An analysis of the COVID-19 crisis and its aftermath



Yavishek Periag

Does history repeat itself?

Over the course of history, several exogenous shocks have rocked societies and radically changed the structure of politics, economics and social life.

Diseases and acts of nature for one tend to repeat. The Spanish flu in 1918 wreaked havoc to both economies and lives, with records showing that up to half of the world’s population (about 500 million) were infected, killing some 20-50 million. Lock-down procedures were implemented all over the world, with people ordered to wear masks. The flu lasted till about summer of 1919, when general immunity was developed by the population. The flu caught the world unawares and exposed structural weaknesses of the system, with sanitation and workers’ rights to name a few. While the crisis led to major discoveries on viruses, few lessons were however learnt. States and leaders were slow and reluctant to impose sacrifices on their citizens, who themselves disregarded lock-down procedures, while growing disparities among communities were noticed.

Some years later, another exogenous shock was noted, one that lay the foundation for a new world order. The Great Depression ‘officially’ begun on Tuesday 29 October 1929, when the stock markets in the US crashed. Although that fateful day (thereafter known as Black Tuesday) proved to be the catalyst, the markets only reflected weakened fundamentals that were apparent (obviously, in hindsight) to see. A struggling agricultural sector, rising unemployment, large levels of (bad) debts and irrational exuberance on stock markets were all ingredients that brought about the Depression. At its ‘peak’ in 1933, unemployment had risen to almost 25%, and US GDP was cut in half. The spill over effects on other economies were disastrous, and proved to accelerate the rise of Adolf Hitler’s Nazi party in 1933. It took a combination of what is known as The New Deal and World War II to lift the US out of the Depression.

While we have made huge advances from the Spanish flu, the cycle however teaches us that certain of the features that prevailed in those periods are as true and present today. Some of them are:

  • ineffective or slow reaction in the face of the virus at the beginning of the pandemic;
  • a population initially disregarding safety measures;
  • concerns over sanitation;
  • economies brought to sudden stops; and
  • uncertainty over just how our lives will change during and after the virus.

Furthermore, questions – most probably the same ones that were being asked in the 1900s – remain unanswered. First and foremost, we have questions about the virus itself:

  • Is the virus here to stay? Does colder weather accentuates the rate of infection?
  • Will there be a vaccine? If so, when can we expect to have it on the market?
  • Can we develop immunity to this virus? If so, how long till we reach the stage of her immunity?
  • Can the virus evolve / mutate by the time we develop a remedy?

Additional questions that we as individuals will perhaps more closely relate to the post-lockdown period:

  • What will happen when everyone goes back to work again? Will this increase the chances of a secondary wave?
  • At what point will we be comfortable to travel by public means of transport, like trains or buses or planes?
  • How can we expect to react were someone to start coughing around us?
  • Can we deem the situation safe enough to send children back to school?
  • When we are to go to restaurants and public food places, would we prefer be served by
    waiters / waitresses with masks and gloves? How can we judge the security of the food we will eat?

Hopefully, these very questions should help policy makers define their plans to re-open economies. For instance, a partial opening of the economy, with strict measures like social distancing and the need to wear masks in place.

With regard to the economy, the Great Depression was notably marked by the following characteristics:

  • Interest rates hit 0%
  • Ineffective monetary policies;
  • High debt levels;
  • Weak global economy;
  • Large wealth and political gaps;
  • Rising world powers.

If we were to compare this with 2020, we find ourselves with these very same features:

