Previewing the post-Pandemic World (#17)
Today, we have a special episode for you on how the post-pandemic world would look like. We are bringing back three of our favorite guests: Nicolas Colin — Co-founder and Director of The Family, which is a platform for European entrepreneurs; Laetitia Vitaud— renowned writer and speaker on The Future of Work; and Ian Stewart — Executive in Residence at IMD Business School (an co-founder of WIRED).
Ben Robinson interviews them separately, beginning with Nicolas, who talks about why this pandemic is so different from other crises like terrorist attacks and recessions. He also goes into why the stock market is currently doing okay — at least as of this recording — even though the unemployment rate has skyrocketed, and he and Ben talk about what a safety net could look like for the entrepreneurial age.
Laetitia continues the safety net conversation going into how much are we going to continue to value and appreciate proximity workers into the future? We love them now — are we going to continue to show them the love after this pandemic? And what about new protections for freelancers? What are we going to see in that space? Laetitia, who taught American Studies and English for 10 years, also goes into a really interesting discussion on Roosevelt and how his New Deal helped pull the US out of the Great Depression and what the chances are of something similar happening in the US, today. I’ll give you a spoiler — spoiler alert — things are not looking good! Laetitia ends by talking about how companies need to act today if they want to succeed today, but then also in the future after the crisis ends.
Ian picks up the leadership question, answering Ben’s question, “Is this a time to be brave and contrarian or is it time to just keep everything going as normal as possible?” Is China a safe haven for investors? How is the pandemic affecting US-China relations? And the perpetual question, when will China become the largest economy in the world? And is that even the right question to be asking? At the very end, we will circle back to Nicolas for his closing snapshot vision of how the pandemic will accelerate the transition to digital entrepreneurship. Enjoy the show!
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Full podcast transcript:
[00:02:42.19] Ben: Nicolas, would you say, one of the biggest differences between the Corona crisis and some of the other major crises over recent years — the major difference is that there is no global leader? The United States led the response to the financial crisis and the United States led the response to 9/11, and you see very much that we’ve had this sort of balkanization of responses, right? Because, the UK was going for herd immunity, Italy was in lockdown, the United States, at least initially, wasn’t taking this very seriously — and we’ve lacked that sort of coordinated global response.
Nicolas: So, the US is a country that I’ve studied for a very long time and I’m passionate about it. I’ve traveled there a lot and I read a lot of books about its history, especially. What I find is different this time. So, one thing that’s different is that they have Trump and he’s a very unusual kind of leader to have in these difficult times. But another thing that’s very different is that the US is used to respond to crises by doing two things: one is, send troops abroad to invade Afghanistan or to invade Iraq and topple the regime there or Vietnam — sometimes it works, sometimes it doesn’t, but sending troops is easy for them because they have the mightiest military in the world. The other thing that they do, usually, is that they close their borders, which is easily done when you’re the US because they’re isolated at the other end of the world, they have two oceans bordering them, they only have two borders to close, effectively — one with Mexico and the other with Canada. And so, basically, on 9/11 they did both things: they sent troops to Afghanistan, and then they closed the borders to prevent anyone from entering the territory.
Nicolas: For the financial crisis, well, they gathered a small group of politicians and experts and economists in the Treasury building in Washington, DC — that was basically all you had to do to solve the crisis. You had to take big difficult decisions, but in material terms, organizing to respond to the crisis was quite easy. This time, none of these works. Sending troops will not solve the problem; closing the borders won’t solve the problem because you have sick people at home on your territory, on US soil; and simply gathering experts in a building won’t solve the problem because, after two weeks, we know what should be done, but it’s all a matter of implementation now — and implementation on US soil, at that scale, with so much disruption for the way people live in the US is unprecedented. I don’t see a precedent of the US being confronted with such a crisis at home and they are not equipped as a government and as a country to respond to that.
[00:05:59.25] Ben: So you could argue that it is unprecedented and would be difficult for any US institution to manage. But, in addition to that, you’ve also said the fact that Donald Trump has been gutting the institutions that would be most able to respond. So, I read “The Fifth Risk” by Michael Lewis — I read it when it came out, and I think what am I going to do is reread it because it was so sort of prescient in highlighting the fact that what was happening was almost going unnoticed, and would go unnoticed, until all the institutions were suddenly needed, which is exactly where we are now is it not?
Nicolas: I’m French and you’re British, so we both come from countries with a very long tradition of strong and respected civil service. The reason why we used to have — maybe we don’t have them anymore — very efficient and effective civil servants is because we were countries confronted with many threats and we had a colonial empire to manage. Both France and the UK had a Global Empire to manage, which requires a lot of skills and a lot of capacities — you really need that to manage such an empire. In comparison to the French and the British, the Americans never had very effective governance when it comes to implementing policy at home. They’ve had for quite some time a very effective military, but when it comes to implementing policy at home, the US government is already lagging far behind those of other Western countries or China or Singapore, for that matter. And they’re used to it and they don’t really care because most of their government is done at the local or state level and most of the problems that Americans have on a day-to-day basis are solved by the private sector or by lawyers.
Nicolas: But, a striking example is that you can’t really manage your taxes without relying on a tax advisor in the US because the government won’t help you do that. They don’t have the resources, they don’t have the people to be able to respond to every question that every individual taxpayer has. So, that’s their tradition. Their tradition is that of a limited government and a government that nobody really needs in normal times, so no one cares about the government being underfunded or too small for this very big and large country to manage. And it’s only when such a crisis happens, that they realize, “Oh, maybe we should have the same kind of government that the French or the British or Singapore has.” But you can’t catch up in two weeks on doing that — it’s a whole tradition and a whole cultural matter.
[00:09:28.21] Ben: Donald Trump underestimated the threat and then he’s had some very public disagreements with governors. It doesn’t really seem to be affecting his poll ratings too much. Do you think Donald Trump will still be reelected in November or do you think this has materially changed the odds?
