Fit for Duty Podcast: Episode 11.

Hello, and welcome to Fit for Duty, brought to you by Aetna International. This month we’re focusing on ‘Coronanomics’ — that’s the impact of the pandemic on economies and industries

Now, the COVID-19 pandemic has affected more than people’s health; it has shocked national economies and health care systems and decimated industry sectors. But it has also accelerated innovation, fast tracked changes in digital regulations and licensing requirements and changed corporate models, mindsets and culture. What more can we learn about the positive and negative shocks that have resulted from the pandemic thus far? And what can we expect to see next? How can they shape and influence consumer spending, inflation rates, global mobility and international talent pools, as well as the health care industry in the coming months and years?

I’m Lorien Norden, Thought Leadership Strategist and every month I ask experts in health care and benefits, consumer trends, medical tech and others besides about what’s happening and impacting the world of health and wellness benefits and employee well-being. This week I’m joined by Professor Graeme Leach, CEO of Macronomics a macro-economic, geopolitical and future mega trends trends research consultancy. He’s also the author of the 2021-22 report called ‘Coronanomics’. We hope you enjoy this episode; to hear more from Aetna International you can subscribe to Fit for Duty on your preferred podcast platform, such as Sound Cloud.

Today I’m absolutely delighted to be joined by Professor Graeme Leach. Hello Graeme, thanks so much for being here. For the benefit of our listeners, could you please tell me a bit more about yourself, your company and also the Coronanomics report you published last year.

Hi, sure, yeah I run my own company called Macronomics, and we’re a macroeconomic geopolitical and future mega trends research consultancy, so we look at all those big-picture issues across the globe and what they mean for the economy, and society in the future and needless to say COVID has been a rather big chapter in our work in the past year as it’s a once-in-a-century event, some would say once-in-centuries event, and we really needed to show our clients what the potential outcomes were because of the scale of the uncertainty because we’ve got epidemiological uncertainty, we don’t even know when lockdowns are going to be lifted across the globe, and on top of that all the normal economic uncertainty and this time around of course, we’ve got the worst downturn in over 200 years. So, very difficult for clients to understand what’s going on and our job has been to really set out clearly the scenarios that could come to pass, why they could come to pass and what to look out for that can give you that sign that says ‘actually it’s going to be a much sharper bounce back, it’s going to be V-shaped’ or ‘hang on, this is going to look more like a NIKE tick’ or, perish the thought ‘just an L-shaped scenario, where we take an awful long time to recover’. So, that’s the work we’ve been doing, looking at the UK, European and Global economy.

And I understand as well that you have in the past been involved in discussions with the Chancellor and Number 10 Downing Street. So, could you also give me a little information about that, please?

Well, that’s a bit further back in my work experience. For 15 years I was Chief Economist and Director of Policy at the Institute of Directors in London, which represents 30,000 company directors across the globe and we had a Public Policy role there and my job was to go in and make the case for what I thought was a wealth-creating, competitive-improving policy for the UK economy. So very much commenting on economic policy issues and what was good or bad for the economy, but also bringing our view to government about what we thought the general outlook was and what the impact of certain measures might be, whether that’s the Euro, Brexit or those sorts of big macro issues and what they mean for the future.

So, in looking at that good and bad state of affairs, that brings me very nicely to my first question — to ask you for a high-level overview of both the positive and negative shocks that have resulted from the pandemic to date.

