State of the Region 2020 Full Report

As part of developing the State of the Region 2020 we have been reviewing the emerging thinking on global trends and what that means for the West Midlands. A crisis on the scale of Covid-19 will inevitably change the world as we know it in the longer term as well as the unprecedented impacts we have seen already and the previous West Midlands Monitors have covered. It is important to reflect that often crises accelerate the changes which were already evident and in reality we move to the ‘next normal’. However it is important to be aware of the idea that while in the main ‘our tomorrows will be like our yesterdays’ we tend to disregard the events in the tails of a distribution curve as they often contribute most to changes in outcomes. This review will look at those potential events, changes which latest thinking suggests will accelerate and which will permanently shift, and the likely impacts of those changes.

Adaptive, reactive cities and places

Social distancing and the shift to homeworking has created a seismic shift in the way people work and interact. Cities have become the epicentre of outbreaks and proximity has become a friction. Cities provide opportunity for good and bad interaction and pandemics are an example of bad, urbanisation and density making them vulnerable to disease. Lockdown has emptied out cities and urban environments and may lead to greater decentralisation as people seek green space and better home environments. However big tech and personal based service hubs have increased their share of employment and growth as intense agglomeration remains important to these businesses. The emptying out of cities could take the form of accelerating the wealth divide with those able to afford it moving further out and utilising working from home more, leaving the young and poorer communities concentrated in the urban inner city. This will affect the infrastructure demand in cities and the disparity between where money is earned and where it is spent. Globally, however, during the last recession cities grew, gaining migrants and millennials unable to find jobs elsewhere. This time round the future of cities relies more on the decisions on Gen-Z, as with every generation they are more educated and more diverse and already have strong urban roots. They are a generation committed to environmental protection, supporting local businesses and shared assets, less inclined to see home ownership as a necessity and accepting that they will have less than the generations before them. The Covid-19 experience may accelerate a lot of these traits in wider society. The pandemic may accelerate the decline of the high street, where the number of shops could more than halve in the next two years, but this is a trend that was already in play. Highstreets which have thrived are the ones which have picked up on and maximised some of the other trends below, including, personalised, ethical and local businesses and embracing online sales to diversify markets. The impact on universities and international travel and pulling students into cities will dramatically change in the next 12 months, in the longer term this may change the pattern of student movement for the longer term, which will impact on student areas in cities. This could change the face of some cities for a long time and technology could maintain this change as online and virtual studying reduces the need to move. One of the impacts of the virus has been for people to feel more community spirit and kindness, this again could increase the demand for urban villages and communities being developed in many cities. But it remains to be seen whether, and to what extent, the solidarity, community spirit and co-operation evident in lockdown survives or dissipates as it is lifted; we can look for early signs from countries ahead of the UK on the Covid-19 curve. Urban centre are the economic structures which drive high contact, low-wage jobs which can’t be carried out remotely. Labour markets over recent years have polarised and the act of the virus could accelerate this. This suggests that cities will experience uneven and unequal impacts.

Clean, safe environments which underpin mobility as individual bubbles

Commuting is one of the main ways people come into contact with one another and social distancing will continue to hamper the use of public transport systems, this is a challenge both for environmental reasons and enabling lower paid workers to move easily for jobs. The need for social environments like transport to be clean and safe and predictable will determine whether they are used and determine whether people choose cars, bikes and walking and abandon public transport. Although in the longer run it is likely people will revert to less hygienic habits the demand for remaining safe will remain but the demand will be for environments that will enable safety effortlessly. For a region with significant industry in the automotive sector an interesting trend identified is people finding comfort in car ownership, especially when other modes of transport have ground to a halt. In China attitudes to cars have shifted significantly with usage doubling after the outbreak, along with ride sharing and taxis, and significant intentions to buy a car. A similar shift is playing out in the US. But car buying is moving online along with all other shopping and there is a growing expectation to have cars delivered. The market is also accelerating in China for aftersales and vehicle repairs as lockdown lifts. Alongside this however is a challenge to the dominance to the car but from the growth in cycling and walking. With temporary cycle lanes in place in many cities, but the challenge for this major change is huge, needing a significant long term change in behaviour. But a more localised homeworking economy could help people to switch and the idea of a 15 minute city has become less of an ideal and more a tangible outcome. At a micro level how the social psychology of space will alter – irrespective of social distancing - remains an open question.

