Thursday, April 23, 2020


Steven Cherry Hi, this is Steven Cherry for TTI/Vanguard.

World War II brought women into the workforce, led to the integration of the Army, baseball, schools, and, ultimately, voting. The percent of college graduates doubled from 1940 to 1960. Cheap mortgages for veterans gave rise to the suburbs—that and the Interstate Highway System, which itself was a response to transportation supply-chain problems during WWII. Nuclear power and plastics, computers and telecommunications, air travel and antibiotics—much of the face of modern life can be traced back to the war.

Recessions on the other hand, typically don’t alter business or social life in any fundamental ways. Even after the biggest one of our lifetime, in 2008, we tweaked some finance regulations and so forth, but we didn’t start talking about a universal basic income or even reinventing the housing market. The economic shocks of the current pandemic feel different. And, combined with the work and leisure behaviors engendered by the temporary need for social distancing, it doesn’t seem unlikely that some of those alterations could be permanent—that business, society, and cultural mores could change in some fundamental and lasting ways.

Steven Cherry Martin, welcome to the podcast.

Martin Reeves Thank you very much, Steven. A pleasure to be here.

Steven Cherry Let's start with the simple economic question. Tolstoy these days might have written that prosperities are all alike, but every unhappy economy is unhappy in its own way. What type of recession do we seem headed for?

Martin Reeves Well, indeed. You know, we use this blanket term recession. But each recession is different and we are probably already in a recession, of course. We won't know for sure except in retrospect. But I think we're in a recession that is probably deep and it's probably V- or U-shaped; V meaning no lost output. And U meaning lost output. We return to previous levels of growth, but we don't return to the upward trend line. I think the particular characteristic of this recession is it's not just a financial recession. It will be essentially a freeze on real economic activity because the interventions to deal with this virus essentially prevent the movement of good and people and therefore close down the real economy. So I believe it's rather unprecedented that we actually stop and try to restart the real economy.

Steven Cherry Do you have any thoughts about how long this will all last?

Martin Reeves Well, that's the big question because the containment policy that we know works. One of the few things that we know works, before we have a vaccine, is in social distancing, applied early and with great discipline. And that creates tremendous economic damage. So how long is a critical question? We're working with epidemiologists and we don't know the answer to that question at the level of the disease. So we couldn't really know that the level of the economy. Certainly in an epidemic, rebound is always a possibility. And that's no longer just a theoretical possibility. Already, some in some economists thought the coronavirus control like Hong Kong actually see a resurgence. So there's the first wave of the disease. And since countries like United States have countermeasures quite late, we're likely not to see just the short, you know, six-to-eight-week cycle that the Chinese saw. So that's the first cycle that may be three months. Six months. And then we have a possibility to rebound the possibility of some sort of on-off period and until we have a vaccine. So in a narrow sense, it could be three to six months in a in a broader sense until we get a vaccine, it would be 18 months or two years. And the economic forecasts that are out there are very dispersed, but they reflect those two camps essentially a big problem this year or a big problem this year and problem next year too.

Steven Cherry You know, you and your colleagues have been doing a bit of writing about the Coronavirus and its and its consequences. You wrote recently: "Fundamental shifts among consumers could include more time at home, more emphasis on hygiene and health, or greater emphasis on family security. Producer shifts could include embracing remote working, streamlining operations, decentralization of supply chains and emphasizing crisis preparedness and systems resilience. Each of these basic shifts has manifold potential consequences." I feel like we could spend our entire conversation exploring those manifold potential consequences. Where would you like to start?

Martin Reeves Well, let's start with how to think about that problem. So we know that wars and social crises do shift not only consumption patterns but behaviors and beliefs and policy attitudes towards policies. As you laid out in your introduction, the problem is that. That's a lot of temporary change mixed up with a lot of permanent change. So, for instance, right now we're seeing retailers, grocery retailers, consumer staples are doing very well. You know, I doubt that in the long term we'll be consuming more because of the Coronavirus. That's probably a temporary effect. How do we distinguish hoarding and postponement of purchase from some deeper changes? That's essentially what the article was about. And I think you can get at that through surveying the beliefs that drive everything. I think you can get at that by looking at the intentions of labels, because, of course, these changes that we're talking about here are not just passive changes. They are a result of innovation and intentional action by leaders. I think we can get at it by looking at lead countries. So there are countries like China and Italy that will be ahead of the cycle in the U.S.

