For decades, businesses liked to parade a slogan which was music to all stakeholders’ ears: “Human resources is our most valuable asset”. Those who know me, know that I am not the person to shy away from uncomfortable questions, but the uneasy question that I planned to put to you today was “To what extend have people become, given the current situation, the most valuable liability and not asset of economic recovery?”.
The public debate has lately been flooded with parallels to other financial crises. This is also out of an attempt to use them as predictors for the crisis we are dealing with now as we try to foresee how and how fast we will be able to get out of it. To me, this seems to be a huge mistake because the current crisis has nothing to do with previous economic or financial crunches. There is no connection to the routine business cycles whereby recessions occur at more or less regular intervals.
We should not forget that the current economic crisis is self-induced. It was induced by a variable which is outside the realms of economics and is 100% human. That variable is called “fear”, “dread”. Fear of getting ill, fear of dying, of having the health and social crisis spin out of control, fear of chaos.
It is a variable that restricts to a minimum the options that governments and central banks have. The tools at their disposal are the ones that they have been deploying for a while and that they used with some effectiveness in, let us say, standard economic crises.
The problem is that, this time around, the current crisis did not have an economic cause and that is the key difference. What have we been seeing these past months? Central banks have lowered interest rates and started pumping money into the market, a highly successful measure during the 2008 crisis when the system was facing the death blow of a freeze due to financial counterparty risk. Put it differently, due to the fear of trading with other businesses whose financial soundness was unknown. That was why central banks jumped to the rescue and became counterparties themselves whenever needed.
The paradigm is now completely different and I love the term of the well-known economist Mohamed El-Erian, who said that, unlike the previous crisis when the financial counterparty risk was the issue, now we are faced with the human counterparty risks. In other words, by analogy, we are afraid of being exposed to people whose health condition remains unknown.
The bad news is that the human counterparty risk cannot be addressed by lowering interest rates. People will not stop being anxious for the sake or for the fear of lower rates. They will not start consuming more or they will not stop saving so long as fear is pervasive. While on this topic, I do not know whether you are aware of the fact that over the past 12 months bank savings in Romania and elsewhere have continued to grow.
Romanians’ bank deposits in September this year were 15% higher than 12 months ago. This is the normal behavior of people facing an unpredictable future. We saw the same trend in the aftermath of the 2008 crisis when, for many years bank savings and deposits in Europe continued to increase to the despair of decision-makers who, on the contrary, needed consumption and not savings.
What is the key to exiting the recession? Simply removing the fear. Unless we manage to achieve that, the chances of recovering the economic losses are very low. How do we remove fear?
I believe that there are three solutions that need to be applied cumulatively, rather than alternatively. The first solution, and probably the most obvious one, is healthcare-related: finding an immunization vaccine. Please note: This is a medium-term answer. Firstly, coming up with a vaccine takes time, secondly it needs to be administered to the entire population which is also time-consuming and thirdly, we do not know how effective it will be over time because the virus can mutate.
The second solution is macroscale and consists of having a very efficient healthcare system in place, good legislation to protect the population and so on. What I believe should interest us, because it is under our control is the third microscale solution, namely answering the question “How will companies continue to treat their employees?”.
In other words, what I mean is that the recovery of the economy that all businesses which we represent here are dreaming of, hinges on how our companies will be able to inspire a sense of certainty and serenity in employees so that they fear less. So, a good portion of the ball is in our court and ignoring the employees’ feeling of unease is bound to backfire on the economic recovery that would benefit us all. How easy will that be?
Not too much so, I believe, in spite of appearances. We talk a lot about an area where the answers are easy and too little about the truly tricky issues. I mean that at the end of the day, the main problem is not the future of white-collar workers. Not the debate on the future of office workers should be prevalent. Things are quite predictable and easy to control in this area.
The blue-collar workers are the main problem: workers in plants, slaughter houses, storage facilities, courier services. The root cause of their fear is basically twofold. It is first a fear of contamination by going to work, as any other option is off the table given the nature of their job. Secondly, the fear of losing their job as these workers will be seen as a costly liability for the company.
And here I would like to open an interesting parenthesis. The business case for automation and robot uptake is no longer assessed based on the difference between labor costs and the amortization costs for such investments. The perspective now is completely different: setting up a Business Continuity Plan, where the cost of robotization is compared against the cost of a complete shutdown due to illness. This means that the barriers to expensive automation/robotization are lower than previously which will increase the likelihood of such changes to happen.
In conclusion,
The economic recovery depends on minimizing the human counterparty risk, of fear which monetary or fiscal policies cannot achieve.
Businesses are among the factors which can enable the long-awaited recovery of the economies in which they operate by making their employees feel secure and safe.
The challenge does not relate to what happens with white collar employees, but with the blue collar workers who are at risk of being considered the main corporate liability, which makes their future uncertain.
I cannot end without saying that, given the latest eagerness to save, maybe the benefits of a privately-managed pension will come to be better appreciated.
(presentation held at the National HR Club Conference: Reshape Conference)
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