Nicolas: He’s been polling at 40% approval ratings forever and whatever he does, it never goes down. And so, people say, “Oh, he’s still popular because he was that popular when he won the election four years ago”, and so, he could do it again with such a low approval rating as a person and as a leader. But what I’ve been interested in is how low is polling in other ground states like Michigan, or basically the Rust Belt where he made a lot of promises about jobs coming back, factories reopening, supporting people, etc., and those promises have not been kept and people are feeling the pain. And so, they’ve probably already decided for many of them that they won’t vote again for Donald Trump this year, which will make a huge difference because he won Michigan with 10,000 votes, I think, in 2016. And so, it doesn’t take much for him to lose Michigan and then lose the presidency — even though he’s faring well in southern states and other conservative states.
[00:11:05.14] Ben: One of the things I wanted to ask you was — you know, this isn’t just from a US perspective — how bad do you think the economic consequences of this pandemic will be? I guess it’s a really difficult question to answer because we have no idea how long it’s going to last and so on, but, would you say that people are still underestimating how profound the impacts will be?
Nicolas: I think we’re underestimating it clearly. I’m not really sure what people are expecting in terms of impact, but clearly, after two weeks, people will look around and say, “Oh, life seems to go on. I’m stuck at home. In many cases, I still have my job. I still get my pay every week or every month and probably life will go back to normal.” But what’s normal? If you reflect on the 10 years that we’ve gone through after the financial crisis, yes, most of us did get back a job and recovered on a reasonable standard of living, but everything has changed, in a way — politically, economically, financially, it’s the rise of China, it’s Brexit, it’s Trump. So, we might have to expect radical consequences to the crisis we’re currently going through. We just don’t know what it will be about.
[00:12:39.26] Ben: Why is the stock market not more materially affected. The initial reaction was quite severe, but actually, it’s been ticking back up. And if you take the NASDAQ, for example, I just looked — I’d better timestamp this, just so we’re not completely wrong. So, it’s the 9th of April and the NASDAQ is down about 18% versus its peak. In a world where we’re potentially facing 30% unemployment, how do you reconcile those two statements?
Nicolas: I wrote a long piece about the stock market to try and explain why it was faring so well whilst many people think that the economy is going in the wrong direction. I think there’s a decoupling between stock market investors and most people. We’re way past the time when everyone was investing in stocks. That’s not true anymore. Most of the money that’s invested in the stock market is invested by large institutional investors and the main reason why it’s faring so well, even in the presence of such problems, is that those people simply don’t know where to invest their cash.
Nicolas: They’re afraid of investing it in tech companies because they don’t understand innovation and entrepreneurship in an economy that’s driven by increasing returns to scale; they’re afraid of investing it in bonds because bonds bear no interest rate economy; they’re afraid of investing it in commodities and they’re afraid of investing it in emerging markets or any market that’s not the US because they prefer to invest at home. And so, what are you left with, when you want to invest in stocks in the US? Well, it’s a lot of investors chasing the same stocks. And what do you do? If you have too many investors willing to buy the same stocks, prices go up regardless of the fundamentals and the context. I think that’s what’s happening now.
[00:14:58.01] Ben: They have the quantitative easing taking place as well.
Nicolas: Yes, yes! It has brought so much money in the hands of so many large investors that they don’t really know what to do with all that money. And we should bear in mind, as well, that because the government and the central banks are pumping up so much money in the economy as of now, many people expect it to trigger inflation. And so, you don’t want to hold cash if inflation is coming around the corner; you would rather have that cash invested in stocks and count on an upside with stocks, as opposed to cash.
[00:15:41.15] Ben: But what is true of the stock market is not true of venture capital at the moment, right? We are seeing capital exiting from venture capital and it’s making it harder, particularly to invest in early-stage companies. So, what do you see is the short to medium term prognosis for venture capital?
Nicolas: In venture capital, at the moment, is very difficult to invest at the late-stage because at the late-stage, valuations are extremely dependent on the state of the economy — and now the economy’s in very bad shape, so you can’t really put a price on a late-stage startup. And so, that prevents late-stage investors from deploying capital and because late-stage investors don’t deploy capital, early-stage investors prefer to hold on their cash and keep it to further fund the startups they are already a shareholder of. And so, if you’re a new startup and you try to pitch an early-stage investor, they’ll probably respond, “Okay, but because no late-stage investor is investing at the moment, I won’t invest in your startup. I’ll keep my capital to deploy in my existing portfolio.” So, until the economy goes back on its feet in terms of predictability, we won’t probably see the engine starting again.
Nicolas: But, on the other hand, we’re already in a period where venture capital is diversifying in terms of how it deploys capital. More and more players are learning to design debt instruments to finance tech companies that are in fact part tech companies — part traditional companies. And so, what I expect is that it will probably put traditional venture capital to a halt, but then create room for designing hybrid instruments that mix venture capital with more traditional business financing.
[00:18:04.14] Ben: Do you think the government could take a bigger role in funding startups, at least in the interim period where funding has dried up?
Nicolas: The new generation of tech companies that were born right after the financial crisis 12 years ago, the two flagship companies of that generation are Uber and Airbnb. And so, there are a lot of discussions about what explains their success. Is it the macro context or the technological wave that was the iPhone and smartphones in general, or exceptional founders that were made grittier by the crisis? I don’t know. I think the three factors come into play, which would lead investors these days to look at companies that not only benefit from the macro context, but also surf a wave of technological change, and then are led by exceptional founders that are even more ambitious by the current context. What we’re seeing is radical change already happening, because of the lockdown, in education, healthcare, real estate, housing. I think people will reconsider their choices. I think fringe options when it comes to educating your children will become more mainstream — like homeschooling or part-time homeschooling.
