First published 19 May 2020 in LinkedIn
Fig 1: Peace between West & East and the rising sun of multi-racial harmony
Post Covid world
Our post Covid world will have more geopolitical conflicts. This is playing out from the China US rivalry which has ramped up dramatically. Big economic disruptions tend to unsettle established political order. There will be grievances & resentment, against the context of rising China changing the post second world war order (or Bretton Woods monetary order of 1945). As the US increasingly playing a lesser role as a global policeman (started prior to Covid), a more rivalrous and mercantilist world was already in the making
When there is a rising civilisation challenging an existing power, the risk of war increases. As the Covid pandemic progressed in March 2020, the Federal Reserve was establishing currency swap arrangements with its top 15 favoured central banks. This may seed the creation of a bipolar world, with the other side being the Chinese AIIB and participants of the road & belt, plus the string of pacific islands called the Blue Economic Passage (a secure Chinese sea lane all the way to the Antarctic).
The reality not so clear cut. Commercial realities on the ground clouds this and make relationships more complex. Whether war machinery & protection will shape the bipolar world or commercial realities of trade, these will play out in the next decade. As America backs out of trade agreements, there is no shortage of others stepping in, for example Japan and 10 other countries agreed and resurrected the Trans Pacific Partnership without the US.
Many countries caught in this precarious position will have to rely on the smartest politician to balance the two sides, not wanting to be forced to choose sides... a feat easier said than done.
As Henry Miller, an American writer puts it “The new always carries with it the sense of violation, of sacrilege. What is dead is sacred; what is new, that is, different, is evil, dangerous, or subversive”
The new always carries with it the sense of violation, of sacrilege. What is dead is sacred; what is new, that is, different, is evil, dangerous, or subversive
Accelerated End of Globalisation
Globalisation was slowing even before Covid and Trump. Covid merely enforces and draws light the trend, much like how a streak of lighting lets you see how untidy the yard is. Catalysed to the epidemiological and psychological impacts of Covid, a V shaped recovery is unlikely and we are looking at a painful longer U shaped recovery. Multiple waves of Covid outbreaks are likely simply because psychologically, many lay people who are worried of losing their jobs will not be keen to get tested, eventually causing cluster explosions in their community. It is just human nature and there seems to be little capability in most countries, to enforce a 100% testing.
Consequently, the demand side economics will be further muted (growth was slow pre-Covid) as countries all over the world are opening up very cautiously and with many suffering a second or potentially third Covid waves. People may go back to work because they have to but will not be spending big for the foreseeable future. On the supply side, even if China’s factory fires up, there may be not much demand to supply to, especially discretionary goods & services to the Western world. Having said that, China has a growing domestic demand and also its economic allies (which it had sent millions in financial & medical aid) of the “road & belt” countries from Kazakhstan, through Malaysia, Thailand, to Turkey then Italy, which can power a base-load to “keep the lights on”.
All these is happening against a backdrop of the US debt to GDP predicament, which experts like Jim Rickards thinks, in his book Aftermath, can spiral out of control. The Maastricht Treaty, which governs the EU seeds 60% as a red line not to be crossed. A Reinhart-Rogoff research shows there is an even more dangerous threshold of 90 percent debt-to-GDP, where affairs become unsustainable. The US ratio was over 100 percent. Then again, look at Japan with over 200% debt to GDP. Is US is the new Japan?
For traditional Western allies for example the C-6 entities (US, UK, Canadian, European, Swiss and Japanese central banks), the supply chain adjustments are going to be painful as factories relocated to alternatives which are less integrated to world trade agreements & routes, less savvy in service offerings (legal, logistics, banking integration) and have structural education gaps. In reality, this will not be a simple move. Even if we can miraculously execute it quickly, the cost or quality elements will contribute to the pain for some time.
What is certain, is the current trend of trying to achieve what Australian PM calls economic sovereignty. This will provide impetus for technology adoption where it makes sense (higher value adding manufacturing) for example in Australia where labour cost is one of the highest in the world. Cost of labour, social order and how to significantly raise GDP would be hard problems needing resolution for seating and future Prime Ministers. A renaissance in entrepreneurship and significant changes in social engineering will have to happen to lower the cost of living in major production cities and to enable every single citizen to own an affordable home (technique to quell unrest). Affordable home ownership is one of the cornerstones of how Singapore, a resource poor tiny country, manage to focus the energies of its populace, to achieve its economic miracle in the late 20th century.
Global Financial Contagion Spreads Home – The Nation State Rises
Coming down from 50,000 to 5,000 feet, the impact brought about by the pandemic can make nation states more powerful. According to Ray Dalio, a prominent global macro investor, this is more than a recession. This is a depression similar to the one started in 1929, which included a potential breakdown of an existing world monetary order and establishment of a new one towards 1945. Historically, the nation states usually becomes more powerful in the period during and after a crisis.
The more competent governments will end up with stronger powers and mandate. They will have a greater ability to effect changes into labour laws and change historically sacred cows which may need to reconfigured for the survival of the nation.
In a recession, companies will go bust and people will become unemployed. In Australia, Covid will act as a powerful catalyst for that. The basic machinery & infrastructure of countries will come under scrutiny, which functions worked and which didn’t would be closely assessed, then renewal & disruption would be natural consequence. Reallocation of focus, people and capital from areas that is failing to areas that are up and coming will receive renewed vigour. Will Australian leadership have the ability to kick-start a new era and at the same time, delivery prosperity to the middle class? Only time will tell.
Impact On Business & Jobs
Coming down from 5,000 feet to ground level, at the local & private company level, availability of appetite and financing budget for projects may be much lower than before, even compared to the worst days of the 2008 financial crisis. The economic avalanche triggered by the Covid will mean commercial restructuring on steroids and austerity measures across the board. Underlying this, is largely a money and credit crisis.
