Thinking about the Unthinkable

Dr Keith Suter AM

[Dr Suter was the author of a scenario planning project for the UCA in recent times.]

We are in an unusual recession. Never before have governments closed down economies for any reason; let alone for a virus that no one had heard of less than a year ago.

Even in the 20th century’s two World Wars, Australia’s economy continued to flourish. One can look at a graph of Australian economic activity throughout the 20th century, and not be able to identify easily where the two world wars occurred on the graph. Factories were kept even busier than usual building tanks and warships rather than (say) cars; there were more workers in the paid workforce because many men had gone off to fight in the war, and women had been recruited from home to work in the factories.

Now virtually every national economy has declined and the world is in an economic recession. There is even speculation of a depression dragging on for some years.

Australia’s unique record as the economic “wonder downunder” has vanished. It had the world’s longest consecutive period of economic growth (29 years, when most economic cycles only run for about 7-10 years). Even if prompt action has spared Australia the tragedy we see in the US and parts of Europe, Australia is being dragged down by the rest of the global economic decline. Our major trading partner – China – for the first time in many decades has not published any prediction on its annual economic growth target; it wants to avoid the embarrassment of being wrong.   Thinking about the Unthinkable   Scenario planning is about encouraging clients to think about the unthinkable – to encourage them to think outside their usual comfort zones. The future is rarely simply an extension of the present. There are always twists and turns as we lurch forward in time.   A common factor in much of the COVID debate has been an unwillingness to think about the unthinkable. For example, an early response was that it was simply a form of ‘flu, or that it was going to kill off people – usually the elderly – who were destined to die in winter anyway. Similarly there were expectations of a vaccine coming quickly to market and so we could get back to “normal” by early 2021.   There has been a consistent under-estimation of COVID’s impact throughout this year.   Many Australians will look back to February 2020 as the lifetime highpoint of their wealth. Retirees in particular will find that COVID has cost people the chance to recover assets. There will eventually be improvements in the economy but they may come too late for many older Australians.   What is the Shape of the Recession?   Economists talk of LUV when discussing economic downturns.   An “L” shaped downturn sees a sharp collapse and a very long period of low economic activity. The Great Depression which ran for much of the 1930s is the standard example.   A “U” shaped downturn is a sharp downturn, a few years of low economic activity, and then a return to a healthy economy.   A “V” shaped recession is a sharp decline, little time spent at the bottom, and then a strong bounce back. Most politicians are expecting that shape. For example, government relief programmes were set about six months – just enough to tide people over until the economy bounced back.   I don’t share that “V” shaped optimism, I think the current crisis is going to be longer and deeper than the politicians would like to assume. I therefore expect a “U” shaped recession (while not excluding an “L” shaped one).   LUV have now been joined by “K”. This is a sharp downturn and then two separate subsequent developments. On the one hand, some people will emerge from this recession richer than ever because they can make money in the recession (such as food delivery company CEOs), while others can buy distressed assets (like vacant, repossessed homes) at reduced prices.   On the other hand, many people will find it even harder to survive in the future. Many young people come into that category. They are now missing out on their initial employment opportunities and may be overlooked when the economy recovers because employers will pick the even younger set of employees entering the jobs market. A person who has been unemployed for several months risks becoming unemployable.   A “K” shaped recession will further erode social cohesion and could lead to social unrest.

Nothing Lasts Forever
Recessions end. That is a fact of life. We may not know when, and economists differ as to how. But we know that eventually economic activity will pick up again.   The previous great pandemic – the “Spanish” ‘flu of 1918-9 – killed as many people (if not more) than World War I (1914-8). This was followed by the Roaring Twenties – immortalized in the movie The Great Gatsby.   But the world of the 1920s was different from that of the previous era. The post-COVID world (or at least a world in which we have learned to live with COVID) will be different. The economy will have changed, such as increased working from home and greater use of “gig” employees.   COVID has reminded us that there will always be unpredicted events and so we need to have the capacity to deal with uncertainty. Hence my interest in scenario planning. There is a need to think like an entrepreneur and to look for opportunities, and these can emerge from scenario planning.   Therefore, we need to be ready to think about the unthinkable, be resilient, and to look for opportunities.   Keith Suter  

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