Kevin Lynch, vice-chair, BMO Financial Group, and former Clerk of the Privy Council
Paul Deegan, CEO, Deegan Public Strategies and former deputy executive director, National Economic Council, the White House
Governments, businesses and households globally have been shocked and shaken to the core by the COVID-19 pandemic. Right now, public health protocols to slow the spread of the virus are the priority, and this has required unprecedented degrees of business and social shutdowns in Canada and elsewhere. Canadian businesses and workers are in urgent need of three things: liquidity, liquidity and liquidity. During times like these, speed wins, and simplicity in stimulus delivery is its enabler.
That the COVID-19 pandemic will result in a global recession is, sadly, a given. When the government-mandated shutdowns end in Canada, and the unprecedented monetary and fiscal stimulus takes hold, there will be many questions around whether the recovery will be V-shaped or U-shaped and whether these current policy measures are adequate to get the economy started again. Besides these immediate issues, the other question Canadians should consider is: What will be the long-term implications from the pandemic? There will be a number of lasting issues to come to terms with, one way or another, and we believe considering five of these implications should be an early part of our postpandemic strategic planning.
The first implication is debt, mountains of it. Fiscal stimulus by the federal and provincial governments is massive, and needed, to respond to an unprecedented health crisis that has precipitated a sudden and unique recession. Estimates will vary given the economic uncertainty, but we will likely see federal deficits north of $125-billion this year, with more of the same next year, and matched by large provincial deficits. Quantitative easing by central banks, needed to keep the financial system lubricated, will cause a massive expansion of central-bank balance sheets. And private-sector debt is also going to balloon as firms borrow to preserve their operations. In the past, we have dealt with mountains of debt through sustained strong growth and higher inflation – but the former is very unlikely, and the latter is never a good idea. Debt constraints on future tax cuts and new programs by governments and interest-rate increases by central banks will be a longer-term implication of the pandemic.
The second is globalization, or more precisely, de-globalization. Global supply chains are going to be redesigned: They will be less centralized in hubs, such as China, and more distributed. There will be more built in redundancy and costs will rise to pay for this greater resiliency. And governments will mandate “national critical supply capacity” in products such as vaccines, medical devices and certain technologies. Global people movements will be affected: Some countries will be more restrictive on travel visas, university student bodies will be less internationalized, leisure travel outside of national borders will decline as people self-select to limit travel and international business travel will be reduced as part of pandemic-related corporate risk management. Trade and investment patterns will shift: The pandemic will accelerate changes in global trade and investment already set in motion by the tariff wars between the United States and China. Canada and Canadian business will have to decide how to position themselves for this global decoupling.
The third is national health-care systems, and their capacity to respond to known unknowns. The COVID-19 crisis has highlighted the integrated nature of a resilient health-care system: strong research capabilities to identify the sources of an illness and develop responses, world-class public health modelling capacity, innovative firms developing health-care solutions, well-trained and equipped front-line medical staff and surge capacity in our hospitals. Postcrisis, the public will demand investments in critical care and in controlling infectious diseases and our public health-care system will benefit from taking an integrated approach to this health challenge. A lasting implication of the pandemic is that resilient and efficient health-care systems will become part of the competitive advantage of nations.
Fourth is the nature of work, the workplace, education and the lasting changes from pandemic-induced disruptions. This crisis has forced an unparalleled adoption of information technologies: workers working from home, managers managing remotely, meetings done virtually, students learning online and shopping and shipping online. It is a mass experiment in what works and what does not, and Canada needs to be an earlier mover in adapting to the implications. Innovation will drive improvements in online collaboration tools to improve productivity, co-ordination and creativity. Firms will rebalance their thinking about office space and remote capacity. Workers will need to learn new skills for a more virtual workplace. The education sector is facing its second, and much bigger, wave of online learning. And, in a more virtual world of work and education, we are going to have to make massive investments in sophisticated networks and cybersecurity.
The fifth is geopolitics, with a rise in nationalism and decline in multilateralism. A striking feature of this pandemic crisis compared with the global financial crisis of 2008 is the relative absence of international co-ordination: The superpowers have struck decidedly go-it-alone tones, the Group of 20 was late to the crisis and showed little leadership and even the European Union devolved into national responses to the crisis. With citizenries around the globe facing unprecedented uncertainty while witnessing an absence of global political leadership, they are turning inward for protection and help. For Canada, a mid-sized country that benefits greatly from multilateralism, the implications are far-reaching and suggest the need for building new coalitions for a more uncertain and less cohesive world.
The structural implications of this pandemic for any country, Canada included, will last well into the future. Job No. 1 is clearly dealing with the immediate crisis, flattening the infection curve and then getting the Canadian economy and society moving again. And Canada enters this battle with a number of strengths: reasonably strong federal government finances compared with many G20 countries, a strong financial system, a public health-care system that has learned lessons from SARS and H1N1, a talented and adaptable work force and a high degree of social cohesion.
But successful countries will also look over the horizon to the post-COVID-19 world, understand the lasting implications of the pandemic and how to deal with them and begin to plan now to ensure they emerge strong in a challenging global environment. Canada can be a leader.