So we can get some early warning signals of changes and we can also look at the economics of consumer behavior. So essentially a set of crisis-driven habits have been forced on us. And some of those habits increase what I call friction, which is non-inevitable cost or inconvenience or mismatch with our true need. Some of them increase that friction. Some of them decrease that friction. I think things that decrease friction, for instance, getting an extra couple of hours a day because they don't have to commute into the city. I mean, that reduces my friction. Whereas, you know, eating canned vegetables doesn't quite match my needs, but that increases my friction. So the former is more likely to result in shifts in habits. And the last thing I'd say about the ... making this determination is that it requires very granular and very high-frequency data. If we wait for official statistics and aggregate numbers, we're not going to see the subtle weak signals of shift. We have to look at very granular high-frequency data like credit card information order to see it as small changes in subcategories that may presage more permanent changes.

Steven Cherry I think a lot of people have been wondering if some of these changes in people's behavior not only might become permanent, but might fan out and have other consequences. So to take just one tiny part of it. People, you know, are not only working at home, they're eating at home a lot more. I'm a native New Yorker and New Yorkers eat out a lot. If the virus bankrupts a lot of restaurants and reduces occupancy in high-rise office buildings because companies realize that they can get more of their workers can work more remotely than they previously thought. That's going to slash real estate prices throughout the city, including the value of my condo, by the way. But not only that, the subway and rail systems could go bankrupt. Maybe not robust ones like New York's. Certainly smaller transit systems in smaller cities could face that possibility. In New York, again, new movie theaters and Broadway closed for good. Museums might not survive all a sudden. When you add all that up at the New York City, we've known for a hundred years sort of no longer exists. Are those the sort of manifold consequences things that we should really take seriously?

Martin Reeves [09:31] Right. Which is why it's so hard to predict. So I said, one reason it’s hard to prediction, it’s because the temporary mixed in with the more permanent. Another reason is that innovation has some properties make it extremely hard to predict. I mean one of them is that it's not inevitable. It's about your innovative acts. And therefore, it's not an exercise in forecasting as much exercise in creativity. The second is that it is iterative. In other words, one thing leads to another. Innovations connect other innovations as you point out, or consequences lead to further consequences. Also, innovation is modular. In other words, when we invent something, for instance stuff like technology, that becomes a component of a further innovation like GPS systems, so that that's very hard to anticipate and then innovation is also recombinantorial. So once you have a new element that can be incorporated into something else, that can be incorporated in something else. So that's a pretty unforecastable problem.

But I think what you can do is you can tune yourself into what I call the field of possibilities. In other words, you can lay out, and we do lay out in the article, how something as simple as spending more time at home has consequences for family life, home, entertainment, work, travel. And they have second-order consequences and third-order consequences. You can lay out what are those possibilities? And then you can look at the maverick activity and say, well, who is actually spending money investing against those possibilities? Where is the evidence of activity, you can say, which parts of the early activity appear to be successful? You can look at early symptoms, attraction. You can once you have a point of departure when a certain branch or battery of possibilities appears to be taking off. Then you can play the active game and say, well, that's very well, what can we do with that? Hopefully industrialize that. I could incorporate that into other things. And then you can tie that to your own potential competitive advantage.

And we say, not only some something could happen and is happening, but also it would be advantageous to us if we thought we were a pioneer in that space. Now, that may sound like an exercise in forecasting. It's more an exercise in sensitizing yourself to possibilities. Because, of course, we see what we're looking for. And if you sensitize yourself in the field of possibilities, we can we can engage with what we see, see the weak signal. So that's how I think about these things.

Steven Cherry I know you think a lot about the future of work. You've written that the recent unemployment claim numbers, there were about three and a quarter million and then they suddenly just about doubled in the space of a week. But even at the three and a quarter million mark, you had written that this was a historically unprecedented figure and double what was forecast by economists. To what extent is we still, you know, in the early part of that process, or are we near the bottom of, you know, the employment numbers or are we beyond the bounds of predictability?

Martin Reeves And I think hard to say because it's not a passive question. It's an active question. In other words, we've seen the cycles playing out in different ways in different countries. China is well on the way to recovery. The US, it's an accelerating. It sort of depends on what we do really. That's passive questions like what is going to happen to us? How long will it last? There's a partly under our control. And of course, the big variable here is the effectiveness and the targeting of government, the government stimulus.