Automation by default

This trend has been spreading over the last decade, but is likely to surge, with the impact of social distancing on businesses accelerating the trend. Human capital is becoming relatively more expensive and in a world of reduced contact that cost becomes greater. The jobs more affected are likely to be in roles such as food service and cashiers, which will impact on the most vulnerable, young people, BAME and those with lower qualifications. Advancements in AI and deep learning can be used to tackle problems we find difficult and the need to understand and monitor outbreaks may drive greater advancement in monitoring and automated tracking. But advancement in AI tends to create a few new jobs that require sophisticated skills and many jobs that require personal contact skills, while it reduces mid-skill jobs. This could continue the trend of hollowing out the labour market.

Digital diversification and proliferation

Big tech have been winners in the Covid-19 period, with Amazon, Google, Microsoft, Apple, Netflix all making gains from people being in lockdown. Accelerated online shopping and home entertainment has given platforms an increased share of consumer demand. This is creating a greater inequality within the digital business community with large digital also able to invest and innovate due to the revenue they will have generated. Home working has driven an explosion in digital usage remote working tools, video calling and live streaming of content which is spilling out into the private lives of a wide range of ages like never before. There has been, and will be, an acceleration of the digital experience economy, immersive content and technologies will move from the side-line to the mainstream, and from just social media and esports to travel and gatherings. Contactless free interaction and advancement in robotics is enabling a new breed of automated commerce and increasing power and adoption of AI. The pandemic has also highlighted the issues with the digital divide, most starkly in the education sector as the scale of children without home internet and laptops has been exposed. This digital disparity has also prevented many accessing the services needed such as online shopping and homeworking. The pandemic has impacted on every element of the payments industry, contactless payments accelerated and are the new norm as people fear touching cash. Older and poorer vulnerable families have therefore been left dealing with socially distanced shopping and these households face a larger digital barrier than two months ago as the digitally enabled have adapted better to the new world. There is also the important question of how to address inequalities in the ongoing development of digital skills as they become ever more important, with older people, those outside employment and from more disadvantaged backgrounds often most at risk of being set adrift of ongoing developments. The move to homeworking seems likely to exacerbate wealth based inequality and access to jobs. Where broadband and the means to utilise it was a luxury, but now it is exposed as a necessity and an essential utility. Those without access are ever more excluded.