[00:19:41.09] Ben: You don’t think people have been put-off homeschooling by having done it for a few weeks and trying to juggle it with everything else?
Nicolas: I think some people will be put off but others will realize that it provides them with more freedom.
[00:19:56.09] Ben: It is quite liberating to be unfettered from a curriculum. Like, one day, your children express an interest in something and you can spend the rest of the day researching that particular subject that’s much freer, more interesting for the kids than sticking to a rigid curriculum. But, it is thought to be very, very tiring for the
Nicolas: But what will be happening in those spaces? I don’t predict that every kid will be homeschooled soon or right after the crisis. What I predict is that the period that we’re going through, which will last for weeks or months or more, will provide an opportunity for parents to reconsider educating their children, will provide an opportunity for teachers to reflect on their own job, opportunities for entrepreneurs to make their case that they can provide a different approach to educating children. And then, when the crisis is over, most of those will go back to normal but some people will keep in mind what they’ve learned during this period and investments will have been made in new infrastructures, new products, and those investments will lead to higher productivity which will make it possible to lower the prices and to make the value propositions more attractive. So, we have a virtual circle that will lead everyone to reconsider, and the entire school system will reach a new stage, probably with more customization, flexibility, more of an online experience and so on. That will happen in education, obviously in health care — because the health care system will be profoundly transformed by the current crisis, with telemedicine becoming more of the norm, as opposed to being the exception — and also housing I think will be disrupted because people will reconsider where they live, and how they live and the kind of home or apartment they inhabit.
[00:22:18.05] Ben: You’re saying, almost like, what people were predicting about this post autonomous vehicle world is now going to crystallize because if we work from home, we might as well work in the most attractive surroundings we can because we don’t need to be very close to other people because there is a much less sense of office work.
Nicolas: Exactly! I’m sure many people are experiencing working from home, and realizing both that working from home makes them more productive, more creative, and realize that if they work from home most of the time or part of the time, they don’t need to live as close to the workplace as before. So, maybe that’s the unexpected event that will contribute to solving the housing crisis in large, dense cities.
[00:23:10.22] Ben: I don’t think we can have a podcast with you and not talk about the safety net. You’ve written extensively about creating a new safety net for the entrepreneurial age and your book was extremely prescient in spotting the need for this new safety net. And if the pandemic has done one thing it’s once again highlighted the absolute need for a safety net for digital workers because they’re so much more precarious. Are you more confident post-pandemic or during the pandemic that we’ll now take the steps to introduce the safety net?
Nicolas: I think there are several changes on the way — some countries, and we, as a society, will probably reconsider what it’s about to work in proximity services. Basically, those proximity workers are the only ones whose job hasn’t changed much because the nurses are still in hospitals, delivery workers still have a job. And also, for those who don’t work anymore, like in restaurants — restaurants are a powerful lobby, they have quite of a political clout. And so, I don’t know of a government that isn’t helping the restaurant industry as a whole because we expect them to reopen when the crisis is over, and so we don’t want all the companies to go down. But, in exchange for all that government money that will make it possible for restaurant owners to cope with the crisis, we’ll probably ask about how much are you paying your employees and what kind of safety net do they benefit from? Maybe we could make some progress on that form because those people were left on their own during the crisis. So, I think for the first time we’re reconsidering the safety net or the social contract for proximity workers. For the first time, some governments have been deploying mechanisms to help support self-employed people, self-employed workers, freelancers and platform workers and so on — which is a first — and then many, many startups will be lifted up by the crisis and will come up with innovative financial products or innovative approaches to managing benefits or innovative real estate products that will all contribute to revealing the new safety net.
[00:26:06.27] Ben: There’s no automatic reason why we should rebuild the safety net or create new institutions post-crisis. But that definitely could be one outcome, right? Because certainly, you see that many of the politicians right now have extra political capital and whenever we have this kind of shared experience, we start to have more empathy for various sections of society. So, it does seem like an opportunity to make some quite radical changes, post-crisis.
Laetitia: Yeah! It really does! Like, thinking about new collective bargaining institutions, if you think of the supermarket workers in France, they very rapidly obtained visibility and then there was this pressure on supermarket chains to pay them more and create new protections for them, so they built all those window panes to protect the cashiers from people’s droplets and then they decided they’d pay them 1000 euros more every month — which is not so bad. And once the crisis is over how can you go back to saying, “Okay, well, you’re actually worthless. Let’s just cut all this and go back to whatever it was before. I think that’s not going to be possible because they are united, they went through something so terrible that they think in terms of “We’re in this together — I mean the workers — and we’ll necessarily have more bargaining power and think collectively.”
Laetitia: So, it was this pressure. Carrefour in France, and Leclerc and Auchan — all those supermarket chains — one after the other, they added this special premium for workers so that they can get paid extra. This hasn’t happened in other countries, yet — or maybe in a few others that I don’t know of — but at least it’s a sign, that in terms of bargaining, something’s really happening.
Laetitia: And the second thing is that we’re understanding the rule of public services and how crucial they are and how completely helpless we are without those public services. If you think of the NHS, how, in normal times, it doesn’t have enough resources and how in spectacular times this lack of resources will cost so many thousands and thousands of lives, there is no politician in the UK tomorrow who will be able to attack the NHS — even Johnson, who is now at the mercy of the NHS, literally speaking. And so, the fact that in times of crisis we suddenly saw the possibility of boosting those public services and their critical role is something that will have a political legacy beyond the crisis.
[00:29:12.09] Ben: Do you think that plays out in the United States? Do you think there’ll be more pressure in the United States to create some form of public health care?