I think we can we can say a couple of things for sure, that the next recession will certainly have unemployment consequences. We can say that because not only are we seeing the early momentum in unemployment, but also because even short chip, shortish period of social distancing. If you compare them to the cash flow, the vulnerability of enterprises in different sectors, hotels, hospitality, transport, small enterprises are going to have problems pretty soon. I think the second thing we can say is that the pattern of demand will change. So when we do get the rebounds and we will get a rebound that will be in a different pattern from the previous pattern of demand and employment. And I think the third thing we can say, and I'm pretty sure of this because I interviewed CEOs about it, is that the work that people will come back to will be different in character,—much more digital collaboration, much more distance working—because essentially we've had a period of trying out behavior and we've sort of discovered that this isn't as hard as perhaps we thought.

Steven Cherry Historically, the 40-hour work week with its full two-day weekends off, Labor was lobbying for that beginning in the 1890s. But it wasn't until the 1930s that we instituted it and it was explicitly because there wasn't enough work to go around; the idea was to spread what work there was among more people. Even before the Coronavirus, France and some other countries had been experimenting with a shorter workday or a four-day workweek. 30 hours or 32 hours in the work week. Was automation slowly pushing us toward that as it was in the 1890s anyway? And now we'll move toward it much more quickly?

Martin Reeves You touched on an interesting point there about the long- and short-term trends.

So another way of thinking about the shift in behavior that we're seeing now is to compare the short term and the long term. So a set of trends like this digital working which were upon us anyway. And essentially what we're seeing will probably serve to accelerate those trends. In other cases, we're seeing the short-term trends go again, long term trends, which pace probably with things sort of temporary behavior or if the force is strong enough, a new inflection point in relation to digital working, new patterns of working. I think we were moving towards freelancing, all sorts of, you know, part time regimes, the virtualization of the company in the words of the activities that used to take place within the corporate legal boundary, going outside the boundary, different radii, different orbits of people with different degrees of affiliation to the company, a move towards what you might call a work ecosystem. And I think we've tried that out now and it wasn't as far as we thought. So I think that trend is accelerated. And I think that that has pretty profound consequences, because if you have a digitally connected remote workforce, I think you can do all sorts of things that you can collaborate much more broadly. You can have different degrees of affiliation with the company and have a collaborative ecosystem and have more people engaged in a virtual organization, a digital platform, than you can with a physical hierarchy. And you're not talking about sort of quantum choices like a 40-hour week or a 30-hour week. You're talking about all manner of degrees of engagement, potentially. So I imagine that work will well go in that direction. And of course, if embraced .,, this can have enormous positive economic consequences, too. It raises some broader social issues that perhaps we touch on separately, like the employment, security, and the social benefits of people that are not core employees. But I think we will allow the freedom to fully embrace digital working.

Steven Cherry We talked about earlier that the rebound of the economy, which you think is definitely going to happen. You know, may be V-shaped, and it may be U-shaped. The alternative with it, that the economy doesn't rebound completely, I guess is sometimes called L-shaped. And I guess I'm wondering from an economic point of view, is it possible for the economy to fully rebound, that is have the V or U shape, but employment—employment, end up with the kind of L-shape.

Martin Reeves I think apart from the forecasting problem here, the reason why one can't give a monolithic answer is that it's certainly going to affect different countries in different ways and even different cities in different ways—as we've already seen. So for instance, to illustrate this, let's go back to the great financial crisis of 2008. We had a V-shaped situation in Canada because they had a strong separation of commercial and investment banking. There were restraints on some innovative types or speculative types of products. The U.S.'s Sorry, U-shaped recession, where we had lost output, and Greece saw an L-shaped recession where not only was there permanently-lost output, but the trend line to which the economy returned was a lower rate of growth than before the crisis. I think we're already sort of seeing the early signs of that.

China is well on the path to recovery and looks very much like a V-shaped. And we would we might expect other geographies to be more severely afflicted and we might see an L-shaped. And I think it's entirely possible that—well, I think it's inevitable—we'll see dynamics across sections. We'll see sector de-averaging. We'll see some sectors coming back more slowly. I'd anticipate that, for instance, the effects on business travel might be relatively long lasting and that might be relatively severe for the airlines. Other things, consumer staples and so on, will bounce back more quickly. Some things will accelerate—anything to do with digital collaboration and communication—will accelerate and everything else will be in the middle. And you raise an interesting possibility that we may have recovery in a broad economic sense, an output sense, but high frictional unemployment. It seems quite plausible. In fact, if people are migrating towards a new equilibrium in terms of the pattern of jobs, that will have some friction in reaching it. That's a speculation, however, because we're in unprecedented times.