Ethical, online and local consumer spend

Trends already in place such as the decline of the high street and ‘retail apocalypse’ have been accelerated in the last 3 months, and has driven a need for organisations and businesses to innovate or exit, the current disruption accelerates this need to be creative and embrace new models. Over the period we have seen some brands damaged by the way they dealt with the crisis and this could have lasting damage on their customer base brand purpose is becoming more important, brand curation and navigating the complex world will become more important for business survival, customers, regulators, employees and the public will hold businesses to account, and brands that have over claimed and under delivered in the pandemic could see this lasting long after the virus has gone. This shift in ethical buying because of how we view business behaviour in this period could shape the way people invest, buy and consumer product for a long time to come. This doesn’t mean a rush back to face to face; it means being authentic and human, as businesses, service deliverers and government. What matters is tone, content and purpose that stands up to scrutiny. Trends such as moving from products to experiences, e- commerce, buying local, buying socially aware and the sharing economy are trends businesses have been reacting to. Millennials and Gen Z have been trained to see the world as showroom through their phones and social media is a market place which connects locally and globally, hollowing out the real shop floor unless they adapt. The virus has impacted on the customer mind-set, the concept of being a ‘better you’ has grown with people setting ambitious personal targets. Self-improvement and skill building has become entertainment. The merging of entertainment, community and commerce will likely boom. Social distancing could drive a demand for outdoor local markets, accelerating the trend for locally produced goods and outdoor dining in urban spaces. The summer of 2020 in Europe will show us what might be achieved here, and what local actors can do to assist enhanced use of outdoor spaces for commerce and entertainment. Businesses diversifying their markets in the past have already created hybrid experience based outlets, but the major shift from dine-in to delivery, this is likely to remain as it increases incomes streams in the future, especially as dine-in may still mean reduced customers. But eating out and socialising may become more important after an extended period of isolation, but people may demand more local and authentic offers that reduce the need to travel and fit the socially aware buyer. The virus has affected us all but even in our reaction we have segmented into 4 different consumer groups which might shape our behaviour for years to come. The new normal, the people who’ve taken the situation in their stride and aren’t overly emotional about having to adjust; bittersweet, whose lives have become more challenging, but who can see a bright side and acknowledge the positive changes in their new routine; the struggling, who have found it hard to adjust, are anxious and not coping well; and nothing new, where things haven’t changed that much. Business needs to cater for all these groups going forward.

Polarisation between the knowledge worker and the service worker

Social distancing could change the and as home office space has become more accepted. This could impact on leasing and longer term large scale leasing could no longer be the norm. The scale of shift to homeworking is one of the big successes of the virus as innovation which may have taken years to implement was delivered in weeks. It presents an opportunity going forward for more diverse workforces. Gartner analysis shows that 48% of employees will be likely to work remotely at least part of the time, compared with 30% pre-pandemic. But 74% of businesses intend to increase remote working post pandemic. Trends in many sectors such as business and professional services for flexible working have been catapulted forward by years and acceptance of employers and customers that people are productive away from the office enables a variety of different work cultures to be adopted. This will accelerate the need for digital dexterity and collaboration skills. There is also a risk that roles also become polarised though the humanisation and dehumanisation of workers, as more knowledge based roles become increasingly connected, team based and inclusive whilst others become task orientated and detached from others. There may also be an increase in workforce data collection and tracking in remote environments, which raises issues around the ethics and future use of employee data by employers, especially in a health aware post-covid world. However the young, BAME and poor are least likely to be able to access the jobs that make this shift and are least likely to work from home, again accelerating the socio-economic divide between more affluent areas and poorer areas and groups.

Slowing business travel and global flows of people

The virus has shown how our increasingly global world has made us vulnerable to the spread of virus and dense, urban global cities with high levels of international trade, tourism, migrant workforces and business linkages all aiding transmission. An increasingly networked world, business practices and social norms are key, more connectivity introduces more uncertainty to the system, and as in 2008 where the underlying connectivity in debt was unknown, the health impact of prevailing people connectivity was not recognised. Global networks however are valuable and for growth, culturally and for businesses they drive innovation and investment, but there may be more of a move to have fail safe protocols, including trading smaller gains to protect against catastrophic loss. There is a need to discourage concentration of power in large corporations to ensure smaller businesses have more protection from global risks. The changes to international flows of people, affects the Higher Education sector harder than others, but the adoption and utilisation of technology could drive the adoption on online learning bringing it into line with the broader move to self-improvement online. This could accelerate the access students have to intercultural classrooms and partnering across continents, expanding modalities of student and academic experiences. This may also create a rise in virtual internships, virtual service-learning and entrepreneurship programmes which widen cultural experience and increase innovative capacity.