Laetitia: Well, the United States is such a mess! Such a mess! I’m not optimistic about the US. What I think will happen is a moment of reckoning with this epidemic. Everything, all their incentives are wrong, all their system is wrong. The fact that there is absolutely no safety net encourages people with no alternative to continue to work even after they’ve had the first symptoms of the disease, so the spread will be worse. And then, lots of people who cannot even go to a doctor — there will be more deaths than in any other developed nation. And then, the economic crisis will also be worse because there is nothing to cushion the impact of the crisis. And so, even with a $2 trillion package rescue plan, which seems like a lot, but if that rescue package is meant to compensate for the lack of anything pre-existing, it won’t be enough. It won’t be enough to cushion the country from something so deadly, that it will be a moment of reckoning. I’m very, very pessimistic about their ability to do anything before the worst happens.
[00:30:50.15] Ben: The way I see it is this juncture where the US could either turn left, metaphorically speaking, and kind of push towards creating a proper safety net to prop up the population at large, or it could double-down on individualism. And it’s not clear which way it will go. I think if they had potentially a different president, maybe we might be more confident.
Laetitia: Yeah. I’m unsure that anything massive or anything radical can be done in the current political context. Number one, the candidate, the official Democratic candidate now is Joe Biden — and Joe Biden is not a radical thinker. Number two, there are a lot of things that are completely deadlocked. There’s the Supreme Court that is durably conservative and that will strike down whatever ambitious proposal comes out of Congress — and that is if Congress is majoritarian in the hands of Democrats after the next election, which is absolutely not sure because the Senate is also likely to remain conservative. So, I don’t think anything can be done in the American political context today that will be radical enough or ambitious enough to make a difference.
[00:32:12.21] Ben: What were the political conditions at the time of the New Deal? Because this does feel like this could be analogous to the time that led up to the New Deal.
Laetitia: Yes. It’s interesting! This comparison is very interesting because Roosevelt had difficulties with the Supreme Court of his time.
Ben: He did, yeah! I remember that!
Laetitia: He did, and he came up with a plan that came to be known as the Court Packing Plan, and the idea was to nominate lots of new justices to the Supreme Court because there is nothing in the Constitution that says that you have to stick to nine — which it’s just tradition, it’s an unwritten rule or tradition. And he said, “Okay, they’re all old and conservative. Let’s appoint lots of new justices and pack the Court with friendly justices.” And that, of course, was very controversial and lots of Americans attacked Roosevelt for being so shockingly radical — and this Court Packing Plan probably wouldn’t have been accepted and wouldn’t have passed. But, luckily for Roosevelt, one of these old judges died and he could appoint a new one, and at some point, there was a turn and because they had felt so much pressure, some of the other judges sort of changed their minds and started being more flexible, and more liberal. And so, they eventually let the New Deal unfold, but it was a couple of years of very, very, very difficult institutional moment and a true battle between those two branches of power. And today that’s not going to happen because I don’t see how in a few years, the Supreme Court will change. It was designed by the conservatives to be made durably, durably conservative.
[00:34:22.07] Ben: So when the lockdown is finished, we won’t just go backwards to the way it was; one reason is because, first of all, millions of people aren’t literally going to be able to get back to work because they don’t have work. We’re going to have a much bigger appreciation for the proximity workers and appreciate how important they are in our day-to-day lives.
Laetitia: Including teachers!
[00:34:41.17] Ben: Including teachers! Oh, yes! Those of us that are homeschooling appreciate teachers. And a lot of those proximity workers will have more bargaining power and the same applies to many of the public services that we’ve maybe had underappreciated in the run-up to the crisis. What other ways do you think we won’t go back to normal and we’ll move to some kind of new normal?
Laetitia: Well, when it comes to remote work, and the digital transition of large organizations that suddenly overnight had to manage differently, choose different tools to work remotely, there’s no going back to before in terms of the flexibility of work, and the fact that you don’t need to prove to your manager that you’re perfectly able to do things without being watched constantly and without being physically present at the office. So, I think that’s something that will change. A lot more work will be done at home, and in co-working spaces — and that’s a small revolution in a way because when we think of workplaces, we usually don’t think of the home as a workplace, so I think that’s a big change. And the fact that we think of home as workplace has an impact of how we view housing and how we consider housing policies and housing inequalities; it has an impact for companies on how they think of the workspace in general and ergonomic solutions, and it has an impact on how you protect workers because a lot of the workers who work from home already and who’ve worked from home before were not necessarily considered in a lot of the institutions that were created for office workers or factory workers or field workers.
Laetitia: We talked a lot about American politics, but for example, Roosevelt’s 1935 Social Security Act did not include domestic workers, because these domestic workers were the descendants of slaves and for political reasons, it was safe not to include them so as to have the support of Southern Democrats who were racists. And that’s just one example of how domestic workers were never included in the institutions that were created to protect workers. And that’s something that’s going to change because these institutions include medical supervision, ergonomics, social protection, obviously, etc. And so, now, the home will fully enter the realm of the workspaces and it’ll have a number of consequences.
[00:37:43.08] Ben: If everybody can work from home or have more flexibility post-crisis, do you think this changes the relative attractiveness of being a full-time employee versus being a freelancer?
Laetitia: I’m certain that it does and it’s an interesting development that’s happened over the last few weeks. In the UK, as well as in France, for the first time ever, there’s been talk of creating new protections for the freelance workers who will lose all their gigs, and all their revenues because of the crisis. It’s millions of new freelancers who suddenly will find themselves without any revenue. It’s more than 5 million in the UK, and something like that in France — a little less, I think — and these are workers who could have been salaried workers under different circumstances. The French government in the Rescue Package that was created, created a new unemployment insurance — a crisis unemployment insurance — for freelance workers. That’s a first! And then, the British Chancellor did the same which is even more surprising in the British context that’s less protective of workers than the French tradition. The Chancellor announced that a new protection will be created for all freelancers, up to 2500 pounds a month on the basis of whatever you earned, on average, before that — and that will create a form of precedent.