Steven Cherry [21:01] Yeah, twice you've talked about friction, and I'm wondering what other frictions might end up getting permanently reduced or what changes you might permanently see because of this question of friction. I mean, for example, online versus in person, banking seems like a likely one. And in fact, then banks that are holding lots of branches and personnel—face to face type personnel—may not come out of this as quickly as banks that don't.

Martin Reeves I think friction is a good lens. We'll be trying new things out or having new habits forced on us. And, you know, where is the friction and what is being eliminated. You can think about that in a couple of ways. You know, the main source of the reduction of friction is moving into digital. Digital is cheaper. Digital can handle higher complexity, digital can handle higher customization and digital can be very agile—digital arrangements, cheaper ways of communicating, collaborating. Working can be changed more, more easily because you're not changing physical assets or statistical hierarchies.

Where will you see this reduction in friction applying most? I think there are a number of areas. So clearly flying many hours for a short meeting, this is a high friction cost to that. And this basically addresses that I think. I think where was the friction in the economy overall? The price of things you've probably seen the famous chart, the price of things has generally gotten cheaper in almost all parts of the economy. But the two exceptions are education and healthcare, where there's almost no productivity growth. And so you could argue that we were—those two areas were ripe for reform and require reform, because there are they are huge drag on the economy, education and health care, a very expensive. So I think online learning is not only more convenient. We we sort of need better ways of educating people for many reasons. I mean, it doesn't make sense in today's fast-changing economy to train people for three years at the beginning of their careers and then not again. It's more like permanent on-the-job training and training, which is adapted to the changing times, reducing the skills that we need at the time. So those two areas, I'd expect to see a lot of reform. I think some of the friction is that we're experiencing is the friction of governments, you know, are governments, were governments, prepared for this. Are they able to roll out policies very easily or are they able to adapt policies very easily and learn on the fly? Are they able to coordinate across nations and states? You know, I think we're seeing a lot of friction now, but we will want to remove all of this, after all of this is over. And then, of course, each of the things I've mentioned has second- and third-order effects. Right. So I think they're sort of in a wave. And the consequences of friction removal will also be a shaping force for the economy.

Steven Cherry You pointed out that China seems like it's already in a sort of recovery mode and that its economic downturn seems V-shaped. The US is more likely to be U-shaped. There are people who, for example, George Friedman, who argue that the 21st century, is the American Century and other people argue that the 21st century will be the China century. If their economic recovery is much quicker than the US. Is that. Is that a further argument that maybe this is the Chinese century.

Martin Reeves I think the crisis could conceivably affect geopolitics and the relative competitiveness of nations. For sure. I must add, though, that China is not fully out of the woods yet. I think the signs of economic recovery are real. They're not based upon official statistics. Since we don't have the official statistics yet. They're based upon objective high-frequency surrogates for economic casualties. So looking at these, congestion indices or satellite-monitored pollution indices, emission indices. You can look at the movement of goods and people, production activity and you can look at real estate transactions for the resumption of business confidence. And according to all of these measures, China is well on the way to recovery. But of course, there's always the possibility of rebound. Also, China's recovery can't be complete, of course, without its important export market. You can't really recover alone in a globally interconnected economy. But so far, at least, the dynamic seems much more positive there than elsewhere. And I think there will be ramifications for this.

Some people are talking about the great decoupling. I think we may see a world, a movement away from tightly-coupled supply chain. We've seen a reduction in the degree of interdependence of nations. Where are we buying the critical medical supplies from right now for the ventilators and masks that we don't have? They're coming from China and there will be, I think, you know, nationalistic arguments which are grounded in the concepts of resilience. Or maybe we should produce in some of those crisis/critical goods ourselves. Each nation will be sort of, I think, coming to that conclusion to some extent. So, you know that will affect trade and that will affect the prosperity of nations that are highly dependent on trade.

