COVID-19 – Future trends and their impact on the world

COVID-19 – Future trends and their impact on the world

The trends shaping our world of tomorrow are changing rapidly with COVID-19. In this article, the multi-level perspective on societal change model will be used to explain various trends and their potential impact on the economy, politics, technology, society and resources.

We are operating in a new, fast-evolving multipolar global landscape in which challenges are intensifying and the way in which we address these challenges is constantly changing. Economic, social, political, technological, and resource-related tectonic plates are shifting, bringing new realities and risks but also new opportunities.

Economics – Even before the advent of COVID-19, globalisation was faltering. The open trade system that had directed the world economy for decades had been impaired by the financial crash and the China-United States trade war. Another blow to globalisation is the almost universal economic lockdown brought about by COVID-19 that has sealed borders, disrupted commerce, and laid waste to global supply chains.

Globalisation and global trade have been further damaged by America’s refusal to appoint two of the judges to the World Trade Organisation’s (WTO’s) appellate body that hears appeals in trade disputes and authorises sanctions against rule-breakers. With only one remaining judge, the appellate body cannot preside over new cases. The WTO underpins 96% of global trade and it is estimated that the organisation and its predecessor have boosted trade among members by 171%. In the absence of the WTO’s appellate body, trade disputes may be resolved through heavy-handed tactics such as the use of tariffs that would give the dominant partner an unfair advantage and could lead to countries abandoning the idea that firms and goods are treated equally regardless of where they come from. Poorer countries will find it harder to catch up and, in the rich world, life will be more expensive and less free.

As economies across the world start to re-open after the lockdowns, economic recovery will get under way – albeit sluggishly and hesitantly. It will, however, take time to return to a world of unfettered free movement and trade because the pandemic will politicise travel and migration and entrench a bias towards self-reliance out of fear of subsequent waves of COVID-19 infections. This inward reflection will constrain the recovery of the world economy, slow down immigration, leave economies vulnerable and spread geopolitical uncertainty.

Government borrowing will increase significantly across the globe as a result of the COVID-19 pandemic. The International Monetary Fund (IMF) forecasts that the population lockdowns and economic contractions will push budget deficits to well above peak levels during the financial crisis. Globally, net public debt will rise from 69,4% of national income in 2019 to an estimated 85,3% in 2020. In an attempt to quantify the scale of the pandemic impact on public finances, the IMF provisionally forecasts that global public deficits will climb by 6,2 percentage points this year to reach 9,9% of the national income, topping levels seen in 2008/2009. It has also warned that governments will need to implement higher taxes and curb public spending in order to deal with these borrowings responsibly.

Interest rates on government debt are at historically low levels across major advanced economies, supported by central banks’ purchases of significant quantities of bonds in an attempt to maintain supportive financial conditions. Emerging economies face a higher cost of servicing their debt, although they generally have much lower levels of borrowing in relation to the size of their economies and any rise in borrowing costs could cause capital flight. In low-income developing countries, the average interest bill on government debt stood at 20% of tax revenues in 2019.

The IMF expects this to rise to more than 30% of revenues this year, highlighting the financial squeeze many governments are facing.

There has also been a significant shift in the view that ‘corporations exist principally to serve their shareholders’. Last year, Business Roundtable, the influential US business group, amended its two-decade-old declaration above to state: ‘While each of our companies serves its corporate purpose, we share a fundamental commitment to all of our stakeholders’ − customers, employees, suppliers, communities and − last in the list − shareholders. This declaration was signed by 181 corporate chief executives. Corporations are being encouraged to embrace a broader purpose because of the 2007−2009 global financial crisis that laid bare the limits of the pursuit of profit, resulting in many in society losing faith in businesses. Also, because society is being let down by the government’s inability to address problems such as economic inequality or climate change, businesses and corporations are taking over that role.

Politics – The election of Donald Trump as the 45th US president placed the leadership of the free world into the hands of a populist. His election was not an isolated event as he joined other populist leaders such as Recep Tayyip Erdogan in Turkey, Viktor Orban in Hungary and Rodrigo Duterte in the Philippines, upsetting the established order to win power in what appeared to be stable democracies. One of the common threads that these leaders share is the backlash against immigration and a globalised economy that many people feel has left them behind.

Since the election of Donald Trump as president of the USA, populism has extended its reach to more countries.

The rise in populism can be attributed to, among other things, the 2008 financial crisis that led to rising inequality and the perception of an unjust and corrupt response to the crash. The financial crisis also eroded trust in the ability of established leaders to address shifts in the global economy, including technological change and the rise of China. One of the defining characteristics of these leaders is their insistence that they alone represent the will of the people, dismissing any criticism towards them as an attack on the people, and therefore illegitimate. Furthermore, they are quick to remove and limit the democratic checks and balances, particularly the courts and media that were designed to limit what governments can do.

The European Union (EU) has survived a decade that included the near-collapse of the bloc’s currency, a refugee crisis and its second-largest economy, Britain, voting to leave. However, the arrival of COVID-19 threatens to break up the EU, which is finding it extremely difficult to find a common goal amid challenges to fiscal policy, foreign policy, defence and migration that cut to the heart of sovereignty.

Uniting the bloc requires strategic unity, which is not easy to find among 27 members, especially after Germany’s constitutional court ruled that the European Court of Justice was acting beyond its authority in its ruling relating to the European Central Bank’s bond-buying in 2018. In an attempt to stimulate the bloc’s economic recovery, this bond-buying is again now the centre of disagreement, with its GDP forecast to plummet by 7,4% this year compared with a 4,3% fall in 2009, the worst year of the financial crisis. The forecast contraction in GDP will vary in the region based on the country’s fiscal ability. This has led to an alliance of countries headed by Spain suggesting grants of €1,5 trillion to be paid for with debt backed collectively by the EU as a whole. This suggestion is being opposed by more fiscally prudent countries such as Germany and the Netherlands.

