Stilpon Nestor on a Post-COVID19 Economy

Stilpon Nestor, always the voice of reason, has a vitally important assessment of the impact of the pandemic on the economy and what it means for boards as they manage risk.

Sooner or later corporate boards and leaders will emerge from their domestic trenches to rebuild their company’s—and the world’s—economic future. And the future will not be what was imagined in pre-coronian times. This note proposes a seven-point framework for organising corporate leadership’s thinking on this radically different “day after”. The seven points are: interconnectedness; the macro-political economy; perceptions of risk; consumer preferences; technological acceleration; work organisation; and the role of the state. In my view, there will be notable shifts in all these areas, although opinions may differ as to what these shifts will entail and what they will mean for each firm.

It is the job of the board to build a view of this new world and the opportunities and threats it presents to each firm. These seven points will hopefully help to crystallise these views, to develop useful scenaria against which the firm might identify such opportunities and threats, and to map a strategic way forward. They might also elucidate potential “doomsday” moments and build reverse stress approaches for their avoidance.

In the future, the choices will be stark. The “fork in the road” is rapidly widening: one path leads to accelerated globalisation which is underpinned by more global governance arrangements; the other reverses to the nationalistic (some would say, tribal) historical mean.

The fork has been widening for quite some time in the wake of the financial crisis. For financial firms, global presence does not anymore mean access to a global liquidity pool—local operations have long been “ringfenced” by host regulators. The emergence of nationalist governments seems to be exacerbating a centrifugal process of reversion to mean in trade and FDI. Bold multi-national convergence efforts of previous generations, such as the EU, are facing a real risk of being unwound.

The virus exacerbates tensions that were heretofore simmering in the background. Take the EU: the argument that you can have a monetary union without a fiscal core (other than a set of crude macro thresholds) was severely tested by, and since, the Greek crisis of 2010-12. But never has its resolution been so pressing or its outcomes so divisive as they are today. The Eurozone can mutualise the fiscal means through which the virus devastation may be contained and thus build a new, significant layer in the multi-national governance structure that is the EU. If it does not, the “crude macro thresholds” will become meaningless as they will neither be able to contain the “south’s” fiscal slump nor its population’s view of the “north” as, at best, a fickle friend.

On the other hand, if the north does “mutualise” and agrees to yet another layer of European governance, its own body politic might burst at the seams and opt for (more) Euroscepticism, even in staunchly pro-European countries such as the Netherlands. These stark choices loom in every set of trade or investment relations these days: US vs its neighbours, China vs US, EU vs US—you name it. Every company whose business extends beyond national borders needs to consider these choices and their consequences as it plans its post-coronian future.

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