Laetitia: What’s obvious is that there is a misalignment between workers and companies now, because companies faced with this unprecedented crisis realize they want most of their costs to be variable. They want fewer long-term salaried workers — for example in France where you can’t lay off people easily — they want fewer offices with fixed costs that can actually kill them and burn all the cash that they have left. Whereas workers, on the other hand, want as many protections as it’s possible, they will want to return to more traditional forms of employment that provide more protections, that come with a better bundle. They want unemployment benefits, they want health benefits, etc, etc. And because this misalignment is going to be a bigger problem than ever before, in the context of this crisis, new institutions in between will have to be created, so that the model will look more like Sweden — companies must be able to lay-off people whenever they need to, but people must be protected and helped to find other jobs in the future. And so, in between is a better safety net that makes it possible to have a better alignment of interests between companies and people.
[00:40:59.26] Ben: Do you think it’ll be necessarily the state that creates those new institutions? I suspect it might be a combination of both because if you think about the present context, people are firing their freelancers because they can, because they’re those that have the least protection, the shortest contracts. But, many of the best people are freelancers. Therefore, for anybody who’s willing to take a risk at this present time and be slightly contrarian, this is the time to go in and find those freelancers and create some sort of organization that arbitrages that risk between employers and freelancers.
Laetitia: That’s true! But it’s too many people right now. It’s a little bit like, you know, when you’re an insurance company, it’s fine to handle normal risks, but once you have a risk that’s as big as a natural disaster where you have either the entire country or an entire region that’s completely destroyed, that’s not something that one insurance company can handle. It’s too big. Only the state is big enough to handle a risk of that size. However, you’re right. In most cases, it’s a combination of the two that will be most effective. So, you’ll have lots of players handling smaller risks and the biggest of them all, the natural disaster, the huge crisis — that’s something for the state.
[00:42:34.15] Ben: So just to return to this, we’re in a situation where a small minority of people work from home in the crisis. Now, I don’t know what the statistics are, but probably it’s a small majority of people who are working from home.
Laetitia: It’s about half and half actually; or one third — one third — one third: roughly, one third of people are unemployed, one third of all people are working outside, in hospitals or in supermarkets or working in the supply chain, and one third work remotely. Depending on the country, the figures are different, but you get the idea. It’s roughly something like that.
[00:43:08.13] Ben: So we’ve got a situation where a small minority was working remotely, and now a third of the working population is working remotely. So, a massive increase from one day to the next. How do you think people are coping? What do you think are some of the unseen ramifications of that, in terms of gender inequalities, for example? And then, what are your tips? Because you’re somebody who’s been working remotely for a long period of time. And it’s difficult, right? For example, we find it’s difficult to know when to stop work, for example, in the evening because you could theoretically go on until bedtime and you can start as soon as you wake up. And so, how do you create new parameters for remote work?
Laetitia: Well, it’s an excellent question because the tips that are usually given to remote workers are not necessarily valid in today’s period when parents have their children at home, or they have other family members at home that makes it so much harder to find the focus or even just the physical space to do their work in normal conditions. So, these are very un-normal times for the tips for remote workers to figure out how to work. So, it’s more a crisis time and you do whatever works best for you; parents may need more flexibility because they will work early in the morning or late in the evening if they have young children or they will work in shifts. If there are two remote workers in the household, and the two of them need to work then the mornings will be for the mother and the afternoons will be for the second parent or vice-versa. They will have to find a system and unlike in normal times, it’s a system that works for the household. So, there is this merger, if you will, of the private sphere and the professional sphere in a way that we’ve never experienced before because in normal times you have other institutions, like daycare and schools and nannies and you have this organization where you fit your household with lots of other players and a lot more extra outside help.
Laetitia: So this is very, very different and I’m a bit irritated sometimes by the productivity pieces that we see today about remote work as if it was a normal time, as if it was business as usual. Also, we know that in terms of, as you said, you’ve mentioned gender inequalities and in some households it’s like going back to the 1950s because all the chores, all the workload that was more evenly distributed between a woman and the outside world — nanny, cleaning woman, whoever else came for help — is now reinternalized. And when you reinternalize it, it’s rarely evenly split. So, that’s a disaster for feminism — that was the title of an Atlantic piece that was very good; it was, “Coronavirus is a disaster for feminism.”
Laetitia: So that’s one thing. But another is that in normal times, no one would champion lockdown. No one would say, “It’s best when you work not to see anyone ever.” So we know that in terms of mental health, we are going to have to cope with extremely difficult moments and it’s not about being productive. It’s about surviving. So, I would say, the usual things that I write about managing scattered teams and how companies with no office, like GET Lab or Buffer or Basecamp have found solutions to help us do without an office — those things do not apply today because it’s so different from anything we’ve ever experienced before.
[00:47:30.26] Ben: But in a way, that’s another thing that won’t get back to normal, right? Because, I don’t know how much you saw this, but a lot of companies, when they first were forced to let people work from home, they tried to impose normal office hours, and then they figured that, as you said, people were managing multiple different priorities at home, and so, they had to be more flexible. So, that’s another way in which companies have had to seed more and more control.
Laetitia: Yes! And that’s a positive thing that may happen out of this — is that if they make flexibility the new default, and if there is actually more trust in their management, then it will benefit everyone, even in new normal times because parents still need flexibility and they still need to be able to handle the workload the way they see fit and incorporate all the constraints that they have. So, that’s something positive that could come out of this.
Laetitia: If you’re a pessimistic, you may see that a lot of the companies that are forced to work remotely overnight, are replicating the managerial culture that was theirs before and so they basically continue to watch their people and there’s this software to take pictures of your worker’s screen and verify what they’re doing. And then, you have lots of managers who want to be on Zoom all the time — and if you’re on Zoom all the time, when exactly are you supposed to do your work? Or how much flexibility do you have when you’re supposed to be in meetings all day on Zoom? And so, I think that there’s a big gap between the companies that have a more flexible managerial culture, more horizontal managerial culture, and those that are still very conservative and basically replicating online the culture, the managerial system that they had at the office.