Bringing industrial capacity home

The trend has been for internationalisation and is in contrast to the concept that successful cities and nations should constantly grow their own capabilities, products and services. These ideas looked out of step however in the face of Covid-19 recovery. This may create the environment for a significant but important direction change. The issues raised by the pandemic could affect just in time procurement, lean management and public procurement practices; this shift could change the focus from efficiency to resilience. This lean approach has created fragile systems and change in the face of Covid-19 may mean a return to more adaptive, flexible careers and a move from businesses predicting to responding to change. National self-sufficiency is already becoming part of the language and is in the back of recent trends to re-shore services. The vulnerability of our supply chains has been exposed, especially around medical supplies. Global supply chains peaked in 2011 but were weakened by protectionist policies and the pandemic has caused a supply-shock recession and may slow the expansion of global value chains. Reduced production will create a recession and the v shaped recovery is at risk. Sector specific growth policies locally may help trigger growth, if applied to those which are not substitutive, such as automotive. This approach could mean businesses continue to refocus on growing locally and supporting local supply chain firms, resisting take overs rather than international trade and long uncontrolled supply chains. Against this backdrop there will be a period of volatility that puts UK firms at risk. There will be an increase in mergers and acquisitions, nationalising of companies globally and rising complexity, with big companies becoming bigger. However the UK is a globally open economy and has long benefitted from this openness in the past, and the trend has been to increasingly grow the trading of services, technology and content. From an employee point of view the way employers have treated their staff has been brought more into the spotlight and this may further accentuate a trend for candidates with the skills businesses need to seeking out good employers that they can trust. The social capital of business may become more important across the board.

Low wage workers and the housing crisis 

Even in good times many people still do not earn enough to live on, as interventions such as the National Living Wage and the need for Universal Credit demonstrates. Basic costs for some people are already a stretch and housing and energy costs have been rising significantly as a proportion of household spend. Protection for renters introduced over the pandemic period will protect those most vulnerable, but they do not stop personal debt rising. But the predicted rise in unemployment will push more people into this category. Housing costs are often reduced by moving in with family or moving to lower quality housing –but this is not always possible.

Greater inequality:the haves and have nots

Older people have borne the brunt of the health crisis of Covid-19 and in the future this may restrict their ability to carry out their lives as they did in the past, especially under the threat of further waves or potential lack of social distancing. Income inequality increases with age, as does the income from other sources such as pensions and investments, but rising costs have driven a general trend of people retiring later. The predicted increase in unemployment may worsen the position of older works and make finding work after redundancy harder and require them to take deeper pay cuts than the young. So far the closure of sectors has hit the young, women and BAME communities harder, but there may be a greater opportunity for bounce back once lockdown is lifted. More structural and long term damage may be within manufacturing where sectors already facing long term trends may shift to automation which will disproportionately affect men in the longer term. Conversely the shift to homeworking may open up new opportunities for the previously excluded communities such as the disabled, people with care responsibilities, and those living in rural or remote communities as home working could accelerate the levelling up process as it becomes increasingly possible and recognised that people can work from anywhere. The trend of gig economy workers may also continue as a cost saving measure, creating precarious employment situations for many.

Survivability, critical skills and critical roles

Companies have had to redefine what is critical to the business to survive. This has driven a review of roles and whether they are needed and some reassessment of skills requirements. Companies are examining succession planning and development paths to ensure resilience. Through furloughing some businesses have also recognised that they can manage with fewer employees. This could in the longer term lead to real productivity increases at the expense of employment (contrary to the trend to date). 

Mental Health Burnout

The social impact of the pandemic has been stark. The sense of loss, both of family, friends but also of places has had significant effects on the psyche of the world. Unemployment and insecurity has more than doubled the levels of suicidal thoughts compared to those employed, and they feel nothing has helped them cope, increased unemployment will increase the levels of suicide and dislocation form society. Isolation, home working, loss of work and social structure has generated anxiety and depression across a wide cross section of the population may have wide reaching effects. Anxiety has risen sharply, the main factors being loneliness, safety, affect on work and disability This large scale scaring can impact on the workforce and society for years to come and can be seen in emerging unrest globally, as seen after the Spanish Flu pandemic in 1918. The pandemic period has also seen a polarisation of the use of ‘content as medicine’, where online digital content is keeping us up to date, informing us but also providing a mood altering fix. We are using social media content to treat our stress with a dramatic increase in the use of positive content and the treat yourself culture. This has led to an increase in people investing time in creative activities and connection with what is important in our lives and re-engaging with traditional life skills development for affluent urbanites. We have also moved to a world where the employer has become the social safety net, with increasing risks of burnout, expanding their involvement in the lives of employees with mental health support, financial health support and wellbeing activities. Whilst remote, this changes the nature of the relationship and in the future this provision could be more of a norm. This could accelerate the development of concepts of urban villages and garden cities.