Gosh, that could take the rest of the year to answer, but I’ll do my best here. I think you need to distinguish between the short-and long-term as well. In the short-term much of the overall impact has obviously been negative in many sectors; some have clearly gained, the Amazons of this world, so that’s not to say it’s all negative but in overall terms we’ve seen the sharpest economic decline in 200 years and that has to have consequences. But, what we don’t see yet is the post-lockdown and recovery in the global economy because as vaccines get rolled out across the world, then there will be a recovery. It’s going to take a lot longer in some places than others but the high-level review tells us there will be an upturn this year. There will be a bounce back in the world economy, certainly in many of the advanced economies in the second half of this year. But then the more enduring question is ‘OK, what’s the legacy of COVID?’ and then I think here we’ve got something really interesting and that is that the enduring legacy of COVID-19, I believe, will be quite positive because we’ve had already existing trends towards online working, shopping, gaming, learning, all these things were coming to pass anyway. What COVID does is acts as an accelerator and I think it hastens the day when these changes will become much more mass market and that’s not to say immediately but I think they will bring things forward, so in the mid-2020s onwards, we’re going to see quite a sharp acceleration in economic growth and part of that explanation will be the enduring legacy of COVID-19. There’s an interesting historic parallel here, if we look back a century to the Spanish flu in the wake of WW1, then the legacy of the Spanish flu in America was ultimately the Roaring 20s. Now, in the UK actually the 1920s were worse than the 1930s in terms of economic growth. So, we’ve got a big question mark here across the world - will the future of the world economy look like the Roaring 20s or will it look more like the much more and mundane drab 20s that we saw in the case of the UK. Is it US, UK or completely different model? I’d say it’s going to be a different model now. But it just goes to show that the legacy of pandemics can differ quite markedly across countries.

You mentioned there about the surge and adoption of new digital models in terms of work, learning and retail. In terms of new digital business models that could hasten an acceleration in productivity growth, as you referred to in a recent article, could you explain and elaborate on that a little bit for me please?

Yeah, sure. I think the key thing is we’ve had a technological revolution, that’s an old story but let me rewind a few decades to unpack it a bit more. At the end of the 1980s, Robert Solow, an American Nobel Laureate in Economics said ‘I can see computers everywhere but in the productivity statistics. What he was saying was you’ve got all this IT supposed to accelerate growth and make us much more efficient and effective and productive but I’m not seeing it in the numbers, growth’s not surging. And that’s called the Solow Paradox. Fast-forward 30 years and people are talking about something called the Solow Redux which again, is that we’ve moved on way beyond the introduction of PCs in the 1980s, obviously the explosion of the internet of mobile and network and all the new platforms we operate nowadays, you’d have thought that would accelerate productivity growth, but it hasn’t done so for the past decade. People say the Solow Redux means everyone’s just completely over-hyping productivity growth in the wake of technology and they’ve kind of given up on it. And my argument is that this is precisely the wrong time to look at the road ahead through the rearview mirror — and what I mean by that is just because we haven’t seen it thus far, doesn’t mean we’re not going to see it. Just wait. And the reason I say just wait is because in the mid-2020s something is going to happen. We’ll see the convergence, the maturity and the at-scale rollout of all the big technologies today at the same time, so your 5G, IoT, AI, Cloud, Big Data, Edge computing all these things which will contribute to an acceleration in growth will reach scale in the mid-2020s and they will reach a level where they can facilitate an acceleration in growth. Yes, we’ve had mobile phones since 2008-9, smartphones, and yes we’ve had tablets and mobile computers but for much of the last decade we didn’t get much beyond 3G. It’s only because we’ve reached the next level, and the maturity of these technologies that then we can begin to see their full effects and believe me when their full effects are seen, we’re going to see a surge in growth.

That’s really interesting and you mention there about productivity and I specifically wanted to ask you about sectors of the economy that are labour intensive; services that are traditionally low productivity such as health care and education. Now, in terms of manufactured goods such as smartphones and cars, what is the difference between health care and education and those manufactured goods? And what do you see happening, as you said, in the mid-20s here?