[00:49:49.13] Ben: Ian, I wanted to ask you how business leaders should be responding to this crisis? Is this a time to be brave and contrarian or is this a time to make sure that you steward your company through a difficult time?
Ian: So, I’m afraid I’m going to give you a boring answer, and the boring answer — which I think is the right answer — is only if the evidence supports it; to be brave and contrarian. The trick with most difficult situations, whether you’re a kid in a playground faced with someone larger than you or a business leader trying to deal with the fact that 95% of your revenues have just died, as is the case for friends of mine around the world today, is to try to look at things relatively unemotionally — it’s hard to be completely without emotion when people you know are dying — but to try and be relatively unemotional and work out what you can do. It’s clarity, its analysis, but it’s also the ability to make a decision relatively quickly. And in that sense, that’s brave. And you have to make a decision when the information isn’t clear because you have no choice because your business goes under if you don’t. That’s the bravery that’s necessary. It’s just making hard decisions when you have to, quickly. I think you don’t do one thing. I think the efforts to try and make sure that people don’t lose their jobs have been admirable in certain areas, but obviously impossible in an airline or a hotel industry where suddenly you have no customers at all.
Ian: Now, I say impossible. It’s not entirely impossible. Mark Greeven, a professor at IMD recently gave us a case study about the car company BYD in China, which overnight, within 24 hours, because they had to find something to do with their employees — they didn’t want to let everybody off — became the biggest producer of face masks in the world. This is a known case study now, but it’s only two months old. Then, there’s another company in China that I follow, that switched from being a 90% — 10% offline retailer with thousands of stores to online retailer — so they were 10% online and 90% offline — switched to 80/20 online/offline within 30 days and didn’t suffer either the employment losses or the revenue losses that people expected. So I think the bravery is in making tricky decisions in tricky times. Contrarian — only if the evidence supports. And try to look at things based on data, not based on just gut feel.
[00:52:26.25] Ben: And where do you see that there might be room to be contrarian? So, where do you see the opportunities that good leaders, prepared to make quick decisions, might capitalize on?
Ian: So that’s a very general question. It depends on the sector you’re in and the industry you’re in. So, at the moment, the problem isn’t so much decision-making because the decision-making is fairly clear right now. The issue is data. If you’re looking at markets, people are talking about the difference between a V-recovery, a U-recovery, an L-recovery, underlying that are estimates of when we go back to work, when customers start buying things again. I would suggest that one of the things that managers of retail businesses or managers of consumer business should be doing is trying to work out how much of consumer behaviour changes over the next three to six months. Short-term shocks tend not to impact consumer behaviour; consumers tend to go back to doing what they did before. Longer-term shocks, things that last longer, people get used to doing new things in new ways; maybe they don’t go back to doing things the way they did before. And trying to work out now, trying to parse that now and work out what people will do or won’t do, how much they will change, how much they won’t change — is a very interesting question. So, I think, at the moment, it’s more about trying to understand what data there is and what it’s telling us before we get decisions. Everybody, at the moment, is just trying to scramble — spend less money, find new customers, keep as many of the employees as you can because it’s hard to rebuild teams. It’s doing what they can in difficult environments. The tricky bit is what happens next, and when next is.
[00:54:05.26] Ben: Is China now a safe haven for investors?
Ian: China has never been a safe haven for investors. It’s always been tough. And this isn’t against foreigners or outsiders — it’s tough for everyone in China, local Chinese included. It’s probably the most competitive business environment in the world, and there’s a lot of money from lots of different sources aiming at the same projects. So, prices have gone up. It’s never been safe. Right now, in addition to that, we have a very clear anti-foreigner sentiment, partly exacerbated by the last couple of years, but it’s been there, frankly, pretty much since the arrival of Xi Jinping. So no, it’s not a great time for investors in China.
[00:54:44.06] Ben: Do you think more investors from outside China are looking for a safe haven for their money? Because China was first into the pandemic, is first out, and the economy is kind of getting back to normal. Is this a time for people to look at China with fresh eyes, from an investment point of view?
Ian: So, a lot of the conditions that make China a complicated place to invest in are still there. It’s still an environment where we aren’t terribly sure if they respect the requirements for reporting that we do in the West. We’re still not very sure about how much of actual activity is being reported in the books, what isn’t on the books, what’s slightly off-book, or what’s on a separate set of books. And even with public companies, this has been the subject of some debate amongst analysts. So I think those conditions have always been there. The second question, I guess, is whether or not China really is coming out of the cycle. I don’t believe that the COVID-19 cycle ends until there’s a vaccine. We’re already seeing second waves in different parts of Asia, in China as well. The Chinese government of course, is blaming this on people coming back to China — either foreigners or Chinese — but it seems likely that there’s been underreporting, so it seems likely there’ll be other waves. People forget that actually the whole question of this COVID-19 cycle, the only reason we’re getting flattening of the curves is because we’re all locked indoors wearing masks and staying away from each other. Any form of return to normalcy will involve greater human interaction, which will involve an increase in infection rates. So, I don’t think we’re out of China yet.
[00:56:25.02] Ben: In other words, there’s almost no safe haven until we have a vaccine.
Ian: So, two different things. One is, what’s safe for humans who want to live in a particular place? And the second is investment. I didn’t quite get to answer your question because I was creating my usual precursors, pre-conditions for answering. The answer is yes, I’ve been looking at companies like Tencent and BABA for investment, but that’s principally companies that are quoted overseas, so I’m reasonably sure about being able to trade, and it’s large companies where we have enough access to understanding what they do and how they do it — so it’s relatively easy to judge them, even then I would suggest that we don’t really know everything about those companies. So yes, I started to look at investment in those areas. And if you look at how they’ve done, their shares, actually, haven’t come down in terms of public market shares — they actually haven’t come down as much as you might expect. If you look at the falls in some of the American stocks, the Chinese stocks, the top Chinese stocks simply haven’t fallen as much. So, again, you question why? The government isn’t above buying shares to support its own market and its own companies. So, there is this element of lack of transparency in both public and private markets for investment in China. And so, it’s always going to be tough. So, therefore, the short answer to your question is no, it’s not safe.