And certainly I'm seeing, whose system is most constant in recovering from the crisis. I think the Chinese rightly have a lot of pride in how they have dealt with this and that sort of halo effect could stand them in very good stead and in that in their international relations. So I wouldn't hazard a forecast on the relative power of U.S. versus China based upon this, but it could be conceivably a shaping factor.

Steven Cherry It strikes me as interesting that the same way that we can sort of wonder who exactly is an essential worker and who isn't; in a similar way, there's a question of which goods are critical to national security and which are not. I mean, I remember I thought it was like the 1980s. We were still worried that, you know, machine parts were started to be made in Asia. And there the fear was, was Japan, not even China. And then we sort of forgot about, you know, things like that and decided that we could freely trade everything, that we could depend on other countries for many things. And now we're suddenly looking at things like masks and saying, oh, my God, this is critical to national security, it turns out.

I'm wondering, do you see this great decoupling as even affecting interdependencies like NATO and the EU itself?

Martin Reeves [29:12] It's not a passive question and should be an active question depends upon what we do, but certainly it's easy to imagine that leaders will be blamed, accused, according to the performance of their handling of the crisis. And, you know, I think it's a convenient political scapegoat in that situation will be to blame others. "The virus came from elsewhere." "This was not our fault." So, you know, it's a nationalistic tendency there. I think there is the essential goods argument that you ... the security goods argument you mentioned, we should be making our own masks and ventilators, and the Internet, which has held up pretty well. You know, the technology supporting the international telecommunication system should be sort of nationally ringfenced. I'm sure we'll see those sorts of arguments and we'll see resilience arguments too, which is dependance on few suppliers, especially ones that are not part of the nation in question. You know, it's a very fragile ... it may be a very efficient way of running things, but it a fragile way of running things. So we'll see that sort of resilience argument, too. So those will push us in in the direction of devolution, I think the dissolution of highly integrated, interdependent systems. Now, I don't think that excludes the possibility of cooperation, but in some scenarios it could. And I think certainly there'll be a new diplomacy and a new set of economic relations that pivots around these questions.

Steven Cherry [31:04] I love this distinction, by the way, between passive and active questions, I mentioned George Friedman before, he gave a talk at our March meeting and you know, he wrote a book called The Next Hundred Years in, I think, 2008 or so. And I read that book ten years later. And it was very interesting to read that book and see how the first ten years of that hundred years had worked out, by the way, he didn't do so badly in the first part of the hundred years. But back in December, this was still 2019, so I guess we could call that the year one B.C. That is before her Coronavirus. You and your colleagues made some predictions about the 2020s that maybe we could go through them. I'm wondering if the pandemic makes them less likely, no change, or perhaps even more likely. The first was AI, you wrote that artificial intelligence is starting to advance towards large scale implementations. So less likely, no change, or perhaps even more likely.

Martin Reeves I think somewhat out of the limelight, but still important in the medium term. So I think about this as ... in crisis psychology, so we've spent some time looking at how companies react to crises and companies tend to underreact initially, they underestimate a threat. For instance, the threat of recession. And then they engage. And when they're engaged, they tend to have a tendency to overly focus on when they see the threat at hand. Sometimes ignoring the fact that the longer term changes and imperatives still exist. So I call this multi-clock speed on multi-time scale strategy. Clearly, there are some very urgent aspects to any crisis. Clearly, there are some aspects to resolving a crisis. And clearly there are long term dynamics that will not go away just because they're a crisis. I put AI in that camp. AI is a powerful technology that can automate routine work. And it's better at pattern recognition, if not causal reasoning, than human beings, that's already demonstrated in many areas and I think they'll be a tremendously useful technology. It could have been—and may well be—useful even in the in the Coronavirus crisis as we try to separate and tease apart the local specificities of the of the outbreak, of each outbreak and the sort of the underlying patterns. Because I think epidemiologists having a very hard time doing that with conventional statistics. So I'd say AI is still there, even if it doesn't appear to be the focus right now.

Steven Cherry It seems to be that, to the extent that that sort of human work goes online, it lends itself a little bit more to digitalization. I mean, just to take a kind of trivial example, if you have a meeting in person, it's one thing. But if your meeting is online and easily recorded, then, you know, somebody might come up with an AI that will write the meeting summary and send everybody their action items. And you would never even think about doing that with meetings that were in person.

A second one of those 2020's predictions that you and your colleagues give was the development of business ecosystems that defy traditional industry boundaries. Maybe you could say a word about these ecosystems. And then once again, the question is less likely no change or perhaps even more likely.