OK. There’s quite a few things there to unpack but it’s fascinating because actually you’ve raised one of the biggest issues associated with technology. Talking then about the impact on health care and education and one of the… there’s a strange term in economics called Baumol’s Disease and that’s the problem where you’ve got very intensive people-facing services, best examples of those obviously are health and education and how do you increase productivity in those professions and jobs? Because they’re very people-centric, it’s difficult to do so. My wife’s a teacher, you can’t just keep on increasing the size of the classes because that will undermine the quality of the product, so there are huge challenges in labor-intensive services, health and education being the primary ones there; these are predominantly public sector providers but clearly not alone and there’s obviously large private and independent sectors in both of them. But what we’re going to see with AI and automation and 5G in particular, is the beginning of an acceleration in productivity growth in those sectors in a form and manner which we’ve not seen before. They’ve been very stagnant in terms of productivity growth and we’ve just kind of accepted it as a reality, it went in the ‘too difficult to sort out’ file, but we’re going to begin to sort it out in the 20s and so technology will begin to increase productivity in people-centric services in a way it’s not done before. It’s also going to do some interesting things in manufacturing, because the story of globalization of course has been off-shoring in recent decades and moving production to overseas where it can be done cheaper, but technology begins to change that. How does it change it? Well, not immediately but I would argue that by the end of this decade, we’re going to see a phenomenon we never expected which is an on-shoring of manufacturing. What once was going out is going to come back in and people say ‘oh is that just because of COVID?’ and there’s a COVID element to it because of security of supply chains, so there’s going to be some of that going on but actually I think there’s a deeper underlying change there and that’s the result of 3D Additive Manufacturing which is going to mean that actually it’s just as cost-effective to produce in the advanced economies as in emerging markets. So, these are big fundamental changes; again, there’s a COVID accelerator there because of supply chains but ultimately it will get swamped by the technological fact which is that additive manufacturing permits you to do things at home and not have to produce them abroad and have transport them halfway around the globe. And then more immediately in the short term, COVID’s having another effect and that’s on consumer spending because obviously during lockdown across the world saving ratios have spiked because people have not been physically able to spend. They might have spent more money online but the next effect has been increased levels of saving very substantially, so the big question is ‘what happens now?’. As lockdowns begin to ease and the economy begins to recover over the course of 2021, does that wall of saving turn into a wall of spending or is the new normal (horrible term, but we have to live with it I guess) actually much higher levels of precautionary saving than we had before… do people put more money aside for a rainy day? We don’t know the answer to that question, but it could be huge. And thinking in terms of health care markets, do people put more money aside because they’re thinking about their future health provision as well? Some big questions here which are facilitated by COVID.

I wanted to pick up on something you mentioned earlier and that’s on-shoring and off-shoring and the supply chains, supply and demand… and that’s a nice segue for me into the opportunities for people to work more geographically remotely as well, so whether that’s in different states or on different continents. In terms of the digital models providing kind of opportunities for globally decentralised teams and people working are working from home now, more remotely, what opportunities do you think this provides for companies looking to access new pools of talent, free from some previous geographic constraints?

Absolutely huge. This is going to be an enormous factor which, again, was going to happen anyway but it was on a decadal horizon but now it’s a few years. At global level it opens up labour supply on a global level, suddenly companies who didn’t think like that have now got a new business model and then the immediate questions is ‘ok now we have this new business model, we never thought we were going to be this digital and flexible, but we are, well we need to think about the workforce from this perspective as well’ and I think that’s the next level of questioning. At the moment it’s just putting the new digital business model in place, the future will be ‘how do we source labour in the wake of this new digital model’? And that has too - there’s a global element to that and a straightforward urban/rural element to that, so within countries, people moving out of urban into rural and they can still work just as effectively as before and clearly, in some sectors and occupations, especially where there may be shortages of a labour supply, then everybody’s going to suddenly be looking global as well, notwithstanding language issues. But it’s the COVID accelerator at work again.

And what effect do you think this will have on typically expat-heavy populations and industries such as those in the UAE and parts of Asia Pacific… what are some of the opportunities and challenges there?

