In thinking about the business consequences of Covid, Howard Davies, chairman of Royal Bank of Scotland, makes a distinction between pre-existing trends which have been accelerated by the pandemic, and things that firms didn’t previously think they could do, but now know they can.
The most obvious example of the first is the switch from physical to online shopping, which has been supercharged by the pandemic. Prior to Covid, online retailing was growing at the rate of 10 per cent a year; since Covid, it has leapt 50 per cent. That’s nearly five years of growth packed into just three months.
An example of the second type of change is large scale home working, which always seemed possible, but tended to be dismissed as impractical. For compliance reasons alone, off site employment wasn’t an option for much of the financial services industry, but many firms have now bought and installed the technology needed to make it work.
Virtually every business leader I talk to say they have found new, more efficient ways of operating. They don’t need as many people, and they don’t need as much office space. This is good for productivity, a perennial failing in the British economy, but it is very bad for near term employment prospects, and indeed for many commercial property owners. For now, big office developments such as London’s Canary Wharf, look like massive white elephants.
Economies normally change incrementally, taking their time to move from the old to the new. But what we are seeing today is about five years of economic evolution crammed into just three months.
The Thatcherite upheaval primarily affected manufacturing sectors and was a deliberate act of policy in an economy which had become seriously uncompetitive. This one primarily impacts the service industries, and is an act of God. But the wider economic effects are not so dissimilar. The old is being wiped out before the new can properly establish itself. As in the 1980s, that makes for an acutely painful transition.
The Thatcher reforms ultimately proved the UK economy’s salvation, but there were big mistakes along the way, with many communities left high and dry. The Chancellor will soon be making his own transition – from Santa Sunak to Scrooge. Maximise the opportunities for economic rebirth while minimising the collateral damage of destructively high levels of unemployment – it’s quite a challenge.