Martin Reeves Right. So first, I think I have to define my terms because the word ecosystem is used very loosely. What I mean by digits for like a system is a collaborating group with companies that don't have legal ties. In other words, they're not just subsidiaries, that have dynamic complementary relations to each other to produce, to coordinate, to produce a common product. And they come in two flavors transactional ecosystems that essentially match buyers and sellers very effectively because of, Uber is an example of that, and you can call them solution ecosystems or R&D ecosystems, whereby companies collaborate to produce a new product or a new technology. And so that has become tremendously important. We still use the language of the individual company. We talk about a company strategy, its financial results, its market share. But in fact, seven of the world's largest companies, seven of the world's 10 largest companies are already digital ecosystems. And 10 years ago, that number was zero. So ecosystems were already upon us. This is not a speculation. Very important. I think that the Coronavirus crisis potentially mixed effects in the short term because some of those ecosystems will be disrupted just as supply chains have been disrupted. Chicken anything to do with the co-location of people or if it's intended to do with transportation will be disrupted. But on the other hand, in the long run, I think this is the phenomenon you just referred to, which has the things going online and therefore becoming digitized and digitally tractable will drive further growth and in this spreading wave of the replacement of companies and rigid supply chains with cross-industry collaborative arrangements or digital ecosystems. So I see that one being accelerated too.

Another of your mother 2020's predictions was that long term growth projections are falling globally and here I think. This had a lot to do with changes in demographics. Is that right?

Right. So the argument was that. Some of the pressure for business of innovation is the demographic aging of the planet. Even the places that we think of as high growth markets like China, which means that, you know, our propensity to consume, which drives economic growth, absent of compensating productivity growth inevitably, inevitably means trending down. And we were already seeing that long term trending down the growth rate. So, clearly, in the short term, that's going to be a fairly profound disturbance to growth in the long term. If essentially this crisis shakes up the stagnant productivity of certain parts of the economy, and I'm thinking particularly education and healthcare, which which are very costly parts of the economy, then actually I might revise my, those forecasts, those predictions that we made in a positive direction. It could be a spur to productivity growth in previously intractable parts of the economy. But again, it can't be a passive question. It depends upon our on our actions and our initiatives.

Steven Cherry So it's funny that you mentioned education. I teach a class, this is an adjunct to NYU's engineering school, a teacher humanities course, it's actually a writing course. And on the humanities side, I and several of my colleagues have had the same impression that we kind of love teaching through Zoom. It has the basic features for a classroom. There's almost no downside to it. And of course, that's not true with the rest of the engineering school. You know, labs are really hard to do, for example, and schools are going to have to figure out ways to move any of those activities to online. But there does seem to be we may even see, you know, a fair bump in sort of education productivity.

I have two more of these 2020's predictions. Society is rethinking its uncritical acceptance of technology-driven change, especially its social impacts. Once again, less likely, no change, or perhaps even more likely.

Martin Reeves [40:38] I think the equation is still relevant, but probably in a different way. So I think, you know, there's a potential cleavage here between companies and citizens of between governments and citizens. So solving this crisis will involve collective action. This action can't be solved at the level of the individual profit and loss statements; it will require companies to help companies in their supply chain to protect the interests of workers. And so I think in recent years, there's been a realization that a multi-stakeholder model of capitalism needs to be more emphasized. And there's been a lot with a lot of discussion of the importance of social purpose. In other words, defining the intersection of a socially useful mission and the company's goals and aspirations. And I think now that's being tested because those things are easy to say in peacetime. But now that we're in wartime, it's the actions the companies will be judged. And I think some will rise to the bar and others will fall short of their rhetoric. So it is definitely relevant. And in that in that sense, I think.

Steven Cherry [42:08] That kind of leads to the last one investor activism and the role of private capital rising in many parts of the world.

Martin Reeves Yes, I think I have personally less transparency into that one. We have carried out some investor survey work and I think we're seeing a number of interesting threads there, though. You know, one of them is that right now I think investors are still demanding quarterly earnings reports, but really with much less .... of our expectation that these will be precise predictions, the emphasis is more on prove to us that you're going to survive. So I think, viability is the name of the game right now rather than sort of long term value. There's going to be a cash squeeze in companies and I think viability is going to be the short term question. I think, another sort of interesting thread here is, many investors, not all investors, but many institutional investors were embracing the idea that. Planetary and social stewardship was either value-creating in itself in the long term or it was a surrogate for the quality of governance and therefore should be valued more in in in evaluating company performance. Yet for all of the talk of carbon footprint, we were not really moving the needle as a society. Well, of course, now, for entirely unexpected reasons, our carbon footprint has been massively reduced. And so I think in a sense we've shown ourselves that we can do it.