Well, I think people will still tend to migrate to where they know there’s maybe a community or network or where there’s going to be a group they can naturally assimilate with. And so, I think existing strength economies are going to benefit there. But, let’s be quite simple about this, one of the other factors is going to be kind of lifestyle and how much tax do you pay? And if you don’t pay any income tax in some of these economies then that’s going to be rather lucrative and attractive for you as well. It’s COVID works in all these other ways as well, because at the same time that you’ve got this situation where there are increased pressures for fiscal tightening post lockdown by raising taxation to pay off all the debts in the west, then in other economies where they may not be as adversely affected and tax rates are much, much lower and now you can work there as well because people are quite relaxed about flexible working in this way and remote digital working, even if it’s across borders, then it actually magnifies the attraction of many of these expat communities.

It certainly does and when you were talking about the tax implications there as well, from an organisation’s perspective there are a significant number of legal implications to having a geographically, globally spread population as well. So, what are your thoughts on the legal side of that?

Well, obviously I’m not a lawyer but I recognise what you’re saying…that there are clearly structural and very practical influences which will actually intervene in that, but in many of these expat communities, UAE and so on, English law is still applied. And so, yes there are legal implications but it’s quite interesting because the attraction for companies obviously is going to be things like wages and inflation because if you’ve got a shortage of workers in one country but you can source globally then you probably won’t necessarily need to pay as much as you otherwise would have done, so companies are going to be quite mercenary on this one despite us being in the digital world for decades, people weren’t really thinking digitally in terms of labour force. I think from now on they are very much thinking about how the labour force works in a digital world. But it also raises hosts of additional tax issues in terms of how do you tax, if people are working overseas? The potential for tax evasion in this digital world as well, where it’s very difficult to measure output and what people have or haven’t produced or done. It’s got some pretty striking implications for how governments raise revenue.

In a recent article, you stated that monetary stimulus has found an outlet in asset and commodity prices with feed through to goods and services inflation likely to be the dominant economic story later this year and next. So, could you give me an example of how services inflation might transpire this year?

Yeah. I think this is the biggest question of 2021, from a macroeconomic perspective, certainly in the US, UK and Europe, and to a lesser degree in Asia. But the big story at the moment is that inflation is dead; the view is that we’ve got all this slack labour market, furloughed employees, unemployed former workers, massive falls in output and so the inflationary pressures are dead. And that’s certainly been true up until now, inflation has declined towards 0 in many economies and is very, very low. But, that doesn’t mean it’s going to stay that way because one thing we’ve had with this economic downturn which differed sharply from the great financial crisis of not much more than a decade ago is that the money supply has expanded. In the wake of the financial crisis, despite quantitative easing, the authorities were barely able to raise the growth rate of money economy. But now it’s dramatically different, banks are being encouraged to lend and what we’ve seen is an absolute explosion in the money supply. In the US economy, for example, the amount of money in the economy is growing at the fastest rate in peacetime history. In the UK economy, the latest numbers show growth of around 14% and in Europe double-digit growth rates as well. And you can’t have that amount of money sloshing around in the economy and not end up with inflation and what’s happened so far is all that money has gone into equity markets or commodities, so we’ve had asset price inflation in those but it’s just going to feed through gradually across the whole economy in terms of services and goods inflation over the course of 2021 and 2022. So i think the big story people aren’t talking about is not the death of inflation but the resurrection of inflation.

Looking at consumer spending and the impact of the [COVID-19] variants or the increasing odds of the vaccines that we currently have in circulation becoming less effective over time. You mentioned, I mean could we see a more conservative consumer focus more on saving for a rainy day… what impact do you think the variants could have in the coming months and across 2021?

