Time to awaken: The new normal revolves around knowledgeable minds!

Despite Covid, I believe there is "new hope" ahead, but not in a way like ever seen before and those in the world who believe otherwise will miss a massive opportunity.
Those who are now again looking at past crises and focusing on the same solutions are misleading themselves, as it is very simplistic and naive to assume that any new crisis will be the same as any of the previous crises. Those who are still focused on the past are being led by a very uninformed and simplistic view because if a set of events are similar to past crises, then one must realize that the toolbox of solutions exists and such events never become a full blown crisis.
Whenever a full blown crisis actually occurs, as we are seeing in the case of Covid-19, one can be sure it's characteristics will be unique and unprecedented and so will challenge human mind and creativity like never before, making the human mind scramble to innovate and identify the solution of the new crisis puzzle.....such is the law of nature, to deliver crisis in a way where no person has even been before!
There are many factors at play in the current Covid-19-led crisis and never before has a crisis hit globally in all geographies, impacting all strata of society and never before has the world come to such a simultaneous and extended grinding halt. Also, with so much debt already existing in our world at the level of households, corporates and Ccountries, with reduced demand, disrupted supply chains, growing deflation, rapidly increasing unemployment, waning confidence levels and increased fear.....the conventional tools of low interest rates or monetary stimulus may fall short. Such conventional tools may shore up capital markets to provide a false sense of stabilization, but the underlying economy will not normalize that easily.
Without such normalization, economies cannot repair.....and mostly the reparation efforts for fixing an economy require actions which may not be supportive for capital markets or individual stock prices. However, politicians and governments chose the easier route of addressing capital markets stability, as that is easier to do and faster to show results on.....whereas fixing economies is a longer term effort, and it may take a long time for the positive outcome to show up from the initiation of any policy reform(s).
We reap what we sow
In democratically elected governments, the pressure on governments is to show results in a 4/5 year cycle, so that politicians can tout their scorecard to seek re-election. The core structural longer term reforms then unfairly get pushed back, as a result for selfish reasons, and populist measures that are quick to implement and deliver sensational headline results are pursued, and used as a surrogate of success. The incumbent asset-rich class prefers this too, as they stand to benefit at the cost of the masses. These rich few anyway enjoy a disproportionately higher share-of-voice in the media and influence with the corridors of power, and hence their interests get served while the majority asset-lean mass population gets ignored, and they get poorer and economic disparities widen.
How can we ever claim that an economy is repaired when an overwhelming majority of the wealth owing to crisis-led impact goes to the minuscule rich minority, while the teeming majority of the poor lose jobs, pensions, access to livelihood, food, and shelter and only get poorer! While GDP growth rates and inflation are used as measures of stabilization, these are incorrect as what is needed to be seen is the level of disparity.....since the debt/capita is highest for the masses and the wealth/capita is the highest for those at the top of the pyramid.
There is total imbalance in 'how' the wealth is concentrated and 'where' the debt is housed. With such economic imbalance, there can be no stabilization, and certainly no normalization of any sort. By measuring 'GDP growth rate' and 'Gross Debt/GDP' as measures, we are merely kicking the can down the road and obfuscating our minds on the core reality.
It is clear, that the system is flawed and the measures are totally incorrect for measuring economic health! If we measure it incorrectly, we track success wrongly, and the result we get is self-serving and only delays the problem.....making it bigger and more difficult to address each time.
What matters now in the Covid crisis mot is how quickly the virus is contained! Also what is needed is to look after the core survival needs of masses who depend on day-to-day earnings to sustain themselves and their families during this time. So it is important to have them provided for by governments for their basic essentials, and to provide critical business units with 'access to sufficient capital & liquidity' to last this period of disruption and slowdown so they can keep paying their employees as a hope for survival and sustenance.
The focus, till normalization is restored, should be on focusing any monetary or fiscal stimulus such that it aims to sustain sustenance spending by all, which has an automatic multiplier effect that leads faster towards hope and a greater stabilization In the economy. Such a feeling of hope and confidence needs to be instilled before the 'desired new self-powered cycle' of 'normalization, growth, investments, new hiring and payroll increases' can truly restart and sustain.
All this is easier said than done!
So, how can confidence rebuild easily and how can behavior start to normalize on consumption, travel, social interaction, making new investments and to start hiring. This is not going to be a linear uptick and hence the traditional finance theory based IRR approach of "discounted value of future cash flows" cannot be used and has greatly diminished value in fixing macro-economies, while it works well for corporates and micro-economic systems.