Resilient Local Institutions

The role and power of the state has changed dramatically across the world. The value of swift decision making and action to combat a global issue has been seen internationally. The size and scale of intervention has never been seen before and this will have implications on expectations in the future. Large scale intervention may be more acceptable and necessary in a future facing further disruption from further waves or new viruses. The deadly impacts of the virus are likely to increase support for investment in medical care, R&D and the NHS strengthening capacity to deal with pandemics in the future. A shift from best value procurement to local and high quality standards could continue to build local resilience, innovation and absorptive capacity. A move in local places to look at public procurement as a local wealth building tool has already been gaining momentum before the impacts of Covid-19 have highlighted the need for places to have access to the people and businesses to keep economies working. Therefore the importance of local anchor institutions in supporting people and businesses has become more apparent. This could signal a demand for stronger local institutions than can deliver in crisis, and recovery. Political dissatisfaction and centralisation as seen over recent years could be destabilised, with greater calls in some quarters for devolved powers to respond locally to issues. The current expansion of state powers could also provide greater resilience if it is about bottom up accountability and emphasises new business creation, education and apprenticeships to enable businesses to grow and adapt. The focus on businesses who have acted responsibly in the pandemic builds on the social investment of the next generation and forces an approach from institutions which prioritises the impact of moral hazard.

Change for the better

What will be the new positives that generations to come will remember? Not all affects will therefore be negative, and previous crisis have borne some of the most innovative changes we take for granted. World War I changed the world for women, with more than a million women joining the workforce to keep the economy going and accelerated change in the law around voting. The aftermath of World War II brought the NHS and large scale rebuilding of society. The Dot-com bubble led to creative destruction;new healthier organisations emerged and underperforming firms closed, so accelerating the conditions for successful companies. Past experience indicates that more people go to university after recessions–albeit in the context of a fully open education system functioning on ‘business as usual’ lines. A lack of jobs leads people to pursue education, which has an impact on subsequent generations; individuals are more likely to go to university if their parents have done so. A more educated workforce tends to make an economy more productive, profitable, versatile and resilient, and impacts positively on a society’s health, crime rate, voting and volunteering. Other potential positives are emerging medical advancements and treatments and international collaboration, stronger public health systems, reduced and unnecessary commuting, less pollution, increasing recognition of the role of key workers, challenging racism and increased kindness and community spirit. 

Whether we see a new normal or a return to previous routines and habits is up for debate and most likely the reality will lie somewhere in between. The trends above have implications for policy which include:

• Addressing digital inequality and ensuring people have the skills and technology to gain from the advancements
• Rethinking how places work in a social distancing world, creating places which are safe, green, clean and open
• Training and development which prepares people for a changing world which values technology, personalised interactions, flexibility and uncertainty of employment
• Supporting opportunities for personalised, clean and safe mobility
• Building and investing in strong communities which foster collaboration and support
• Investing in local institutions, and key workers so they can respond to demand for change, invest in new local infrastructure, keep pace with change and react when crisis happens
• Supporting businesses to adapt, innovate and prepare for accelerated change due to technology, changing consumer habits and the growth in ethical buying

There is likely to be an increased sense of community but this will be stronger in the places where this already existed. 

The changes above are not inevitable. There is a role for public policy to invest in creating an environment where positive change is enabled and lasts.