Lessons: Examining the Long-Term Impact of the COVID-19 Crisis

Financial Perspectives

This article is a follow up to last year’s “Pandemics & Paradigms” in which I wrote: “targeted isolation has become necessary for a socio-economic system that prospers from connections … extreme measures involved quickly dismantling, at least temporarily, economic and cultural structures that required decades of investment. The abrupt reversal from the interconnected structure of our economy came at a tremendous cost.” 

By Ray Ryan, CFA

 

Ray Ryan, CFA headshot

Ray Ryan is the president of Patten and Patten, an investment management firm, and a registered investment adviser in Chattanooga. Ray is a CFA charter holder, a member of the advisory board for UTC’s College of Business, and an adjunct professor of finance at UTC. He is a graduate of Princeton University, where he had the privilege of taking a course taught by former Federal Reserve Chairman Ben Bernanke.

The global pandemic is not over, but it is not premature to examine potential long-term impacts. Ultimately, new regulations will emerge, designed to better prepare our nation for the next crisis. Policy makers will continue to debate causes of the pandemic, launch investigations, assign blame, and propose solutions. However, policy is beyond the scope of this article. This article looks forward, but in order to do so, it is first necessary to critically analyze the past 18 months. There are important lessons from the COVID-19 crisis that, hopefully, inform future health and economic policies.  

Confronted with a novel coronavirus in spring 2020, policy makers responded with familiar methods developed in much different eras. For example, epidemiological models that continue to guide policy date back to the 1950s and rely on data that proved unreliable. Similar to healthcare, models still utilized for economic policy also date back to that era. Traditional economic models rely on aggregate, top-down data and include assumptions that are often unrealistic.  

COVID-19 has affected people quite differently. Disease severity has been highly sensitive to comorbidities and demographic factors, and symptoms and transmission rates varied widely.  These heterogeneous qualities presented challenges for managing the spread. They also contributed to multiple, competing theories about how best to treat the disease. 

Because some people are more susceptible to COVID-19 and other people are more likely to spread the virus, some researchers have explored new methods and gone beyond traditional approaches. They have built adaptive models from real-time, granular data, such as smart thermometer readings, satellite imagery, credit card usage, and key word searches. The data was compiled from applications created for ubiquitous technology platforms such as smartphones and wearable devices. Several of the adaptive models have proven to be both more accurate and reliable than the ones that had been used for decades.  

Reliance on outdated methods should not be necessary during the next crisis. That is an important lesson as newer approaches should facilitate quicker, more effective responses. Technology now exists that provides insight into how people actually behave as opposed to how the average person is assumed to behave. Researchers have built models from data that better define and measure inflation, for example. There are also newer models that more accurately predict the transmissibility of a viral pathogen. The use of technology that collects and analyzes the best available data is an important lesson from the pandemic. The data could be used to develop better, more targeted policies. Better policies should, in turn, result in better outcomes.

Another lesson is that, similar to other crises, COVID-19 has accelerated trends already in place. For instance, subscriptions to video streaming services grew rapidly to fill the void of traditional forms of entertainment that became temporarily unavailable. Electronic commerce became necessary for the safe delivery of basic household needs. The explosive growth of e-commerce during regional economic shutdowns accelerated the Darwinian demise of many brick-and-mortar retail concepts.  

Society is returning to “normal.”  However, there is debate as to how “normal” will be defined. COVID-19 reinforced the view that crises serve as catalysts for change. Academics have already published prognostications as to how society will change, but inasmuch as some change is inevitable, there will also be a strong desire to return to the way things were. Technology allowed many business-
es
to operate efficiently with employees
in
distant locales. Zoom and other video conferencing platforms confirmed “work from anywhere” was possible without substantial reductions in productivity. These facts suggest “normal” could include a certain percentage of workers who never return to the office. A person’s work life and home life might no longer involve physical distance.  

However, some employers argue “work from anywhere” reduced the frequency of spontaneous, collaborative engagements crucial to the creative process. As a society, one vital lesson of the pandemic has been the importance of face-to-face connections. It is likely that society will never again take for granted the ability to gather with friends and family. It is, therefore, to be expected that certain job functions will remain “work from anywhere,” whereas others will require a return to the office. 

The global economy is essentially an adaptive system of interconnected networks. Companies have invested for decades to expand their global reach. Imagine a complex design with nodes and edges that join together in a shifting and growing web of connections. A node is simply a redistribution point, and the strength of a network derives from connections between nodes. However, the vulnerability of a network is dependent on those same nodes.  

Companies also invested to optimize operations with an intense focus on efficiency improvements. They eliminated redundancies and constructed supply chains often around a single source. By doing so, supply chains became more and more vulnerable to small disruptions, often at a single node. In effect, modern economic systems traded security for efficiency.  

 

“Without global collaboration and cooperation, the world would not be emerging from the pandemic. That is a source of tremendous optimism for our future.”

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Spread of a virus follows network architecture. The greater the number of connections, the faster the virus spreads. To combat a virus, it is necessary to temporarily disconnect certain nodes. To mitigate the impact of natural disasters such as COVID-19, companies could incorporate greater redundancy in their operations. Organizations might hold greater cash reserves. Inventory management could become less oriented toward “just in time.” 

To overcome COVID-19, it has been necessary for the entire world to dedicate its resources toward a singular pursuit. Coordinated global responses during COVID-19 were similar to earlier periods of global crisis. During World War II, code breakers at Bletchley Park, northwest of London, broke Enigma, the German encryption system for military communications. They coordinated their work with cryptanalysts for the other Allied powers, including the United States. The cryptanalysts at Bletchley Park received no special treatment, and they persevered under miserable circumstances for several years. It is estimated the work of these code breakers shortened WWII by two years. The technology developed to break Enigma became the foundation for platform technologies upon which other scientists build applications that we use today. 

Similar to the Great Space Race of the 1960s, the global effort to understand the biology of SARS-CoV-2, to build accurate testing, to develop therapies and treatments, and to create effective vaccines will contribute a near endless stream of data and information from which bright minds will develop visionary new innovations for coming decades. The biggest breakthrough in the global battle with COVID-19 was, of course, the development of a highly effective vaccine using unproven technology. A husband and wife team formed a small company called BioNTech in 2008 to apply messenger-RNA (“mRNA”) technology in cancer research. Over breakfast in January 2020, they wondered if mRNA could be used for COVID-19. They and researchers at Moderna effectively “cracked the code” of COVID-19 in a few days. BioNTech partnered with Pfizer, a U.S. pharmaceutical giant, and there are already several hundred million people who have received the vaccine. It is clear that the mRNA innovation shortened the duration of the pandemic and likely saved hundreds of thousands of lives.

A coordinated global effort was necessary to solve a global problem. Without global collaboration and cooperation, the world would not be emerging from the pandemic. That is a source of tremendous optimism for our future. 

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