Economic IRR is different from Financial IRR, as the economic hurdle rates are multi-variable complex, compared to Financial IRRs which are uni-variate and simplistic, because economic 'opportunity cost has to be measured in people terms and by using intangibles of quality and penetration of education, healthcare, etc.' To achieve or surpass the Economic IRR, we need not just a redirection of financial resources but also a political and social will to drive this with fairness, equitability, and quality at all levels of the population to provide 'equal opportunity'.
To truly fix macro-economies, there may be a case for pulling out support for zombie businesses and firms which survive on low capital and very high levels of debt which they are unable to service or repay, and carry unsustainable asset valuations that are unfairly supported by banks or using tax-payer funds. Such zombies are often unfairly protected by politicians/governments to avoid short term problems and resources are wasted, instead of investing in longer term pay-off initiatives of education, healthcare, poverty alleviation, skill-building, environment, etc. So, in the process, while valuations are unfairly protected or preserved, the economy's core intellectual capital is eroded, opportunities for the masses suppressed, and the inherent huge untapped potential of the millions of bright human minds in the majority masses is never realized......in short long-term economic capital never gets realized and effectively gets eroded!
The current extended lockdowns and shutdowns will lead to business disruptions, defaults, closures, and permanent layoffs.....the damage to corporate earnings and capital will be deep and the destruction of value may persist even well after the virus is contained. Some of this is natural and must be allowed to happen, in line with economic theory which states that only those who can make profit to sustain and grow should be allowed to grow, else the shareholders should take the hit and ownership shift or unsustainable zombie firms be allowed to perish. But most analysis that we read is too optimistic, clueless or basic....and always based on the ultimate expectation that governments will bail such firms out by supporting them with artificially created liquidity....and such inefficiency-led losses end up being socialized to state coffers and unfairly reimbursed through tax-payer money! The malaise in the system is relentless!
The problem lies in the fact that we humans refuse to accept extreme possibilities! Value is being consistently destroyed and the present value equation doesn't work as some businesses and business-models are disrupted and destroyed forever, some careers ruined forever, some segments populations rendered unemployable/useless for long, and with this "stress and depression" is become rampant in the majority part of populations, as they are being crowded-out on being availing of opportunities by the incumbents. The true potential and resourcefulness of our human intellect in the economy is not an asset that is restricted to just the 'incumbent-rich', but is equitably ordained across the population and often those 'at the base without resources' are often the 'most resourceful' - and hence this inherent/latent initiative of the resourceful masses needs to be nurtured and harnessed for the true normalization, growth and acceleration of any economy.
The process of any disruption and destruction is never linear
To use Earnest Hemingway's words, disruption happens 'gradually, and then suddenly' in real life. So, if we keep suppressing the latent resourcefulness in our populations and masses, then we need to be prepared to accept appropriately for continued inherent weakness in our economic model of the world....and crisis will keep repeating, each time exponentially bigger in impact and each time requiring exponentially bigger artificial liquidity-led solutions each time to control the adverse impact.....however, over time and after repeated crisis, such measures will become weaker in impact and transmissions will reduce dramatically.....and , at some time, this flawed house-of-cards built economic model will hopelessly collapse. Like earlier crisis, this crises too is a warning to human-kind to bite the bullet and fix the malaise....and not miss the opportunity as we did in previous crisis.
Even, in the present Covid crisis, once/if the disease is overcome, the confidence and belief of people will take a lot of time to rebuild, and personal and corporate balance sheets will not rebuild overnight. It will need a painstakingly long time. While humanity will survive, as it always does, but people will be hurt deeply and hard, as has sadly happened in each previous crises.
Ethics and integrity is critical
As a lay-person, I dare to state that most academics and economists tend to either polarize the minds of the masses by sharing views peppered with extreme optimism or pessimism, as 'that's what makes their views, articles and speeches sell' since people love to hear sensational news. Such self-serving self-proclaimed experts compare their situation to past crises and either spread doom and gloom theories, or growth and hope stories by touting extrapolated case-studies-led mythical scenarios and suggest biased solutions.
Each is guided by their self-serving interests to earn speaking fees or large royalties on written articles, and do not care about the actual interest of the masses, and let them be damned. The truth is that one of these academics or economists have been real-life practitioners, and so it is easy for them to talk without knowing how to 'walk the talk'.....and, of course, people love hearing sensational and extreme stories portraying hope or despair, and so this sells in the media! And, in the process the world and its populous billions are left to be damned!
