Brave new world

The prolonged coronavirus lockdown will have lasting economic and social impacts around the world. Here our investment team consider four key areas where things may never be the same again.

Deglobalisation

Even before the coronavirus struck, globalisation was under attack. Though global supply chains account for one in five jobs across the planet, Trump and Brexit offer stark symbols of growing resentment over the social costs of globalisation. Yes, outsourcing production to emerging markets like China, where labour was cheap, reduced the costs of clothing, electronic goods and cars. It fuelled global growth and has enabled most households to enjoy a higher standard of living over the past three decades. But it also left swathes of crippling unemployment in parts of the developed world, like the Rust Belt of America and the North East of Britain — Trump and Brexit heartlands.

The faltering pace of globalisation has become so clear it has earned the moniker “slowbalisation” among economists. World trade, which had risen from 39% of GDP in 1990 to 61% in 2008, dipped to 58% in 2018. The share of global profits of multinational firms also fell, and foreign direct investment, which was 3.5% of world GDP in 2007, sank to 1.3%.

The coronavirus has highlighted the fragility of global supply chains. As China locked down the Wuhan district, carmakers like Hyundai and Nissan were forced to shut factories in Korea and Japan. Apple, in the US, warned of the impact on iPhone supplies, and the FT reported that Jaguar was flying vital car parts out of China in suitcases in a desperate attempt to keep European production lines moving.

As the global lockdown is lifted, we can expect a convergence of political pressure and manufacturing expediency to force many firms to question their dependency on stretched global supply chains and begin onshoring production, but globalisation will still be a dominant feature of the world economy.

The rise of automation

You might think that would be good for jobless workers in Britain, and it might. But companies (and their customers) will resist all pressures on costs that lead to price rises. If new manufacturing plants are to be built across the UK, expect much of the manufacturing to be done by robots. They can be faster, cheaper and less prone to error.

Research by auditing firm EY shows that almost half of companies in 45 countries are planning to accelerate automation strategies as they prepare for a post-crisis world.

Factories and warehouse fulfilment centres will become even more automated. That much is obvious. But EY argues that all sectors of the economy, from finance to retail, could see efficiencies from the introduction of automation.

In 2013 an influential study from American researchers at Oxford University estimated that nearly half of US jobs were at high risk of being automated within 10 to 20 years. Transferring their methodology to UK data suggested that a third of UK jobs were at risk. Coronavirus could accelerate an established trend.

A quarter of supermarket checkout jobs have already gone in recent years in Britain as more of us self-swipe our shopping. Amazon, which has expanded into grocery selling, has a supermarket in Seattle with no checkout assistants at all. It relies instead on sensors to track what shoppers remove from shelves, using “just walk out” technology to bill customers and end queues.

Hospitals all over the world already use software robots to automate appointment scheduling and claims management. Coronavirus projects are teaching them how to automate other tasks, such as lab testing, so that frontline nurses can operate as nurses and not systems administrators.

People have resisted automation throughout history. We tend to an optimistic view of mankind’s ability to respond to technological disruption. Though skilled professions have been lost to technology in the past, new professions have always arisen. Theorists have always missed the capacity for human ingenuity to create entirely new ways to spend money, creating demand for labour. The challenge lies in training and retraining the workforce for a new world.

Threats to privacy

From a technological perspective, the coronavirus pandemic is a testbed for new, larger-scale forms of surveillance. Already governments in Italy, Germany, Austria, China, South Korea and Taiwan have begun analysing smartphone data to determine the extent to which populations are really locking themselves down.

South Korea is perhaps the most extreme example. There the government is using GPS phone-tracking data, credit card records and surveillance video to retrace the steps of those who test positive. It is then publishing their movements on a central website to identify those they may have come into contact with, who now need to be tested too. The BBC’s Korea correspondent reports that, though names are not published, family and friends can easily figure out the identities of those whose movements have been reported and potentially discover awkward information, such as visits to love hotels.

One of the most interesting aspects of the response to the coronavirus has been the way in which government and public health authorities around the world have harnessed big data to help monitor and contain its impact. The concern is, that monitoring may also reduce our privacy and civil liberties.

Big tech companies like Google and Facebook have spent the past three years on the defensive over their use of data. Now they find it in demand and, by cooperating with the authorities, may be hoping for a regulatory regime that is more favourable than it would otherwise have been. Google is releasing aggregated location data in 131 countries so officials can see if people are obeying self-isolating rules. Facebook is giving academics access to maps based on survey data to help forecast the disease’s spread.

Governments are sensitive to accusations of Big Brother and invasions of privacy, but this is new territory. The coronavirus is raising awareness of just how public our private lives have become thanks to modern communication technology.

The rise of home working

Yet our dependency on that technology is only likely to increase. It is difficult to believe that just over two years ago an academic in South Korea earned mocking headlines around the world after his toddler daughter gate-crashed a videophone interview with the BBC.

In recent weeks millions of us have experienced children, partners and pets interrupting video work calls as we try to remain connected while working from home.

Yet for many firms lockdown has been surprisingly undisruptive.

Rathbones CEO, Paul Stockton, says: “Our technology infrastructure has enabled us to keep our business operating smoothly in spite of the majority of the firm working remotely. We certainly miss meeting with each other and seeing our clients directly, but lockdown has not prevented us from using other ways to deliver our services. We are grateful to our clients who have embraced new video technology or found alternative ways to communicate with us. Our feedback is that many clients and intermediaries have been very grateful that Rathbones has continued to be readily accessible over what has been quite a volatile period for managing investments. Our employees have welcomed the capability to keep in touch with each other and work together effectively.

“Wealth management is personal and we hope that our approach to support valued communications between clients, investment managers and financial planners will deepen many existing relationships as well as build new ones.”

Will things ever return to ‘normal’? The crisis has changed forever the perception that home working must be unproductive. Dr Ekaterina Nemkova, a researcher specialising in the digital economy at the IÉSEG School of Management in Paris, expects many more people, particularly those juggling parenting demands or facing long and unpleasant commutes, to now push for a blend of working from home and working from the office.

“Remote working won’t completely take over, but this trend is here to stay after society has dealt with the virus,” she says. “It’s true that human interaction can be important for creativity, but it’s also true that many of us can benefit from working quietly and without interruption. The crisis has demonstrated that if the right conditions are met many more jobs could be successfully done remotely.”

People have also become more comfortable with receiving medical advice via video communications platforms such as Zoom. Add this to improved real-time sharing of patient information between consultants and increased use of domestic medical monitoring devices for people with issues like lung and kidney disease and we might hope to see significant healthcare enhancements and efficiencies in the coming months — delivered in the home rather than the hospital.

A generation of young people will also have experienced home-based education, and it is possible there will be a growth in home schooling and a move towards university students studying remotely rather than paying high accommodation costs.

The impact of all this on road and rail use could be so great that several commentators are now arguing that the government would be better to invest in 5G and broadband infrastructure than major transport projects.

And investment is certainly needed. Virgin is now rolling out 1G fibre broadband in Birmingham, Coventry, Southampton, Manchester and Reading offering connections at 1,000 megabits per second. This is double their previous best broadband speed (and 20 times the average UK broadband speed). The introduction of 5G — the next generation of mobile communications technology — could also increase phone download speeds by a factor of 20. The experience of home working will drive demand for investment and improvement in the infrastructure.

Conclusion

Of course, these are just a few ways in which our lives may be shaped by the coronavirus and recent events. There will be many more. What is clear, though, is that for many of us the world will never be the same again.