There’s obviously tremendous uncertainty about mutations of the virus and what that might mean and the epidemiologists can’t tell the answer to that one yet so it’s very difficult to tell what the economic consequences might be. But at the very least, it suggests that the wall of money that’s built up over the course of the lockdown across the world’s advanced economies is not just going to be drained away straightaway…. one of my colleagues tells me that after his vaccine (he’s not had it yet) he’s going to go totally bonkers… I think he’s the exception that proves the rule here… that we’re not going to see people going silly here. There will be a sense of exuberance when people finally realise that we’ve got herd immunity and the vaccines have been effective, but that doesn’t mean that they’re going to go crazy because there’s always at the back of minds what happens if it comes back again in a mutation that can’t be tackled by vaccine or until it is we’re going to have the same level of disruption in the economy. So, I think we’re going to see the same level of caution as a permanent feature, now not at current levels, but certainly higher than we’ve seen over the past decade, people are going to be a bit more careful with their money, they’re not going to want to incur debt. So, yes there may be a bit of a good time in the immediate wake of the lifting of measures in the second half of this year, but we shouldn’t get too carried away.

And interestingly as well in terms of all the experiences we’ve collectively been through, there have been a number of reports about how much more focused people are on their own health as well…. a lot less inertia, a lot more activity and people taking an interest in self-care and preventative measures as well and through our own proprietary research we conduct annually across four global markets we’ve found that actually in an employment context, more than two-thirds of employees, 68%, of employees globally say that employer-provided mental health care provision is more important to them now than it was in 2019. And close to two-thirds (63%) saying the same of physical health care provision. You mentioned 5G earlier and also the Internet of Health, I mean the Internet of Things and Internet of Bodies, so what is your view on the ability for technology to more efficiently connect the dots and distribute health care services. Is that something you’re happy to comment on?

I could make some broad observations I think, Lorien. I think again this is one of those areas that the technology had to reach a certain level, and a certain point before it was actually going to have impact at scale. And now we’ve seen that impact at scale beginning to unfold. Again, COVID accelerator at work in a paradoxical way as, again, things that were supposed to lock us up in the house have somehow broken the chains and now we’re free to be much more responsible and concentrate on our health — and not just mental but physical as well. And so that awareness in the wake of COVID combined with what technology has now done (not just your Fitbit or Iwatch application telling you how you’re doing) now we’re seeing much more general interventions which are really heralding what will come in the future, largely as a result of 5G and how that facilitates this massive accumulation of data about all facets of our life and lifestyle and health which can then be uploaded and interpreted and told to you — are you doing well or are you doing badly? And so we’ve got this health awareness combining with technology at just the right moment to trigger what is a sea change in behaviour and again though we’re in the foothills, we’re nowhere near the summit.

In terms of 5G specifically, in something else of yours I read recently, you were talking about how 5G will drive demand for video content and you’ve touched on efficiencies as well in this conversation, so I was wondering if you could expand on that demand for video content that you’ve mentioned?

Yeah, if you look at projections for broadband demand, people say the number of users is approaching saturation point, the number of devices we’re using is probably reaching saturation point as well as everyone’s got a phone or tablet or both, so where is the future growth going to come from? Future growth could come from the applications on those devices which will be much more voracious in terms of their appetite for data and that’s certainly part of it and a big part of that and one of the biggest assumptions of all is this shift towards video data and that is what is going to be one of the biggest factors in the future and that obviously impacts with 5G as well. And so you’ve got this interaction of technologies coming into play, maturing at the same time, converging together and bringing about a sea change in behaviour. And that video demand, the general 5G demand and IoT and monitoring that’s going to go on of things or Internet of our Bodies as you described it before, that will increase demand for data but it’s also going to be a demand for data which is very much not just driven by things like health efficiency and greater health awareness, but our entire efficiency. We’re going to have 5G applications which just monitor all sorts of things and do so many jobs for us which we never envisaged or imagined. This is going to be Alexa on steroids and the difficulty in describing or foreseeing it now is that all those new applications, they are what tomorrow’s entrepreneurs will see, those are the next-generation applications, the Netflixes, the YouTubes, whatever it will be in the 2020s and beyond, they haven’t been seen yet but the lesson in technology and history is that we have a marked tendency to over-estimate the impact of technology in the short term and a profound weakness in under-estimating the impact of technology in the long term. And I think that’s the mistake we’re making now, we’re under-estimating the effects of technology in the long term — it’s called Amara’s Law and it’s been proven thus far and I expect it to be proven in the future as well.