A real solution is needed, but often the time between reform and required outcome is long
In my view, the solution needed at the core may not be based on extreme polarization of views or on doom and/or boom scenarios, but on logical normal steps forward to strengthen the core of any economy and to transform from the core. The solution I will discuss may not sound exciting and some may say that the process is too long-drawn as the fix may not show results immediately.....but it is the Oonly way to fix the rotting at the core. What I share is a practitioner's view, with an owner's mindset and a parent's mentality to take short term pain, if needed, for longer term assured gain and prosperity.
We need to always remember that the dynamics of the world we live in is driven by the eventual collective randomized behavior of billions of human beings, who are the 'essential link' between the macro and micro elements of our core economic system. Focusing on the core of people's minds, behaviors and actions will truly determine how fast and successfully things can be made to recover and evolve into the "new normal" - and that requires a willingness to not artificially influence behavior and expectations, and a willingness by the powers-to-be to be okay to even lose in the short-run so as to build confidence for the longer-run.
We need basic structural shifts and strategic solutions that address the core, and allow for human creativity and innovation at all levels to function freely to disrupt the status quo, as otherwise with each successive crises we will see slower recovery and greater vulnerability building, if we continue to repeat the traditional suite of "silver bullets" as solutions - like QE, TARP, interest rate reductions, asset purchases, etc. This may patch the wound temporarily and drain the pus, but the gangrene will continue to spread in our global/national economic system, until one day we are annihilated. We do NOT need fixes, we need a core reform!
No two crisis have ever been the same, though the aftermath of all crises is always similar
It is important to note this time that never before has a crisis been as global as the present Covid-19 crisis, and so the world must be prepared for a slower recovery as traditional stimulus tools will not be enough to restore growth (though they may temporarily stabilize markets, while possibly causing longer term distortions). Fiscal stimulus may also be ineffective as the willingness/capacity for fiscal spending is limited across nations.
What is needed is a fundamental "structural change" and a willingness to take "hard decisions" to let "less efficient companies" fail so that obsolete business models are not artificially propped up. This may seem "insensitive" but such radical surgery and culling of corporate waste is needed, as it will help better redirect scarce capital, while accelerating the much needed development of efficient new-age and situation-appropriate business models.
Allowing businesses that are technically bust to fail, instead of providing life-support through bailouts will lead to redistribution and democratization of opportunity, and the new wealth created will be more sustainable, albeit controlled by a new set of stakeholders. This may sound nasty, but we must not underestimate the need for such a deep and radical structural cut and redistribution, as this is the Law of Nature, where the old makes way for the new.
If the world keeps hanging on to incumbents, structural change will get delayed and the much needed "new insurgent models" will get delayed yet again.
Nature has the power to overwhelm human endeavor and so we need to take an early cue and 'bite the bullet', and not risk 'pushing the can down the road again' - else our world will keep becoming more vulnerable and our tools to manage will get fewer and less effective, till we reach the tipping point when the damage is irreversible and the situation irretrievable!
Surgery is better done with a knife than a spoon, so act fast!
With every crisis, there are opportunities too, and the biggest opportunity is for the human race to introspect at the core, to realize the excesses, the inequities being supported, and the creativity and resourcefulness being suppressed by the incumbent few.....as the core strength of an economy and the tools to realize its true potential lies in the 'natural resourcefulness and initiative' of its population. This resourcefulness is available in abundance in all populations and is naturally equitably distributed, and is not the 'preserve of just the rich and the haves'. This is nature's way of democratizing knowledge and skills, to allow for a natural redistribution process of wealth, resources, and opportunity.....just as an earthquake is nature's way of redistributing its natural resources like water and soil.
Such latent knowledge inherent in the masses needs to be nurtured and harnessed and be allowed to flower..... So that those with the right attitude/skills/knowledge to adapt to change and be a part of the process of disrupting the status quo, each in their own way. The world has always been run by "resourceful and knowledgeable" minds and so one must invest in acquiring knowledge, and the ability to be adaptable. Those who can successfully make this transition will be part of the new-normal and for such "knowledgeable" minds" the upsides ahead will be huge.
A study of the past has consistently shown that adversity throws up new opportunity. The power to win and now realize the new opportunities lies within each one of us! So, let's make the change and take the leap to rule in the new normal!
- Rajeev Kakar is the founder of Dunia Finance, global co-founder of Fullerton Financial Holdings and former Citibank Regional CEO of the Turkey-MEA region. Views expressed are his own and do not reflect the newspaper's policy.