much longer. Some argue that once we get to the point of health care stabilization, the economy will take off very rapidly, The author views this quick recovery scenario as potentially dangerous for long term planning for four reasons:
- Negative impact on consumer sentiment and spending
- Gig economy scales tilting towards worker rights
- Large segments of the economy permanently disrupted
- Long period of adjustment for a shift away from face-to-face interaction
Mr. Levenson also states that necessary changes to operations (like building in redundancy) will take years to develop. What is lost as we focus on the crisis is that a number of troubling trends were already decreasing economic security within the labor, housing, and financial markets. The pandemic in many cases serves as an accelerant. Examples include:
- Instability of independent working arrangements
- Rising housing costs
- Consumer debt
We can see the signs of the pandemic acting as an accelerant. It is already acting on what was a slow embrace of remote work and education, and the article provides additional examples: labor market regulations; the rise of new business models; and the disruption in face-to-face interaction.
If I look back at my own work over the last several years, I see the pandemic as a clear accelerant to one of the core tenets of that work: resilience is the deciding driver of success in the future. It is my belief that resilience is forced upon us by the pace of change and the sheer number of shifts likely experienced as a result of exponential progression. This is somewhat of an invisible force that is mostly ignored as leaders deal with present day realities. The pandemic is a very visible force that makes the need for resilience real. The article speaks to our lack of resilience when it states that the unfortunate truth is; the COVID-19 pandemic has caught virtually all industries and companies by surprise. As a consequence, we face many years of companies reevaluating and reorienting their operations and investments to be prepared for the next pandemic.
Mr. Levenson therefore sees consequences and an effort to increase our resiliency: we face many years of companies reevaluating and reorienting their operations and investments to be prepared for the next pandemic. Steps are likely taken to address the interdependence of supply chains and build in the capacity to deal with sudden spikes in demand. These steps take time. At the heart of the article’s message is that business and society will require that time to settle into a new normal. To dig deeper into this summary, take a look at the Article.
For additional thoughts on the pandemic, see my previous posts.
Originally published at http://frankdiana.net on April 13, 2020.