Well, as this is the month of International Women’s Day, I was planning to create a newsletter on some of the major inflection points with respect to women in the world. It’s written, but just at the moment that doesn’t seem to be uppermost in anyone’s mind. So I am going to use this space this month to talk a little bit about what I’m hearing from people I trust with respect to where we are just now, and perhaps to speculate a bit with where we might be headed post-coronavirus.
Take. It. Seriously. Seriously.
It’s become alarmingly clear as I write this in mid-March of 2020 that many people simply don’t believe that the current coronavirus situation is anything to worry about. We see packed bars in Nashville, police using pretty strong tactics to break up crowds on Bourbon Street in New Orleans, and people who perhaps ought to know better going through with optional travel plans. In a poignant video, Italians speak directly to this, recording what they would have said to themselves—just ten days before.
Here’s the thing—in classic inflection point fashion, as Megan McCardle points out in an excellent article in the Washington Post, everything looks just fine…until it doesn’t. I couldn’t possibly do a better job than she does of explaining the nature of exponential change:
There’s an old brain teaser that goes like this: You have a pond of a certain size, and upon that pond, a single lily pad. This particular species of lily pad reproduces once a day, so that on day two, you have two lily pads. On day three, you have four, and so on. Now the teaser. “If it takes the lily pads 48 days to cover the pond completely, how long will it take for the pond to be covered halfway?” The answer is 47 days. Moreover, at day 40, you’ll barely know the lily pads are there.
Based on the spread of the virus so far, projections are that there would be about a hundred million cases in the United States by May. As the Washington Post reports, “That is math, not prophecy.” Have a look at the simulated spread of the virus in the linked article. The only way any country (such as Singapore) has avoided completely overwhelming its medical systems is by genuinely stringent social distancing. New York’s governor has said he does not expect the peak rate of infection to hit until May 1, 2020, and I was on a call this morning (3/17/2020) with a medical expert who says that is over-optimistic and they are looking at a peak in the country of some time in July unless extraordinary measures are taken.
This article on Medium by Tomas Pueyo is well worth reading, but if you haven’t got time, here’s the bottom line, as he says:
The coronavirus is coming to you.
It’s coming at an exponential speed: gradually, and then suddenly.
It’s a matter of days. Maybe a week or two.
When it does, your healthcare system will be overwhelmed.
Your fellow citizens will be treated in the hallways.
Exhausted healthcare workers will break down. Some will die.
They will have to decide which patient gets the oxygen and which one dies.
The only way to prevent this is social distancing today. Not tomorrow. Today.
That means keeping as many people home as possible, starting now.
Note that the virus can linger in the air and cause infection for up to three hours, and last for an unknown number of days on hard surfaces. We hopefully still have time to prevent the worst—well represented by towns in Italy where ill people face death alone and officials don’t know where to put the bodies.
Please be a leader in whatever way you can—supporting people whose routines are being thrown out of whack, explaining to anyone who will listen how important this is, and providing an example.
Keeping Connected and Finding Support
With the breathtaking disappearance of so many important things in our lives, it’s important to acknowledge how awful this is going to be for a great many people. Graduations disrupted, college visits postponed, visits to vulnerable relatives banned, weddings pushed back, jobs lost …it’s just endless. This is not a quick halt, either, I suspect. Indeed, if we are successful at “flattening the curve” (which we want, to avoid medical system collapse), by definition we’re going to be dealing with the virus for a longer time.
I’m not in the personal wellness space particularly, but am fortunate to have many friends who are. Masa Gong, a colleague and executive coach, has given a lot of thought to what people can do in trying circumstances and has put together this fantastic guide to well-being, even in turbulent times. It’s called positive psychology. The guide is a well researched document that offers a ton of ideas for what we can do to combat the downsides of the current situation. And if you really don’t know where to turn, reach out to Masa.
For me, one really positive development, since the “WFH” instructions have started to come in, is that people are finding clever ways to connect and support one another, albeit at a socially safe distance. I’m part of several groups that are regularly connecting online for status updates, to share information and—in what has to be the best innovation ever in this space—virtual cocktail parties. Best innovation on that front is a new cocktail, the “Quarantini!” (picture sent by a friend).
I’ve also loved the spontaneous emergence of affirmation and connection between people. The exercise instructor leading a class from his rooftop in Spain. The cheering in the streets to support medical professionals in locked-down Madrid. Similar applause in cities all over Italy, not to mention singing and ‘balcony parties.’
Financial Insecurity Compounds Health Risks
On a more serious note, it is now clear to all of us that the choices we have made in the United States as to societal resource allocation are not working for the vast majority of people.
Companies that employ hundreds of thousands of people refuse to offer paid sick leave, meaning that workers have a choice: go to work sick or lose what is often a desperately needed paycheck. In a grim and rather revolting 2014 study, the Centers for Disease Control reported that one in five food service workers showed up for their shifts while so ill they were vomiting and had diarrhea (and the recommendation is that they should stay away for an additional 48 hours to prevent them infecting others). This is a huge risk to public health.
