WIIW The Vienna Institute for International Economic Studies - Wiener Institut für Internationale Wirtschaftsvergleiche

By Rumen Dobrinsky

• The mass media focus on the pandemic as an unprecedented disaster tends to distort the complete picture of all its upshots.
• There is already fascinating evidence that the destruction caused by the pandemic is at the same time driving extraordinary innovative creation and outcomes which may reshape the future.
• This innovation is mostly organizational in nature resulting in the shakeup of office routines, business models and various processes; the pandemic has also served as a catalyst to invigorate innovation in the public sector; there is an upsurge of social innovation as well.
• The crisis triggered by the global pandemic has also provoked unprecedented changes in behaviour of individuals, economic actors and social systems.
• What is happening at the moment is probably the beginning of a great societal transformation.

Extraordinary times

The Covid-19 pandemic has provoked the worst global crisis in living memory. In most countries, economic and social activity of different types has come to a standstill for an indeterminate period of time. Between a third and a half of the world’s population is under partial or total lockdown. Businesses face gloomy prospects for the indefinite future, and for many of them the lockdown will mean definite closure. Public services are being scaled down or restructured. Many of those confined to their homes have at the same time lost their jobs; many others are obliged to telecommute. Even those who have never before worked remotely have to find ways of doing their jobs from home, as far as possible. Conventional social interaction and traditional social networks based on face-to-face contact have been disrupted. The negative economic implications are momentous, and the estimates of their magnitude increase day by day.

The impact of the worldwide crisis is unprecedented in terms of scale, scope and simultaneity. The perception of a catastrophe is amplified by the instantaneous global propagation of information. The skewed focus of the mass media on disaster – an inherent, in-built feature of market-oriented media – tends to exaggerate the effects of the pandemic, distorting the overall picture of everything that is taking place at present. In turn, this provokes an overly negative sentiment and attitude on the part of the public at large. Probably never before in history has the human spirit been so challenged and tested in such an environment.

However, there is already fascinating evidence that that human spirit is fighting back tenaciously, producing amazing results. There are many examples to indicate that these extraordinary times are yielding extraordinary creative outcomes, many of which will likely change our lives for ever.

It is worth turning our attention – at least for a moment – away from the calamity that is overwhelming us to look at what else is happening. For it is not the crisis itself, but the response to the crisis that will determine our lives in years to come, and we would do well to understand those changes and prepare for them. Much is happening today that is positive and interesting, and that could spark optimism and positive thinking within the public at large. Because what is happening at the moment is probably the beginning of a great transformation.

Creativity driven by destruction

It is a textbook axiom that every challenge presents an opportunity. The unprecedented challenge of the global pandemic thus presents unprecedented opportunities for creative and entrepreneurial ventures. The lockdown is a huge challenge for some individuals, as they struggle to survive. But it is also motivating many other people to develop, activate and use their skills to undertake new ventures – first, in order to survive, but later as a way to prosper.

Take the expansion of ICT and the digital economy. While this is one of the channels feeding the perception of catastrophe, it is also contributing to the emergence of vast new opportunities based on digital technology and innovation. What is important is that, although during the lockdown people are physically isolated from society and the economy, thanks to ICT and the advance of the digital economy they are not disconnected. Those who are confined in space are seeking new ways not only to overcome the isolation, but also to benefit from it in one way or another. This can take various forms, for example:

• Social networks are reorganising themselves and coming up with new ways of networking and communicating.
• For some offices, businesses and professions, remote work is becoming the norm rather than the exception.
• Those confined to home are seeking new ways of doing their jobs – and of doing them even more efficiently than when they worked in a traditional office.
• Those who have lost their jobs are seeking new ways of making a living, with some of them becoming innovative entrepreneurs.
• Social entrepreneurship is gaining ground, as social groups respond to the need to provide services that the public sector is failing to provide at all, or to provide in sufficient quantities.

These are a few examples of novel forms of creative human activity and innovative entrepreneurship in the broad sense in the business, social and public-sector domains. Sooner or later, these endeavours will yield new products, services and processes that will either be supplied to the market or else will serve public or social purposes.

What is characteristic of these new types of innovation is a ‘reverse causality’. When considering ‘traditional’ innovation in the Schumpeterian sense, it is innovative creation that destroys the ‘old’ and drives structural change. What we are observing now is precisely the opposite: it is the destruction wreaked by the pandemic that is driving innovative creation and hence the changes that result from it.