Technology – The world is adopting more and more digital technologies in everyday life and the arrival of COVID-19 has accelerated this. Likewise, firms built on digital connections with and between hundreds of millions of people that collect reams of cloud-based data in the process are growing rapidly.

The rise of the Internet has disrupted the world order as this technology connects billions of people, requiring no more than access to a cell phone, tablet or computer connected to the Internet. The Internet is also more central to the civilian or commercial economy than any other technology and its influences are impossible to stop. The rules governing the Internet, to the extent that they exist, have been set from the bottom up, by the efforts of and interactions among individuals, civil society, corporations and governments. Cyber-attacks as a new form of warfare have the ability to result in mass destruction between countries, including commercial espionage, theft of intellectual property or operational sabotage of key utilities.

Artificial intelligence (AI) is believed to be the technology that will most profoundly change the world as we know it. AI is a group of algorithms that can amend its algorithms and create new algorithms in response to learned inputs and data as opposed to relying solely on the inputs it was designed to recognise as triggers. This ability to change, adapt and grow based on new data is described as artificial intelligence. As the Internet is rolled out across the world, connecting more people and devices, the impact of adoption of AI will increase.

Because AI can create new algorithms in response to learned inputs, it can learn much faster than humans, and it also has two further key attributes, namely connectivity and updatability. AI can connect to an integrated network with multiple similar applications to process data and learn much quicker than humans could ever wish to. Furthermore, its updatability enables AI to remain updated with the latest data, which is impossible for humans in specialised professions such as general practitioners.

Social – The world population is being influenced by three key trends, namely the decrease in the world’s fertility rate, the increase in life expectancy (and therefore the ageing of populations, especially in the more developed countries), and the urbanisation of the developing world population. Each of these trends influences society and is also influenced by specific factors, as discussed below:

The worldwide fertility rate, which is a measure of birth rate, is set to decrease from 2,53 in 2005−2010 to 2,24 children per woman by 2045−2050, according to the UN. The decrease in fertility could be ascribed to the use of contraceptives, increasing investment in education especially for girls and women, improved living standards and improved health care. The reduction in the fertility rate enables governments to spend more per child and thus provide more resources for each child’s development.

Population ageing is one of the most distinctive events in the world. The higher life expectancy has resulted in the proportion of the world population aged 65 years or older increasing from 5,1% in the 1950s to an expected 15,6% in 2050. This places a greater economic burden on the state paying pensions to more people for longer periods and also spending more on health care for this population. Furthermore, with an ageing population, the working-age population is too small to drive economic growth. This problem could be overcome through migration and increasing automation and ‘robo-sourcing’.

Urbanisation is another key trend with people moving from the rural countryside to towns and cities. In 1950, only 36,6% of the world’s population resided in towns and cities but this percentage is expected to increase to 66,4% by 2050 due to better access to health care, job opportunities and economic markets with the concentration of people.

Another trend is that younger job-seekers and employees wish to work for an organisation that reflects their values; in fact, they challenge the business or operation if it is not aligned with their values. Last year, employees at Google forced the firm to stop providing the Pentagon with AI technology for drone strikes and to drop out of the procurement process for Jedi, a cloud-computing facility for the armed forces.

Across the world there is a trend that society is moving away from moderate views to various subjects becoming more and more polarised, as illustrated by the extreme views that Donald Trump is invoking in American society. One of the explanations put forward is that the world society has moved from the bell curve shown in figure 1 on the left to what is known as an inverse bell curve or well curve shown on the right.

The bell curve (left) depicts the normal distribution where most of the population congregate toward the middle, holding moderate views. The inverted bell curve or well curve (right) shows that most of the population congregate at the extremes and hold extreme views while the middle, which is far more sparsely populated, have the most moderate views. This helps to explain Brexit and the emergence of Donald Trump as the American president. This phenomenon also leads to a more polarised society and, with it, a more polarised political environment.

Furthermore, it results in a global–local dynamic where everything is becoming more globalised and at the same time more localised, even tribalised. This phenomenon creates the need for leaders to become bridge builders between the extremes of society and their views as the well curve is expected to grow stronger and become more amplified.

Resources – Humans are damaging the global biospheres by removing more resources out of the environment while putting back large quantities of waste and poison. This causes changes in the composition of the soil, water and atmosphere.

The biggest threat to earth is climate change, to which we may be able to adapt. There will, however, be victims during this process of adaptation. The impact of releasing carbon dioxide into the atmosphere without creating an irreversible cataclysm is unknown. However, scientists estimate that without a significant decrease in the amount of CO2 being released over the next 20 years, the average temperature on earth would increase by 2 °C. This will bring about the expansion of deserts, the melting of ice caps, rising oceans, and more frequent extreme weather events. These climatic changes will disrupt agricultural production, increase urbanisation, make a large part of the earth uninhabitable, and create a refugee migration as has never been seen before. A worrying aspect is that we are moving toward a tipping point from which the earth will never recover.

To conclude – This brief review does not profess to be either an exhaustive list of global trends, nor should it be construed as a set of predictions. It hopefully helps us to realise that the world will look hugely different in ten years’ time.

Note – References are available on request.

AUTHORS | Professor André Roux, Programme Head: Futures Studies, Stellenbosch University Business School, and Dr Gideon Botha CA(SA) is a Senior Financial Manager

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