A second risk to public health is people’s terror of incurring crippling medical bills in the United States. A recent study found that 38 percent of respondents put the fear of receiving an unexpected medical bill higher than a host of other potential costs. Americans went into debt to the tune of $88 billion in 2018 and an independent survey found that one in four skipped care because of cost. And this wasn’t just poor families—the fear was pervasive across all income levels. If you want to contain a pandemic, you need to socially isolate people to prevent it spreading, get people who are potentially exposed to be tested, and if they test positive you need them to get treated. If we let cost deter people from this sequence, we are abetting the spread.
More broadly, the blow to vast numbers of people who live paycheck to paycheck of all the cancelled events and postponed economic activity is revealing just how poorly the American economy is working for most Americans. Even in the midst of our long economic boom, 17% of Americans reported that they couldn’t pay all their bills. And while the United States has created a lot of jobs, most of those don’t offer decent pay and adequate, predictable hours. As my colleague Steve Denning reports, we have looked the other way while witnessing a decades-long decline in the quality of American jobs.
Indeed, an economy that once employed 23 percent of its people in manufacturing jobs today has only 8 percent so employed; the remainder were replaced with lower-wage/lower-hours service jobs. And where did those jobs go? To less expensive locations. Indeed, entire industries have decamped to Asia and other countries to the point where, as Steve points out, Amazon couldn’t make a Kindle in the US if it wanted to. Despite reassurances that Americans would do the innovating and other people would do the manufacturing, MIT’s Eric von Hippel years ago demonstrated that it is the intense connection between suppliers, users, and manufacturers that are where innovation starts.
Back to inflection points. It wasn’t as though we weren’t warned. In 2010, Andy Grove published a severe rebuke of the notion that innovation could thrive with scaling and manufacturing happening elsewhere. He also presaged the newly discovered notion that companies should be run for people other than their shareholders. As he said then, “all of us in business have a responsibility to maintain the industrial base on which we depend and the society whose adaptability—and stability—we may have taken for granted.” And for a real indictment of how our ideology of maximizing shareholder value has undermined shared prosperity, you can’t go wrong with William Lazonick’s and Jang-Sup Shin’s latest book, Predatory Value Extraction.
A Change in the Social Compact?
Infectious diseases have often catalyzed social change. Water systems, sewer systems, and public health authorities all emerged from previous epidemics. Social change can also come from economic change, such as industrialization and the creation of the first instance of mass inequality in what came to be called the Gilded Age. With vast income inequality, corrupt city governments, and often-brutal treatment of workers, the excesses of the first gilded ignited protests. It gave way to what is often called the “progressive” era, in which workers’ rights, the rule of law, the breakup of monopolies, women’s suffrage, and many other social protections which people living in western democracies have come to take for granted were implemented.
With respect to income inequality and the rotten jobs problem, a variety of specific policy recommendations appear to be gaining traction. One, championed by Bill Lazonick, is to rescind an obscure 1982 SEC decisions that essentially allows unlimited open-market stock buybacks, a decision that he argues has created “profits without prosperity” and fundamentally distorted the decision-making of leaders at firms such as Boeing to disastrous effect. Harvard’s Rebecca Henderson, in a soon-to-be-released book called Reimagining Capitalism in a World on Fire, argues that the mis-pricing of the true costs of externalities stems from too heavy a reliance on market mechanisms across the world; with too little investment in governance practices and long-term investments. The legitimacy of engaging in mass layoffs, during good times, simply to drive profits and executive compensation may well come into question.
Nick Hanauer, a wealthy entrepreneur and unapologetic capitalist has been vocal in advocating for sharing the spoils of the capitalist system, warning his fellow plutocrats that “the pitchforks are coming for us!” Citing Henry Ford as an inspiration, he notes that “These idiotic trickle-down policies are destroying my customer base!” Paying living wages is a key policy that Hanauer believes governments should require so that all employers are on a level playing field with respect to labor costs, in addition to collecting a greater share of taxes from the wealthy to fund essential government services. Peter Georgescu, a refugee and former CEO of Young & Rubicam has been sounding the alarm at what he calls the “slow suicide” of capitalism and has likewise called for higher wages for workers.
Creating Early Warnings Scenarios
As I’m doing with all the newsletters in 2020, I’ll be using the technique from chapter two of my book, Seeing Around Corners to create some plausible scenarios for the future. This one feels like a bit of a “thin ice” moment, because things are moving so quickly, but hey, I’m always up for an experiment.
What I’ll illustrate is how to do the following:
- Articulate two (or more) crucial uncertainties;
- Create a story about the future states that different values of the future uncertainties might imply.
- Define a “time zero” event.