In terms of the lessons that we’re going to have learned and looking at the potential, as you quite rightly pointed out no-one could have described the scope of the internet and the growth that has led to before the event. And I’m looking at Generations X and Y in the role that they will play in economic growth, and looking at their efficiencies of business and service models… where do you see those particular generations and the strengths they have coming to play?

I think this is a huge structural shift, it’s one of those slow things which you don’t see year to year, but on a decadal horizon you look back and think ‘wow, that was big, wasn’t it?’. In very simple terms, you’re going to have a transition. The people in authority, the purse holders, the decision-makers at Board level, the baby boomers are giving way, they’ve given way and you’ve got a new generation of much more tech-savvy, much more tech aware and much more tech flexible open minds in Gens X and Y and that is going to impact on society and change attitudes and the culture within businesses. And it means that all the staff as well, because it just plays out across - this is not skilled vs unskilled staff, everybody is IT literate nowadays. And they’re going  to have ideas and thoughts as to how to improve things and that means that actually generational shift is going to be one of the rocket boosters, the after-burners, it’s going to pour fuel into the engine there to actually accelerate what was going to happen anyway. Because things are going to be seen and opportunities taken which wouldn’t otherwise have been, simply because the oldies like me didn’t understand it or see it.

Absolutely, it’s phenomenal potential for the future and one of the things I think has come across really strongly in our conversation today is actually that yes what we’re going through at the moment is undoubtedly incredibly difficult on a range of levels for a range of different people  but if you look at the macro picture for the future there’s an awful lot to be excited about actually. But, coming back to mental and physical well-being, I realise that we’re almost at the top of our time together, and I was wondering if you wouldn’t mind reflecting a little bit on your personal situation and what you have learnt and done personally to help protect and look after your mental, emotional and physical health and wellbeing in the last 12 months or so.

Well, I was joking with you earlier, Lorien, that I’ve maybe not done as much as I should have done because I’m shielding now but I was told a year ago I didn’t need to shield, and six months later I was congratulated for having shielded and my Dr looked aghast when I said he’d told me not to earlier in the year. So I probably didn’t take as many measures for my health as I should have done, but fortuitously nothing ill occurred. What have I done? I’ve discovered a joy of walking; I used to think you didn’t go out walking unless you were playing golf but I now appreciate walking and exercise maybe in a way I didn’t do before. Just sitting around the house … it’s been a very busy period for me actually… sitting around the house and relaxing is not something I’ve done much, I’ve been sitting around the house and working and so I’ve probably been a bit negligent and lazy in my own attitudes towards that but I think I’ve become more health aware and more health conscious and have a greater realisation that I’m in an age group (I’m in my 50s) that I need to take a bit of care and think about the future. And so I think one of the lasting legacies of COVID for me is maybe the death of short termism… maybe I’ve got a bit more of a long-term perspective of what I should be doing and a reminder of what I’m not. 

Thank you for being so candid and open, and thank you very much for your insights and your expertise in today’s conversation. I would love to get into more of this in future podcasts, but for today, that’s great. Thank you so much.

Pleasure.

I hope you’ve enjoyed today’s podcast episode. Next month, I’m going to be talking to a leading international psychologist and a powerhouse in the world of behavioural health about the mental health and well-being challenges that exist in the workplace today. Specifically, how organisations can cater to the spectrum of mental health needs that exist across a workforce.

Aetna International is a global mental health and wellness benefits provider. But we’re more than just an insurance safety net. Our skill lies in delivering the tools, services and resources that help drive health care costs down and people’s health and well-being up. And that’s something that’s important to our clients and our self-funded members alike. That’s why we currently serve almost 900,000 people around the world, from Shanghai to Seattle. Ultimately, we believe that when people thrive, their work and personal endeavours thrive too. For more information about us, you can visit Aetnainternational.com