  • On 15 March, the FED slashed rates to essentially zero and launched a quantitative easing programme of US700bn, to later pledge ‘unlimited’ easing for treasury, mortgage and corporate bonds;
  • Since the issues are sanitary and economic in nature, the actions of the FED may not prove to be as effective. Having hit the zero barrier, Central Banks are now ‘all-in’ in this fight;
  • The amount of debt in economies are the highest they have ever been. Both governments and corporates having loaded up on leverage over the past ten years of accommodative monetary policies. The Institute of International Finance reported on 23 March that “debt to GDP ratio rose to 322%, with total debt reaching close to $253 trillion and total debt across households, government, financial and non-financial corporate sectors surging by some $9trillion in the first three quarters of 2019”. The unwillingness of Central Banks to let anyone default only exacerbates the problem;
  • The economy is no longer a ‘productive’ economy, but rather a ‘financial’ one. Slow global growth and weak structural foundations for economies were already here before the crisis, with countries struggling to stimulate their economies because of debt servicing and low levels of productivity, to name a few;
  • Increasing chasm between the haves and have-nots that has deepened over the past years. Of note, 10% of the US population own 84% of all stocks held by households. So when the FED started inflating asset prices back in 2019, very few gained from the supposed benefits of quantitative easing.
  • Tensions prior to the crisis mounting between the US and China about trade, with some punches still being thrown about during the crisis.

Looking at those indicators indeed do not paint a bright picture for us. And to add more spices into the mix, we will have to face with additional fundamental weaknesses, which I note below:

  • Decline in savings rates;
  • Ageing demographics;
  • High debt ratio;
  • Decline in exports and competitiveness;
  • Slowing domestic economic growth; and
  • Underemployed younger population.

The measures deployed so far by governments and central banks, while laudable in their attempt to jump-start the economy and save jobs, are alas barely enough. The ‘CARES’ Act for instance, passed by Congress to support the economy, will, at time of writing, only support economy for up to 2 months. And any likely extensions of the programme will take a heavy toll on the economy. To give some perspective to this argument, consider the following: on the second week of April 2020, marking the fourth week of lock-down in the United States, the cumulative number of Americans applying for unemployment benefits stood at 21.5 million. This offsets the number of people that had been offered employment during the expansion that began in June 2009!

Governments have also unfortunately just mentioned how they aim to support the economy. While admittedly, crises have a way of drastically shortening our time horizons, there should however be more discussions about how we will invest and move forward. And the belief that everything and everyone will go back to ‘normal’ is erroneous and leading us to a dangerous path, for the simple reason that it hinders us from preparing ourselves for the challenges yet to come.

The challenges

Below is only an attempt at extrapolating future scenarios, based on my understanding of what has, or will fundamentally change in our daily lives. Admittedly, I may well be miles off course; for all we know, the world could indeed go back to ‘normal’…

General trends:

  • Climate change;
  • State Capitalism;
  • De-globalisation;
  • Resource allocation;
  • Accelerating use of technology;
  • Social issues

Climate change:

Make no mistake, the lockdown and sudden stops in our economies because of the crisis are only a teaser of what awaits us if we do not address the immediate and long term issues of climate change. Natural events are likely to be more frequent, if not more violent. While the response to jump-start the economy might work in the short term, a greater deal of thinking must be invested into how to transform the machinery to mitigate the impact of future lock-downs / disruptions.

Godin: “Emergencies are overrated as a responsive mechanism. Preparation and prevention are about to become a popular alternative.”

Economist James Meadway: “Correct Covid-19 response isn’t a wartime economy – with massive upscaling of production. Rather we need an ‘anti-wartime’ economy and a massive scaling back of production. And if we want to be resilient to future pandemics and climate change, we need a system capable of scaling back production in a way that does not mean loss of livelihood.”

The need for a comprehensive Business Continuity Plan must be discussed on a national scale, where we identify the potential threats, areas of vulnerabilities (be it structural, cultural or geographic) and devise a plan of action. To help imagine the scenario, consider London during World War II: the city had special bunkers and bomb shelters ready whenever the area was subject to air raids. Social and economic activity would stop and everyone would find their way to the nearest shelter.

State Capitalism:

With economic agents like households and businesses poised to restructure their consumption and investment patterns, the government will become the main character of the economic story.

An economic phenomenon known as debt monetisation is likely to happen. Debt monetisation effectively implies financing government expenditure by printing money. In other words, governments receive funds to finance their expenditures by issuing bonds that Central Banks buy. This would, in the short term, help governments finance their deficits and help stabilise the economy. Debt monetisation has previously been used during war-time periods, where it helped in economic prosperity (although a case can be made against this claim, since most of what was produced was meant to destroy. Unfortunately, GDP figures do not account for this).