[00:57:40.19] Ben: Do you think that China will suffer less, economically, than some other countries because it got on top of this quickly?
Ian: Because it depends to a degree upon foreign consumption, and because the manner in which it has dealt with the crisis affects people’s perceptions of China, that foreign consumption may change. It’s one of the questions we all have about what happens when we get out of this. What are people’s attitudes to China going to be? Because they tried to shift a lot of the consumption to internal consumption that makes them, relatively speaking, less dependent upon foreigner views of Chinese production. So, that side of the economy should do better. Yes, they’re harsher on crackdowns, and there’s been some criticism of the fact that everybody has to carry this little app, which tracks them where they go and tracks who they meet, so the government knows whether they’ve done anything high-risk, which are elements which actually are starting to be talked about in the West but are generally presumed to be not acceptable to Western cultures. The harshness of the treatment of the areas that came under the virus notwithstanding, yes, I think China’s probably going to do a better job of managing the infections and therefore probably do okay coming out. But, as I said, we’re 18 months away minimum from a vaccine. That means nothing goes back to normal. It has to change. Economies and companies and ecosystems that want to keep transacting have to adjust the way they transact, which may not be a bad thing. A lot of people started talking about how this has become a big push for those companies not already online to try and do so. And so, that side of it is not a bad thing.
[00:59:19.13] Ben: So, I don’t know when the vaccine comes, but do you think in the period up to the vaccination or the availability of a vaccine, China is better able to manage in this unstable interim period?
Ian: So, I’d separate out “period” from China’s ability to manage. The Chinese companies are extraordinarily competitive and extraordinarily able and extraordinarily nimble. So, when it comes to adjusting business models or adjusting supply chains or adjusting customer interaction processes, there’s really no business culture on the planet currently faster than the Chinese and better at adjusting. So, from that perspective, they’ll weather almost any shock better than most Western companies. This didn’t use to be the case. The Americans used to be the best at this, let’s say a generation ago, but the Chinese are definitely stronger at that now. So yes, I think they’ll probably do fine in many respects.
Ian: One of the reasons that I was excited by China in the “noughties”, the early 2000s, was the degree of innovation I saw in places like the Western provinces for telecommunications, because there was so little money out there, and yet the companies were trying to create an infrastructure and an ecosystem for transactions on telephones. So, they had to produce systems that worked on very, very little. And innovation in early telecommunications technology at the time is part of what’s driven their success with Huawei and others recently. So, yeah, they will do well, they’ll do fine. The more interesting question is whether we, in the West, will trust what they produce and therefore, continue to purchase with the same alacrity as we have done in the past. That’s an open question.
[01:01:01.08] Ben: So just leaving that question for now, do you think that the pandemic will bring forward the moment at which China overtakes the US to become the largest economy in the world?
Ian: China was always going to become the largest economy in the world by dint of its sheer size. So, with 1.4 billion people, it was always going to pass a country that was 300 million people at some point. Does it speed it up? It depends on how you measure it, I guess. They’re growing, obviously, at a faster rate than anybody has — even slowing down to 6%, that’s double than anybody else’s speed by far. So, I’m not sure COVID-19 makes a material difference to that. The short-term slowdown of the West, yes, creates issues for certain sectors, but not everywhere. So I don’t think it’s material. I think China was always going to end up being the largest, relatively quickly, and I don’t think this materially changes it. I would, again, add a corollary, which is, bigger isn’t necessarily best, bigger isn’t necessarily strongest. I remember, in the 1980s, people were afraid that Japan was going to be the biggest, strongest economy in the world, and it would dominate the global ecosystem. I remember books being written about the danger of Japanese dominance of the business environment at that time — and look what happened. So, let’s see HOW they do what they do, and I think that will, to a degree affect how everybody else receives them. But there’s no question they will be the biggest very soon, just in terms of size.
[01:02:31.06] Ben: And then, just to dive a bit into this notion of external perceptions of China, how do you think they are faring and how do you think they will change post-pandemic? Because, on the one hand, China was seen as getting on top of this very quickly, if you like, the consumer of last resort, they’ve been providing aid and PBU equipment all over the world to countries that couldn’t otherwise source them. So, that’s the positive part of the post-pandemic perception. But then, on the negative side, people see them as the source of this virus, they see them as having covered up the extent of the virus at least initially. So, where do you think we end up post-crisis in our views of China?
Ian: I think the largest problem, the largest challenge for China is its own insecurity about what other people say about them. The Chinese government representatives at almost every level are particularly thin-skinned when it comes to criticism and that tends to mean they overreact — and they overreact in ways that we might consider surprising for the biggest guy in the room. And until they, themselves, feel a sense of confidence about their place in the world and about how they can be received, I think they’ll continually misstep or misjudge important reactions, and we will, therefore, always find them slightly off-putting. So, I don’t think that’s necessarily changed. As implied in your question, we’ve seen that mix. They had the capacity to construct and build and react, they had the capacity to supply us with things we need, and although we have poor-quality goods coming out of China, we also have very high-quality goods coming out of China. It’s just a question of making sure you choose your supplier correctly and manage quality control. So, you can get wonderful quality goods coming out of China.
