07 May 2020
Nothing is certain about how the COVID-19 crisis will play out – apart from the reality we will not return to “normal”.
In part this is because however the medical crisis is resolved, be that with a vaccine, treatments or simply accepting the coronavirus becomes a more permanent challenge in the community, the economic costs will be enormous and long term.
"Evidence-backed policy, expert advice and action based on facts not ideology has regained some prominence. May that continue.”
Few credible analysts now believe we will see the hoped for “V-shaped” recovery where we bounce back completely over the mid-term from the global recessions and depressions now underway.
There will be a recovery but its shape is very uncertain. This is compounded by the evidence the global economy was not travelling well anyway - geopolitical tensions were rising, domestic politics were becoming corrosively partisan and faith in globalism and capitalism was eroding.
Perhaps the common threat the world has faced will encourage greater tolerance and cooperation but that is rather wishful thinking.
Some themes emerging however do seem to be endurable. Hopefully one of them is a restored faith in expertise, be that medical or scientific – except perhaps in those most benighted nations where leaders are prepared to continue to ignore evidence in an attempt to preserve their personal stature.
Evidence-backed policy, expert advice and action based on facts not ideology has regained some prominence. May that continue.
Whatever happens, a new era of capitalism is emerging – for modern economies will continue to be fundamentally capitalist despite the caterwauling of right-wing zealots and left-wing iconoclasts who either believe (in the former case) we are becoming socialist or (in the latter case) we should be.
It’s by no means proof but it’s interesting that those nations which have both handled and communicated their responses to the virus most effectively have essentially been centrist liberal democracies or centrist authoritarian democracies – countries like Australia, New Zealand, South Korea, Austria, Singapore, Denmark, Norway, Greece.
But things will change in this new era of capitalism. For example, the value of health systems and the people who sustain them has become abundantly clear, not just in managing the sick but in containing much deeper economic damage from out of control infection.
Writing in the Financial Times, Wendy Carlin, an economist at University College London, argues “like the Depression and the second world war, the COVID-19 pandemic will change how we talk about the economy and public policy”.
“One result will be a leftward shift on the one-dimensional government-versus-markets continuum of policy alternatives,” she writes. “A more fundamental consequence would be a rethinking of that anachronistic dichotomy to include approaches drawing on values beyond compliance with government and individual gain.”
Carlin notes the successes in the battle against the virus have the nature of being neither state-driven autocracy or free-wheeling capitalism. Instead, elements of both state and individual action, coupled with informed markets, have delivered the best results.
And that has meant market thinking has had to accept ethical decisions.
“We face ethical conundrums daily — from grading students who are learning remotely with differential patchy internet connections, to triaging access to ventilators,” Carlin says.
“Compliance with lockdown regulations will fray as they unfairly penalise those who are unable to work from home and are required to expose themselves either to infection or loss of their livelihood.”
These ethical considerations inform not just the pandemic response but that other universal threat, climate change, she suggests.
According to Carlin “if we embrace the intrusion of moral language into our daily conversations, however uncomfortable, it will enrich our economic vernacular and aid both private and public decision-making as we prepare for a sustainable future”.
That would be a positive outcome.
Five key themes
Nor are these ideas going unnoticed in the staunchest bastions of capitalism.
In its latest Global Themes report, Bank of America (BofA) see similar upheaval and emerging trends in the corporate world.
“COVID-19 is one of those rare events in history - like the Great Depression and fall of the Berlin Wall that will completely reshape geopolitics, societies, and markets,” BofA says.
“Alongside a global survey of BofA Global Research analysts covering 3,000 companies and spanning 25 sectors, (BofA’s) Haim Israel lays out 5 key themes with $US20 trillion market cap of stocks to navigate the world after the Great Lockdown: geopolitics & globalisation, tech war, big government, ‘health is wealth’ and the new consumer.”
Israel sees an odd alignment of winners and losers. Digital consumerism and healthcare up, sharing economy and autos down. Environmental, Social and Governance (ESG) reporting is an up. Particularly the “social” front.
This shift to ESG - and the S part in particular - was a central theme of a recent forum for institutional investors and corporates by the governance advisory firm Morrow Sodali.
“At this critical time, institutional investors are particularly focused on seeing robust ESG risk management,” the firm said. “Whilst these investors expect that ESG risks and opportunities are addressed as a matter of standard business practice and long-term financial performance, response to COVID-19 undoubtedly has material near-term implications that need to be taken into consideration by companies and their Boards.”
The panel for the event comprised Talieh Williams, head of Investment Stewardship at Victorian Funds Management Corporation (VFMC), together with Pru Bennett and Jana Jevcakova from Morrow Sodali.
Is it right, fair?
The view boiled down to companies that take a social approach to responding to the crisis will bring greater trust and longer term success. While financial stability is key, it must be coupled with shareholder and social interest.
Investors will look at how leadership has responded in the crisis. How they have dealt with their workforce, suppliers, community. They will want to see directors actively dealing with the crisis.
Gillian Tett, editor of the Financial Times “Moral Money” newsletter agrees.
“ESG investors are putting a lot more emphasis on the social ….. But it’s not just ESG investors,” she says.
“So-called human capital stories have been exploding across the media. The bottom line seems clear: people care about how companies are treating their workers and are judging how they perform in this crisis.”
Disclosure is even more important. Boards need to be transparent with investors about what they are doing.
According to the panel, obligation essentially comes down to companies asking ‘is it right?’ ‘Is it fair?’ Companies must consider the civil societal impacts for all decision making.
From this perspective, while the pandemic is catastrophic and the most disruptive event in at least a century, the response expected of the corporate world and policy makers is actually an extension of what were strong currents before this global tsunami.
Andrew Cornell is Managing Editor of bluenotes
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
07 May 2020
30 Mar 2020