However, a few words of warning are necessary here. Excessive leverage, left unchecked, will cause more harm than good. Debt servicing erodes the economic power of an economy. The Centre on Budget & Policy Priorities in the US recently published that in 2019, roughly 75% of every tax dollar went to non-productive spending (welfare benefits, pensions, etc.). Therefore, financing these non-productive spending with more debt only increases the opportunity cost. Additionally, pursuing debt monetisation means could mean putting too much money in circulation. If Central Banks and governments abuse this tool or delay in removing any excess cash out of the economy, inflation and debt servicing could become a serious problem.

 “We are at war against (the) virus.” Emmanuel Macron, 16th March 2020

Periods of war also gave governments certain kinds of power on its population. For instance, foodstuffs and other basic amenities were rationed by governments, while safety and security protocols were strictly enforced. Wages and prices were doggedly controlled, while reserves were closely watched and protected. The new ‘war’ against the corona virus will then, by extension defer certain powers to the government over how we will be living our lives.

Quis custodiet ipsos custodes? (“Who watches the watchmen?”)

However, years of malpractice, misuse of power and rising complacency among politicians and the media will raise questions about how well these agents can manage the power they will have. For example, surveillance will potentially help governments combat the virus, but then, who is to say they will stop there?

Discussions about nationalising, or at the very least, equity stakes for the government in certain industries could also be put on the table. In Spain for instance, hospitals have been nationalised. In the UK, there are talks of nationalising public transport services. And equity stakes or nationalising airlines in certain countries may very well be the only viable options left to save the industry.


With the disruption in supply chains, the question of changing the mechanics of globalisation will push companies to shift capital away from emerging markets. Suddenly, the benefits of cheaper labour and raw materials will be deemed weaker when compared to the degree of security and control when having these manufacturing plants on local soil.

The likely consequences of this will, on one hand be welcomed by developed economies who have been complaining about loss of jobs in their own countries, and on the other, shift capital and wealth away from the developing economies. This in turn will hinder the development of other sectors, namely leisure, hospitality and travel, education (foreign students) and trade.

Economies will then likely adopt import substitution policies to counter their dependence on other countries for trade. Agriculture could regain importance and attract people and technology. Real estate will also likely see a shift in land use, with warehousing, data centres and general infrastructure being prioritised over office or commercial space. In the same line, architecture will also need to evolve to accommodate working from home and away from offices.

Politically, shifting focus inwards would mean that Mr. Trump’s wall might be built after all. Immigration policies could be reviewed, travel limits imposed, and the influence of populists and the extreme right could very well weaken international relations. Already, we have seen the US pull out of so many international deals, withdraw its funding from the WHO and focus intensely on ‘making America great again’. The European Union will also likely face the brunt of general discontent among its constituents. This could potentially leave the room for China to truly emerge as a world leader. However, the country itself is heavily reproached for its policies on issues like gender equality or the use of debt. The potential shift away from their products would also not likely be to their advantage.

Another trend we will likely see is the consolidation of power among oligopolies. Already, much has been written on how the likes of Facebook and Google abused of their positions on the markets. However, in times of uncertainty, we tend to show greater brand loyalty. This could then mean these companies having greater control over our data and our habits. And if governments ramp up surveillance methods through applications and use of cameras to track the virus, people then would likely have to get used to reduced privacy.

To be clear, the trend of globalisation will not be reversed. Rather, we can hope that a globalisation based on knowledge-sharing (for instance, sharing facts and methods on how to combat the virus), global plans (e.g. global plans to mitigate climate change effects) and pooling of resources to fight the many fights would be the way forward to remedying to the flaws of the ‘previous’ model.