Many companies which are not equipped to handle this will disappear and many new entities will also come into existence. The unprepared who are lucky will become weaker, the prepared becomes stronger and can reap massive benefits. Many people underestimate the contagion effects of the financial tsunami, even hospitals can go broke and close down, and retirement funds wiped out as stocks prepare for another 50% dive post June 2020. Each contagion effect creates a new contagion on its own, similar to the super spreaders of Covid. Massive money printing (to be on par with other money printing governments in terms of balance of trade) and redistribution of wealth if not already in motion is definitely in the cards. Creativity, inventiveness, political astuteness and adaptability will be the differentiator between the successful or otherwise. Smart individuals who are able to team and collaborate will rise to the top.
“The greatest danger in times of turbulence is not the turbulence – it is to act with yesterday’s logic.” Peter Drucker
For businesses & jobs in the old economy aka lower melting point industries (first to melt in the face of new heat), such as centralised power distribution, traditional retail, hospitality-conventions-exhibitions, labour intensive industries (outside captive labour industries like building) an uphill struggle in a dark tunnel may seem the never-ending norm.
The greatest danger in times of turbulence is not the turbulence – it is to act with yesterday’s logic.
The exception would be in two broad categories and one tag-along category.
Firstly, government will usually jump-start mega projects to reinvigorate jobs creation and create infrastructure necessary to cradle a new age productivity & consumption. Nationally, we should also be trying to reshape a renewed common mission & vision for Australia and how to deal with societal flaws such as racism, income gap, climate change impacts, decoupling from fossil fuel economy, new format universal health care, etc. Covid safe economy is a humble description which will eventually bloom into this new dynamic era we all need to have, making real progress without spoiling the sky, the rain or the land (credit to Paul McCartney)
Secondly, innovative & inventive businesses like virtual teaming enterprises or change delivery agents like AI & data science delivery project teams will thrive. How business is done will feed into this picture for the foreseeable future. A face to face meeting will be reserved for something more worthwhile rather than speculative meets like chatting over a cup of coffee. Executives will reserve physical face time meetings for people whom they know they will have productive time spent with. The push to virtual teaming and collaboration had never been stronger moving forward. Organisations like Qube will be hugely popular and many similar organisations will also bloom. Commercial real estate as we know it will start to get disrupted. As meeting people and traveling become harder, many industries will go bankrupt but many others that disrupt them will bloom
As geopolitical rivalry boils over, another street level impact is increased cyber warfare & digital disruption amidst the international geopolitical battles at play. If you have intellectual property which a rival is after, expect bots to be trying to get into the network day and night. Does an Australian consulting firm continue to work with counterparts in Thailand and Malaysia who are in the Chinese camp or forego a lucrative opportunity in fear of operating risks? These will increasingly be hot questions to be answered with care. The world media is so fragmented and biased that even to say thank you to China for providing medical aid, has become a dangerous proposition. According to head of TED talks, Chris Anderson, the media in its current form is creating hordes of people with irrational hatred against China. Is there a practical middle path where shrewd operatives are able to tow the middle line and still flourish in this crisis?
In a zero and negative interest rate world, the central banks are now unable to stimulate buying power and productiveness across the world. In this new era, the focus on Productivity & Inventiveness will be front and center, with facilitating infrastructure being rushed in by governments with vision or capability to deliver on them.
Entire value chains have to be restructured and rethought out to revolutionise value add. Not continuous improvement, but revolution level changes. For example, jumping on a car and going to work, spending 2 hours for transportation, arriving more tired in the office, incurring additional costs of commercial rental space, does not make sense in the new world. There are virtual project delivery spaces which can deliver 300% the amount of productivity compare to the same work done in a physical world. A case in point is Prof Eddie Obeng’s QUBE. Eddie’s unique 3D on 2D (notebooks). He had change the laws of physics and created a virtual world which delivery value in a speed and quality that the physical world cannot rival. The likes of Harley Davidson, BBC, National Health Services and Glaxo are testament to his successes.
The others in this winning category are adaptive innovation powerhouses which strong balance sheets like Zoom multi video conferencing platforms with its’ rivals WeChat & DingTalk from China, Xiaomi Mobile which sells mobiles at a third of Samsung’s prices, RedFlow flow batteries disrupting Lithium Ion home batteries, 5G superpower Huawei, advanced AI & decision support capabilities consulting, new era micro-education, tele-health and others of a similar ilk. Many of the new juggernauts are of names we have not heard of.
As Rupert Murdoch puts it, “The world is changing very fast. Big will not beat small anymore. It will be the fast beating the slow” Technologies & methodologies which facilitate that will rise to the top.
The world is changing very fast. Big will not beat small anymore. It will be the fast beating the slow
The tag-along category of companies which will survive will be the stable meat & potatoes company the likes of Campbell Soup and public hospitals. They too will need to be restructured to thrive and serve in the new world.
“Change is hard because people overestimate the value of what they have and underestimate the value of what they may gain by giving that up” James A Belasco
Change is hard because people overestimate the value of what they have and underestimate the value of what they may gain by giving that up
Rising above current day evils of racism, division and geopolitical mutual disrespect, as a progressive human species, we need to move beyond divisive media reporting to be able to read between the lines and think critically. Our forefather’s core values that bind us as a vibrant nation, the qualities of humility, hunger for wisdom, superior team work, dynamic entrepreneurship, focus on quality and drive to think beyond the box are all there to raise our productive and creative capabilities. With the right focus and strong drive, we as a nation can ride out of this a much stronger, smarter, cohesive bunch.