Transformation is already under way

With public attention focused almost entirely on the disruptive effect of the pandemic, we seem oblivious to some important changes that are already under way. There are signs that the outpouring of creative energy sparked by the crisis is starting to generate the green shoots of new societal and economic patterns that will likely shape our future in ways that not so long ago would have seemed quite inconceivable. The lack of public attention means that there is no systematic monitoring of such changes, but only anecdotal evidence. Nevertheless, the handful of examples outlined below are indicative of possible future trends:

• At the core of the crisis, the global pandemic has provided enormous impetus to health-tech innovation (quite apart from research directly related to Covid-19) that could revolutionise the future of health care. There are signs of major shifts in health care, such as the rapid upscaling of virtual care capacity and the mainstreaming of telehealth remote patient monitoring. Some of these innovations have already been transformed into mobile applications.
• As concerns the overall performance of the public sector during the pandemic, we are now witnessing the ‘overhaul of decades or even centuries of procedures and habits’; ‘normal rules are being ripped up’, resulting in an extraordinary wave of public-sector innovation that would have been ‘previously unthinkable’ (link).
• The changes in public-sector behaviour and performance are largely related to the state of eGovernment in different countries. Indeed, what we see daily in the public media suggests that the crisis has given a powerful fillip to the process of speeding up eGovernment functionalities and outreach, both nationally and internationally.
• At the level of individual consumer behaviour, there has been an unprecedented surge in eCommerce and BOPIS (Buy Online, Pickup in Store) shopping. Thus, the recently developed Adobe Digital Economy Index, a real-time barometer of the digital economy that traces online transactions based on big data, indicates two- and three-digit year-on-year rates of growth in BOPIS shopping since the Covid-19 outbreak (see link)
• In the education sector, the shock has been enormous, with more than 1.5 billion students affected by school and university closures (link). The immediate response has been to switch – on an inconceivable scale and at unparalleled speed – to eEducation and online learning in schools and universities. In many countries today, such technology-based forms of education have been transformed from an option to the norm.
• There has been a flowering of social innovation in areas where the traditional providers of socially oriented services have failed. As the provision of public services has plummeted since the outbreak of the pandemic, so the number of people at risk of exclusion has grown. Social entrepreneurs and innovators have stepped in to respond to this burgeoning need (link).
• On top of all this, there are indications of a surge in manufacturing innovation. As argued in a recent report by ABI Research, the crisis will force many manufacturers to reinvent themselves and radically change their businesses through technological transformation (link).

These examples are merely illustrative. They cover just a handful of the areas where transformative entrepreneurship is occurring before our very eyes, in parallel with the spread of the pandemic. However, they are indicative of some specific characteristics of this new wave of creative entrepreneurship.

In the first place, while most of these green shoots of innovation are buoyed by technology, they are not rooted in technology per se. The innovation we can observe is mostly organisational: it manifests itself in the reorganisation of office routines, business models and various other processes. There is also an upsurge in social innovation that either responds to the demand for social services provoked by the pandemic, or else offers novel social services that create their own demand. In addition, the pandemic serves as a catalyst to stimulate innovation in the public sector, resulting in new ways of providing traditional public services – and in some cases in the provision of novel public services.

Many of these innovations will probably end up being classified as disruptive or even radical. Indeed, there are indications of the beginning of a major economic and societal transformation driven by the crisis. This would probably be the first time that radical or disruptive non-technological innovation has driven a great transformation in society and business.

The aftermath

The current crisis and the accompanying lockdown have provoked unprecedented change in the behaviour of individuals, economic actors and social systems. There are good reasons to expect that when the pandemic is over, we will observe widespread hysteresis effects, with the new behavioural patterns remaining in place, even when the factors that triggered them no longer exist. On the one hand, there will undoubtedly be cases of lock-in, even if the old pattern is in principle more efficient, but the costs of switching back are high. But more importantly in light of the transformative effect of the new wave of creativity, some changes will remain in place because they are superior and more efficient. Furthermore, many innovations will establish novel patterns of behaviour that did not exist before the pandemic. The longer the pandemic and the lockdown last, the wider and deeper these transformative effects will be.

It is difficult to avoid a degree of speculation when peering into the future; but using a modicum of common sense we can try to imagine some of the structural changes that are likely to outlive the pandemic:

• There will be an extensive reorganisation of the workplace and the work environment, with a permanent shift of many workplaces away from their traditional locations, towards employees’ homes.
• One should expect a radical and permanent upward shift in the proliferation of the digital economy.
• Many traditional jobs will be permanently destroyed, but many new jobs will be created from scratch.
• Public-sector innovation will result in a new structure and nature of the public services provided.
• Social innovators will gain permanent new ground in the provision of socially oriented services.
• Many conventional social interactions and traditional social networks will probably be permanently destroyed, but many new tele-contacts and tele-networks will be created.
• There may be a hysteresis effect in ‘social distancing’ in the broad sense, with a reduction in the prevalence of face-to-face physical contact.
• It is not unreasonable to expect the reshaping of some social values and socioeconomic policy priorities.
• One can also expect a re-evaluation and reprioritisation of the strategic importance of economic sectors and industries, including a wave of backsourcing of strategic industries to reduce external dependence.
• That will inevitably lead to economic restructuring across the globe, in particular of global value chains, supply chains and logistics.
• There will be a widespread (often radical) readjustment of business models, with a proliferation of enterprise tech and a transformation of companies’ status quo.
• Similarly, there will probably be permanent shifts in consumer and shopping behaviour, with further growth in the share of eCommerce and BOPIS.
• Around the globe, learning is likely to switch to more open and flexible education systems, with a permanent upward shift in the share of online education.

All this will amount to a momentous economic and social restructuring – in fact, a societal transformation. Therefore, while we should not lose our focus on the main priority of the day – mitigating the negative effects of the pandemic – we should at least start preparing for the fundamental changes ahead.