Accelerating use of technology:

The crisis has shown that the world is ready to accelerate its use of technology in our everyday lives. The seemingly fluid shift towards working from home should pave the way towards additional measures taken to mitigate the current and future crises. Here are some of the ways technology is set to change our lives:

  • Re-thinking of the global supply chain will undoubtedly benefit from automating certain processes. These will help mitigate the impact of future disruptions on logistics and trade;
  • The future of money itself is poised to become more digital, with the rise in interfaces encompassing facial recognition and other security measures to allow for exchange of money;
  • Consider how health care will be dispensed to you without the need to go to hospital, with medical personnel ‘travelling’ to you and diagnosing you through monitors and sensors;
  • The agricultural sector can be radically changed, with focus shifting away from quantity of acres of land under cultivation to quality of yields. Several start-ups for instance have already harnessed technology to increase yield and reduce the effects of bad weather on their supply chains;
  • Residences are about to be changed and equipped with technology. Consider how the ‘Alexa’ and ‘Siri’ interfaces are already changing the way we manage our home affairs;

The potential for digital transformation are limitless, and cannot be exhaustively listed here. However, the main point is that technology is set to usher us into a world we are only used to seeing in movies.

Social issues:

The crisis, if unaddressed correctly, could very well transform into a social one.

The associated issues of large unemployment for one, especially among the young, will be huge. The pandemic effectively highlighted a paradox that many jobs were NOT essential enough to add value to the economies, even though key areas like health care, education, and social welfare persistently lack personnel. A comprehensive overhaul of the current educational and working systems, coupled with investment in developing other sectors for economic growth must be a priority for everyone to have jobs that contribute to society.

The social consequences of the pension problem, admittedly are beyond my capabilities to completely decipher. Given the meagre returns pension funds have yielded on stock markets, the question on how to fund the widening gap remains a tricky issue. Already, measures proposed by the French government have led to the ‘gilets jaunes’ movement. A best estimate will regard to the increasing burden on the working population to fund pensions, as well as the mental stress to be faced by the retirees. Sacrifices will have to be made to ensure the continuity of the pension system, but the magnitude of resentment and backlash is a worrying sign.

Furthermore, the crisis will more than ever shed light on the role of companies in society. That companies should act in their own self-interests to maximise shareholder wealth could never have been more wrong. After all, businesses sell to the society at large, and the measure of wealth does not limit itself to money.  Demands for sustainable products and sustainable earnings will only grow from here, and will hopefully lead to a focus on value creation.  This will undoubtedly force firms to re-think about their place in society. Hopefully, the increased use of the “Shared Value framework”, developed by Michael Porter (famous for developing the Porter’s 5 forces), will be seen.

Does the end justify the means?

As mentioned before, this paper only attempts at shedding some light on the challenges that await us. I believe this to be important because we need leaders aligned on the depth of what awaits us. We need people to face the truth about how the world has changed.

Unfortunately, the word strategy is often misunderstood, and thrown about without differentiating it from management. A good strategy does more than help manage resources; it helps us all understand the challenges ahead of us and unites us all behind a vision. And good strategy begins by accurately defining our challenges. Understanding the conditions necessary to overcome the challenges is the next crucial step in formulating a strategy. This leads to a comprehensive study of the strengths and weaknesses, followed by devising a conducive framework to play to the strengths, all the while mitigating the downside risks that come from the weaknesses.

Unprecedented times call for unconventional actions. And those leaders who dedicate resources to developing that vision stand better chances at riding the storm. Pro-activeness is essential in times of chaos, and the pursuit of budgets and past strategies must be dropped to focus on an entrepreneurial approach.

Howard Marks: “If you’re experiencing something that has never been seen before, you simply can’t say you know how it’ll turn out”

No one knows how this will all turn out. No one knows what the world will look like in a few weeks’ time. Change is never easy; however change is the only aspect that keeps us humans relevant. Which is why I believe that the crisis has given us a tremendous opportunity to hit the pause button and reflect. I believe we have in our hands an opportune time to make some fundamental changes in the way we live. I believe we will come through this stronger than before, but only if we choose to collaborate and build the world we all want to live in.


Spanish flu and Great Depression

Economic data