Ian: As you said, though, we’re concerned about what we’ve been told, we’re concerned about how certain things were managed; we, in the West, have seen video reporting on Twitter, which people in China have not been able to see about what the lockdown was really like in Wuhan — and that simply maintains our concern about the way the country is governed. So I don’t think anything’s changed from this. The same two sides — the capacity to do good and produce fabulous equipment, gear, products, and services remains, but the insecurity on the part of the governing group and their overreaction to criticism and their style of management of crisis, because it doesn’t necessarily fit with what we consider to be appropriate, will continue to encourage us to consider China with both those sets of lenses separately and in parallel.
[01:05:33.07] Ben: What do you think happens to US-China relations? Because they were already pretty tense in the run-up to the pandemic — they had an escalating trade war and a worsening narrative. How does the pandemic positively or negatively affect US-China relations?
Ian: Well, again, because China was the big kid entering the playground, there was always going to be some tension, right? The previous big kid, the United States, suddenly finds someone that’s twice his or her size and acting differently — not just a question of being larger, but their interaction in the playground has been different to everybody else. So, the cultural shocks were always going to create a problem. And of course, the fact that they’re bigger and the fact that they’re going to wield larger sticks means that everybody gets nervous. So this conflict was always going to happen, it isn’t just a question of the current leadership.
Ian: Having said that, leadership can make it better. On both sides, at least, when it comes to the US and China specifically, as opposed to the West and China, we have leaders who are happy to blame the other side for something; both arguably thin-skinned, both unhappy with a hint of criticism, and that doesn’t help. So, I think good leadership, leadership of the type we’ve sometimes seen in Europe, with Angela Merkel and others, I think would help matters. So, let’s see what happens over the coming years. But the current situation has certainly not made it better. I’m not sure it’s made it a lot worse. I mean, even if we had a more able diplomat on either side, whether in the US or in Asia — it might have been better handled and things might be smoother, so I’m looking forward to that as leadership changes, but that isn’t going to happen immediately, and for the time being, it’s going to be awkward.
Ian: To counter that, of course, is the interdependency. The United States still manufactures a huge amount, or sub-contracts, or directly manufactures a huge amount in China, and even though China has done its very best to switch economic dependency onto local consumption, they still have a need for overseas customers. I think that independency is a basis for trying to create a relationship that works. It’s one of the reasons people tried to create Europe after the Second World War; having an interdependent economy means you’re less likely to go to war with someone, if you’re genuinely interdependent.
[01:07:58.10] Ben: Do you think some of those interdependencies will diminish? Because I think we all benefited from having these just-in-time supply chains, these geographically dispersed supply chains, because it meant that the cost of goods went down. But I think what we found is their supply chains are very fragile in the face of big shocks. So, do you think some of those interdependencies would just naturally be rolled back as we seek to make supply chains more resilient?
Ian: And again, the answer is in the question. You ask very good questions which provide their own answers.
Ben: Then they’re not good questions.
Ian: People are certainly beginning to realize the risks of relying upon others in difficult times and the risk of trying to get access to something when you need it in a hurry when a normal supply chain takes three weeks, and you need it in two days. So those sorts of things, those concerns are coming to the fore at a time like this. But the answer isn’t to decouple completely and roll globalization backwards as some people would prefer. The solution is to build redundancy into the supply chains. So, you need to make sure that you have more than one route to get anything that’s important. By all means, for economic reasons, we’ll still try to go to the low cost, high volume, reasonable quality producer, but we’ve got to assume on anything that’s important that we have an alternative in the event that either we have an argument with the supplier or there’s a need for a timeframe which is shorter, which means we could accept a higher cost — there have to be redundant sources for the supply chain.
Ian: Western Europe is currently slowly trying to do this with natural gas, to reduce their dependency on Russia. It’s an issue in a lot of things around the world. But yes, COVID-19, particularly on medical supplies, has made it a more acute, obvious challenge for specifically medical issues. But, remember, these trends have been happening for a while — partly that things like Trump’s bring-industry-back-home stuff, but also, in Europe, as people have realized the challenges of trying to maintain quality control in North Africa and Eastern Europe, not just China. So, there has been a slight trend to think about whether we want to produce everything halfway around the planet and what happens when we can’t get it when we need it.
[01:10:11.26] Ben: So you’re involved with lots of different companies as board member, advisor, investor. What are you telling the companies that you’re speaking to every day? How do you think they should best plan and adjust for this crisis?
Ian: It depends on where. I tend to be involved in media and/or consumer tech and/or, to a lesser degree, arts and creative industries companies. So, for most of those companies, the big thing that’s happening right now is pushing to get digital faster, especially if they were traditional media companies. You know it’s very, very hard to get newspaper and magazine and book companies to do more online. But when you have no bookstores or your distribution methods are constrained and people are stuck in their homes, then online is the only place to find them. So, that’s been a really quite interesting question. So, resistant management teams are finally saying, “Okay, we have time to do this because our other methods of reaching out customers simply aren’t working. So, that’s a big plus, I think there’s going to be a real push in some areas to do more stuff online, and therefore, to understand how it is one attracts people online and keeps people online. It isn’t the same thing when you walk down a street. Once you’ve walked into the store, you tend to spend 10 minutes there because it’s hard to visit 20 stores in a day. Online, you’re a click away from changing so people are realizing that we just simply don’t have 10 minutes to grab someone’s attention. We’ve got seconds. And that changes the way people think.
Nicolas: This crisis is THE crisis that will accelerate the transition to a more mature entrepreneurial economy or digital economy or whatever you want to call it. That’s what crises do. There’s something that’s already happening, a trend that’s headed into a certain direction, but it goes at a slow pace until a crisis happens and the crisis accelerates the pace, it fastens the pace and we’re still going in the same direction, which is a more digital economy. Some countries are seizing it as an opportunity, other countries are missing the mark, and are sliding down in terms of economic development. Like everyone interested in long-term change, I’m thrilled by the acceleration that the crisis provides. I’m terrified by the consequences of the short-term and all the people suffering and dying, but I think it creates an opportunity for every nation to accelerate the transition to a new paradigm.