Now, whether that all bounces back and we go back to normal levels of energy consumption, fossil fuel production, or whether we seize the opportunity of the current footprint, we say, well, look, it's possible for us to move from here rather the previous baseline.

I guess it makes it more transparent, the aspect of long termism. So in recent years, there's been a debate about whether stock market behavior and investor expectations implicitly foist the pressures onto the company to maximize the short term at the expense of the long term. And to the extent that's the case, we can now see the consequences of short term efficiency traded off against long term resilience. So I think it would be entirely rational for investors to say, well, you know, let's not only measure short term efficiency. Let's try to think about measuring the resilience for the longevity of a performance. And I've written a lot about that. Suddenly I call that biological management adopting a more biology biological analogy rather than a mechanical analogy for management. We may see, you know, that strand of thought comes to the fore too.

You know, Mark Cuban recently said how companies behave in the next few weeks—this was a couple weeks ago already—how companies behave, basically, reacting to the Coronavirus, will define their brand for the next decade. I wonder if how companies behave right now toward toward their employees and toward their customers and to their suppliers even, it's a bit of a litmus test for how they will behave with respect to these more social considerations, later on.

Martin Reeves I think so. I mean, I think. You could look at the crisis, I mean, it's a very acute crisis, and it's a very deep crisis. It will face an enormous stress on a company's ability to adapt and so you could regard it as some sort of extreme stress test. So what what is being tested? I think is being tested is crisis preparedness, agility, you know, can companies move fast enough? The prominent characteristic of this virus is its very high degree of transmissibility and therefore the speed with which it doubles, three or four days, and therefore that stresses the agility of corporations and government. I think it is testing adaptability, which is, with every new piece of information, are we able to to to adapt? I think it's testing resilience. You know, are my systems resilient. If they're not, can I make them resilient? And I think it's also testing moral or ethical authenticity. The things the companies say they say they stand for in terms of social values. Well, now we can see those things more conspicuously in their behaviors. How are they looking after their suppliers and their employees? And that probably would be divergent in how companies react to that stress test. Some of them may fail spectacularly in that they'll cease to exist if we've a protracted period of lockdown and extreme cashflow stress. Others may financially survive, but with tarnish—tarnished social contract, tarnished trust and reputation. Others will be seen as as as living up to their values and therefore engender the loyalty of their suppliers and customers and employees. I think you absolutely we'll see companies diverging on that front.

Steven Cherry Well, Martin, this has been as far-ranging and fascinating as I could have hoped for. Thank you for your time and I wish you and your family and your colleagues at BCG, especially the ones who helped us put this together, all the best.

Martin Reeves Thank you, Steven. And the same to you and to TTI/Vanguard. Interesting conversation, thank you.

We've been speaking with Martin Reeves of the Boston Consulting Group about the future of work, business, and society in the age of the Coronavirus and beyond it.

For TTI/Vanguard, I'm Steven Cherry.

This interview was recorded 3 April 2020.

Music by Chad Crouch

Audio engineering by Steven Cherry

We welcome your comments @ttivanguard and @techwiseconv

Note: Transcripts are created for the convenience of our readers and listeners. The authoritative record of TTI/Vanguard’s audio programming is the audio version.

Author: Steven Cherry

Director of TTI/Vanguard, “a unique forum for senior-level executives that links strategic technology planning to business success. In private conferences that are part classroom, part think-tank, and part laboratory, its members—corporate and government leaders, entrepreneurs, researchers, and academics—explore emerging and potentially disruptive technologies.”

Twenty years experience as a technology journalist and editor, at the Association for Computing Machinery (ACM), and the Institute for Electrical and Electronic Engineers (IEEE). Founded the award-winning podcast series, Techwise Conversations covering tech news, tech careers and education, and the engineering lifestyle. Teaches an intensive writing class as an adjunct instructor at NYU. Previously taught essay writing and creative writing at The College of New Rochelle.

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