Gheorghe Taran

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In her recent Financial Times article, Rana Foroohar (2020) asserts that the pandemic period is creating opportunities for new enterprises to offer new, and mostly digital services. She posits that the COVID-19 crisis will yield Schumpeterian-type creative destruction, similarly to the 2008-2009 financial crisis and might reshape the asset structure of firms away from tangible to even more intangible assets.

One direct impact of the more digitalized companies coming into the market is that knowledge economy workers are in more demand, while the lesser educated workers will suffer long-term structural unemployment and their incomes will decline or become more difficult to sustain (Foroohar, 2020; Scott, 2020). This structural change in developed economies is accelerated by the pandemic, indicating 1980s style market and labor widespread change (Gathergood, 2020). However, this time the change is not from industry to service economy, but rather from some types of services to other, more digital and contact-less. This is expected to increase the number of “discouraged workers” and therefore decrease the overall economic productivity of nations and impede long-term economic growth (Erken, 2020). A possible solution is the re-skilling and upskilling of the newly-unemployed youth as they have higher fluid intelligence than the older workforce segments (Gathergood, 2020). However, the current gap in skills is relatively wide and cannot be bridged within short-term intervals given the complexity of communication and IT skill acquisition processes (Gathergood, 2020).

Secondly, given the higher investments into in-house generate intangibles, including brand equity and human capital, these investments are not well represented in the balance sheet structures of accounting principles. Investors might have to change their assessment metrics of firm profitability away from the focus on productive assets to intangibles which are not present on the balance sheet (Foroohar, 2020). Hence, the financial market will become more accepting of higher price-to-book value in order to incorporate the value of the digital assets and intangibles not well-represented by the 20th century manner of accounting for firm value. Currently, the S&P 500 already have over 60% of their value incorporated by intangible assets, meaning that R&D investments are becoming more important for long-term competitiveness (Taylor, 2020). There is also a higher importance of addressing market “externalities” such as blurriness of work and personal life in remote employment and the move from shareholder to stakeholder capitalism for companies that want to stay competitive in the post-COVID market (Taylor, 2020).

To conclude, it will be interesting (and costly) to see whether the labor market resilience and the economic systems will withstand the long-term damage imposed by the COVID-19 crisis. How will the European economies will adapt to the new realities that are still not clear given the second wave that is coming onto us like a tsunami? The hope is that digital technologies will drive economic growth and help deal with environmental problems, yet we can have no assurance of either one. Will the “COVID-generation” be the one to pro-actively change the system not only be the victim of it?

References:

Erken, H. (2020). Looking beyond the COVID-19 crisis. Retrieved 5 October 2020, from https://economics.rabobank.com/publications/2020/april/looking-beyond-the-covid-19-crisis/

Foroohar, R. (2020). Covid recovery will stem from digital business. Retrieved 5 October 2020, from https://www-ft-com.eur.idm.oclc.org/content/4a1da405-b452-4e4f-adb8-c44afb9163d0

Gathergood, J. (2020). COVID-19, mass unemployment and structural change. Retrieved 5 October 2020, from https://www.nottingham.ac.uk/vision/covid-19-mass-unemployment-and-structural-change

Scott, J. (2020). What effect will COVID-19 have on the global risk landscape?. Retrieved 5 October 2020, from https://www.weforum.org/agenda/2020/05/covid-19-global-risk-landscape/

Taylor, A. (2020). COVID-19 has ushered in the ‘intangible company’. Here are 4 ways it will change business. Retrieved 5 October 2020, from https://www.weforum.org/agenda/2020/06/covid-19-intangible-company-leadership-remote-working/

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In her book “The Age of Surveillance Capitalism”, Shoshana Zuboff (2019) asserts that because of the change of how the internet is changing the societal fabric in the 21^st century, big tech will be able to infiltrate into all aspects of our lives and not only gather behavioral data but also change and manipulate behavior. Predicting human behavior is linked to the current extraction of abnormal economic rents by monopolistic giants such as Google and Facebook. They understand better and better when is the best moment to show us a targeted advertising, how we feel physically, where are we planning to go and what else can be sold to us through their platforms on our way or at our destination. However, they are currently tied to the realm of the digital space. Once they start incorporating in the physical world through city infrastructure, home appliances, health solutions and so on (aka Internet of Things, IoT), they will have enough power, knowledge and influence to move to the next level where they have “economies of action” (Zuboff 2019, p.197-200). The IoT will enable the internet and its powers to become so ingrained in our everyday lives, that we will forget of its presence, implying that we are less vigilant about its influences. Zuboff (2019, p.200) defines these “economies of action” as the ability to intervene and shape human behavior, not just observe it. By broadening their economies of scope, the big tech companies will be able to know ever more about what can influence our (purchasing) behavior, our life choice, such as education and asset purchasing, and extract monetary value by making us the “animals” of the system.

The general public tends to view the risks of IoT technologies linked to cybersecurity, bottleneck and data breaches and the outcomes of such events (Pew Research Center, 2017). For companies, non-compliance to private data regulations such as the European Union’s General Data Protection Regulation (GDPR) and lack of trust or loss of trust by users are other so-called ‘risks’ for integrating IoT technologies into their operations (Brous, Janssen, and Herder, 2020). It is true that by connecting more devices to some online servers and granting access to private companies to enter our lives as an individual, family, community and city, we might endanger the smooth functioning of the system in our search for efficiency and digitalization.

But why do we not consider the larger risks that we are going to face as a society such as surveillance by the government and private parties though the tools of IoT, the increasing power we grant to big corporations and the loss of choice in our everyday lives due to the commercialization of everything – from our house to our body and, ultimately, brain?

I do not see any impactful public resistance or protest against corporate greed and power of the likes of Musk and Bezos, do you?

References:

Brous, P., Janssen, M. and Herder, P., 2020. The dual effects of the Internet of Things (IoT): A systematic review of the benefits and risks of IoT adoption by organizations. International Journal of Information Management, 51.

Pew Research Center, 2017. Implications Of The Internet Of Things Connectivity Binge. [online] Pew Research Center: Internet, Science & Tech. Available at: <https://www.pewresearch.org/internet/2017/06/06/the-internet-of-things-connectivity-binge-what-are-the-implications/> [Accessed 26 September 2020].

Zuboff, S., 2019. The Age Of Surveillance Capitalism. 1st ed. London: Profile Books Ltd, pp.197-231.

COVID-19 & The Digital Business

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