- Work backward from that event to create an early warning system.
The first step in the process is to posit two potentially important future uncertainties, with different values for each. This yields four possible future states for your organization (you can think of this as scenario planning “light”). So for this exercise, I’ll take as one dimension whether the current model of “maximizing shareholder value” continues to prevail, or whether we are on the brink of a re-imagined stakeholder capitalism along the lines of the discussion above. For the other dimension, I’ll consider whether the global economy suffers a sustained setback or whether it bounces back once the coronavirus threat has been resolved in some way.
That gives us a table that looks like this:
| Maximizing Shareholder Value Prevails | Stakeholder Capitalism | |
| Prolonged global slowdown | ||
| Economy bounces back |
The next step is to create a short “story” about the future state each scenario represents, as summarized in this table.
| Maximizing Shareholder Value Prevails | Stakeholder Capitalism | |
| Prolonged global slowdown | “Les miserables”—pervasiveness of poverty and inequality. Profound economic insecurity for the majority. Political instability in many countries while conflicts over resources intensify. | Grass-roots protests, safety net programs expanded, greater taxation or even appropriation of wealth, alliances between NGO’s and newly empowered governmental actors. |
| Economy bounces back | Rinse and repeat of the last 40 years—middle and lower classes continue to struggle, high levels of inequality remain. | Return to the post-war consensus on distribution of societal wealth; inequality narrows gradually; social goods made more affordable. |
Then, come up with what I call a “time zero” event for each scenario—in other words something that might be in a newspaper headline that represents either positive or negative signal of an inflection point.
| Maximizing Shareholder Value Prevails | Stakeholder Capitalism | |
| Prolonged global slowdown | “Les miserables”—pervasiveness of poverty and inequality. Profound economic insecurity for the majority. Political instability in many countries while conflicts over resources intensify.
Why economic inequality leads to collapse (NOTE: this is an actual headline) |
Grass-roots protests, safety net programs expanded, greater taxation or even appropriation of wealth, alliances between NGO’s and newly empowered governmental actors.
In an Echo of FDR’s “rendezvous with destiny” speech, officials turn to government programs and taxation to combat economic “tyranny.” |
| Economy bounces back | Rinse and repeat of the last 40 years—middle and lower classes continue to struggle, high levels of inequality remain.
Extreme poverty returns to America (NOTE: this is an actual headline) |
Return to the post-war consensus on distribution of societal wealth; inequality narrows gradually; social goods made more affordable.
The Great Society v. 2.0 |
With the “time zero” events established, the task now is to work backward. Identify information that in your team’s view would represent leading indicators of the time zero event becoming more of a reality. If you start to see lots of indicators associated with that event piling up, the more likely the event is to be becoming more of a reality.
Interestingly, we are seeing weak signals that any of the four scenarios outlined above could be in our future. In fact, for all of them, I was able to find real, in-the-here-and-now headlines reflecting that scenario coming to fruition. The question for all of us now is whether we can create strategies that are robust in the face of all of these possibilities or whether we want to make a bet on one or another.
For instance, say we were considering the “rendezvous with destiny” approach, in which Franklin Delano Roosevelt infuriated his wealthy compatriots by using the powers of government to institute the earliest of social safety net programs in the teeth of the Great Depression and to hem in the unfettered operations of business, even as the global economy sputters. Some indicators we might see are:
- A rise in the popularity of governments to take coordinated action (this is definitely in the works—even the Wall Street Journal says that there are vital tasks that only the federal government can perform)
- Public servants experience an increase in their popularity as people begin to understand their commitment and expertise is crucial to navigating through the crisis
- Political pressure builds among policymakers to eliminate easy access to stock buybacks, even as executives in companies whose shares have been battered by the downturn turn away from the practice.
- Companies that look for government support face severe restrictions on being able to reward executives and shareholders before paying taxpayers back
- Investors such as Blackrock take a hard look at corporation’s cash reserves and general credit-worthiness
- Politicians start to chatter about reversing the US 2017 tax cuts and are joined by wealthy supporters such as members of the Patriotic Millionaires. The cuts remain unpopular with the majority of Americans.
- Living wage legislation is introduced and passed in ever increasing numbers of jurisdictions.
- Concerns over sick workers buoy legislation requiring paid sick days.
- The carried interest special tax rate provision is eliminated
- Corporations announce they are planning to decouple their supply chains to build more resilience
Implications
While these are not predictions about what is likely to happen (the world is too uncertain to predict with any confidence), it’s clear that we are in the midst of some kind of inflection point. We’re going to be asking questions about many of our taken for granted assumptions. These include that globalization and trade are always good. That air travel should be accessible to everyone. That we shouldn’t have to invest in building resilient systems, just efficient ones. And, as everybody who is home-schooling young children have come to appreciate, that teachers of young children shouldn’t make $1 million a year.