By John Scott, Head of Sustainability Risk, Zurich Insurance Group
We are in the midst of a historic event that will change many aspects of the world we live in. There will be major impacts on the global economy, geopolitics and our societies. It is clear that these global impacts and risks are highly interdependent and are changing the current and future global risk landscape, a fact highlighted in the recently published World Economic Forum report, COVID-19 Risks Outlook: A Preliminary Mapping and Its Implications. We are already seeing record levels of unemployment due to lockdown measures to control transmission and have relearned hard lessons, in particular that social deprivation determines health outcomes.
The long-term societal impacts, such as an exacerbation of inequality and changes in consumer behaviors, the nature of work and the role of technology – both at work and at home – will change our way of life forever, for us as individuals, as a workforce, and as a society. These social dimensions of the crisis, including generational frictions and continued stress on people’s well-being, will be felt by people worldwide and create substantial societal consequences for the long term.
Balancing fear and optimism
In the business community, we have made sure our employees are supported and our customers too. In some sectors, notably in the small and medium sized enterprises (SME) that are the backbone of most economies, as well as the self-employed and informal areas of employment, a combination of furloughing and fiscal policies have helped put economies on hold. As countries emerge from the immediate health crisis and re-start their economies, changed working practices, attitudes toward traveling, commuting and consumption will change employment prospects. Already, the International Labour Organization has identified that the SME and informal sectors will have particular difficulty in sustaining and recovering business.1
Consumer behaviors are already changing, even during the stabilization phase that most economies are in right now. In March, global consumer spending became lower every week. In the last two weeks of April and early May, however, consumer spending recovered a little each week in anticipation of a move into a ‘normalization’ phase – where economies reduce lockdown measures and show signs of economic recovery. At first, the expenditure was on basics, such as groceries, but now spending is more focused on home improvements and clothing. There is not yet any significant expenditure on entertainment.
Human resources departments have rarely had such an important role. Working remotely increases the risk of isolation, as well as alcohol dependency, smoking too much and bad backs through poor ergonomic posture. What’s fascinating is that the state was previously seen as the ultimate safety net – employers have had to accept that they too have to protect their workers in order to survive and thrive. This should be a long-term change in attitude in the historic public versus private debate.
Getting back to a pre-coronavirus growth phase is likely to be a long and difficult task, at least until there is an effective health crisis exit strategy that involves a combination of a widely available vaccine and therapeutic drugs. In the intervening period, there are likely to be continued cutbacks in travel and in the hardest hit industries, like tourism and hospitality. Not all those people who have been laid off will come back to work and businesses will likely use fewer employees in the future. The challenge to return to the “new normal” is, therefore, as much a psychological as economic choice.
We have to reconcile the natural fears we feel, which have been reinforced by government messages to help enforce the lockdowns, with acceptance of the uncertainties. The effectiveness of government messaging, combined with data on infection rates and the sad reality of the numbers of COVID-19 deaths, has made the challenge of changing those simple messages to “stay at home” confusing. The perceived lack of transparency may lead to an erosion of trust and greater complications in the long run.2
Is inequality here to stay?
The timing and speed of the economic recovery, dependent as it is on solving the health crisis, is likely to exacerbate inequality, mental health problems, and lack of societal cohesion. It is also likely to widen the wealth gap between young and old, as well as pose significant educational and employment challenges that risk a second lost generation.3
The COVID-19 economic crisis has already hit poorer people and those in more socially disadvantaged groups disproportionately harder.4 In many places, people are having to face the moral dilemma of choosing between going to work to generate income for bare necessities or staying at home to protect their health – and that of their family. Continued exposure to health risks faced by essential workers, who are often among the lowest paid, raises the concern of heightened death rates amongst people in these roles. This highlights societal, income and health inequalities. We need to focus on addressing this inequality during the COVID-19 recovery and normalization process.
The economic and societal disruptions of the lockdowns are having a toll on young people’s mental health and wellbeing. As one teenager put it: “The life you thought was boring, is the life you’re hoping to get back to right now.”5
Even more concerning is the long-lasting effects in their prospects.6 Youth employment in developed economies has only just recently returned to pre-2008 financial crisis levels. In developing economies, youth unemployment has risen steadily, creating a real risk of social unrest.
For young people in education, the pandemic is likely to cause new inequalities. Currently 80% of the world’s students – more than 1.6 billion young people – are not attending school. Many students in poorer communities lack the necessary tools to access online courses or are unable to easily work at home. The consequences of these educational inequalities, especially for girls and young women, will disadvantage them in labor markets and further exacerbate inequality.
Building back better
From a business perspective, companies generally cannot be successful in societies that are not functioning well. This is where stakeholder capitalism has a role to play.
Businesses need to bring their skills and assets to help invest in a better society. We see this very clearly in financial inclusion, where we have to bring the best of all sectors – both public and private – to address the problems.
We do have cause for optimism, but how we get out of this crisis is deeply concerning. We need to focus not only on a healthcare solution, but a recovery that is focused on climate, sustainability, and on societal risks, such as inequality, mental health, the lack of societal cohesion and inclusion. If we do not do this, then the gaps in inequality – especially financial – are likely to remain and increase.
We have a chance. And, as responsible businesses, we must grab this chance with both hands to help society to adapt and come back.
A clean, green and sustainable recovery that allows growth to return, but with people and communities at the center of our efforts.
1 ILO (International Labour Organization). 2020. ILO Monitor 1st Edition – COVID-19 and the world of work: Impact and policy responses. Geneva: United Nations. 18 March 2020.
2 FT Article by Jemima Kelly, 5th May 2020 “Is it acceptable for government to be dishonest at a time like this?”
3 Fortune Magazine article, April 11th, 2020, by Catherine Bosley, Max Reyes and Jeff Green “How Millennials are Being Set Back by Back-to-Back Global Crises”
4 Time Magazine article, 11th March 2020, by Abby Vesoulis “Coronavirus May Disproportionately Hurt the Poor – And That’s Bad for Everyone”. https://time.com/5800930/how-coronavirus-will-hurt-the-poor/
5 BBC News video 14th May 2020 “A Day in Lockdown Life Around the World” https://www.bbc.com/news/av/world-52589043/coronavirus-teens-document-a-day-in-lockdown-around-the-world
6 United Nations news article, 13th May “UN leads call to protect most vulnerable from mental health crisis during and after COVID-19” https://news.un.org/en/story/2020/05/1063882