Our Economy Was Just Blasted Years Into the Future
The crisis is compressing and accelerating trends that would have taken decades to play out
In 2010, two former New York hedge fund investors paid $5.8 million to buy Clear, a biometric identification firm that had gone bust in the fallout of a lost laptop containing the unencrypted personal data of 33,000 people. Caryn Seidman Becker and Ken Cornick were certain they could revive the company’s fortunes and earn tons of money whisking people through aggravating airport security lines based on scans of their irises and fingerprints.
To a degree, they were right. Just two years later, the Department of Homeland Security recognized them as a “qualified anti-terrorism” firm, and they quadrupled their clientele, expanding into security, along with age-verified beer sales at major sporting events. Clear says it has turned a profit since 2017.
But that was all before Covid-19.
Last week, Seidman Becker launched Clear into a brand new digital space — “touchless technology,” a play built around the fear that the coronavirus may lurk on any surface, anywhere. Against this threat, airports are deploying a new level of security including thermal cameras, all but assuring exceptionally long lines once people resume flying. Seidman Becker is responding with hands-free navigation: Clear will upload its clients’ Covid-19 test results, ID, air tickets, credit card, and health quiz. This, along with iris and face scans, will allow them to pass through the new phalanx faster.
It is an unusual, once-in-a-lifetime, super-charging event for companies such as Clear and its surveillance rivals, rebranding themselves while becoming an answer for companies, offices, and agencies everywhere contemplating how to safely reopen.
The concept is now spreading well beyond the airport. Clear, along with Swiftlane and Envoy, are among the companies that have begun to offer similar services to office buildings. They say the technology is deployable anywhere someone needs to prove identity or take out their wallet to pay, raising the specter of biometric entrance to many or most of the places people frequent. The possibilities are limitless.
Before the coronavirus, surveillance capitalism was already a big worry — Big Tech companies were vacuuming up data from laptops, front doors, appliances, kitchens, living rooms, and smartphones and selling the resulting market intelligence for hundreds of billions of dollars a year. Now, touchless technology suggests a new front in the age of around-the-clock commercialized surveillance, hackable by Iran, China, North Korea, Russia, or any number of private actors, well- or malignly intended. It is an unusual, once-in-a-lifetime, super-charging event for Clear and its surveillance rivals, rebranding themselves while becoming an answer for companies, offices, and agencies everywhere contemplating how to safely reopen.
In a webcast last week sponsored by Axios, Seidman Becker did not say how many people had signed up for Health Pass — as Clear is calling its new product — and the company did not respond to emails. But the recast also lets the industry mask over the Orwellian undertones created by companies such as China’s Megvii Tech, an A.I. unicorn whose facial recognition cameras have helped to sweep up members of the Uighur minority. It makes them appear not to be about odious Big Brother presumptions but societal safety. In this makeover, “touchless” becomes more like “wireless,” a benign appellation meant to milk the zeitgeist.
“It’s a one-time shift in technology. After this, it’s going to stay like this forever,” says Saurabh Bajaj, CEO of Swiftlane, a Silicon Valley touchless startup using facial recognition. He says that Covid-19 had enabled technology to leapfrog into an immediate future of touchless elevators, doors, and trash cans. The barriers, for the most part, are gone: “We will just move on into this new world.”
Throughout history, pandemics have left varying, sometimes momentous impacts on the societies in which they have occurred. In the 16th and 17th centuries, smallpox, measles, and other diseases brought by the Spanish wiped out up to 90% of the South and Central American population, utterly transforming the historic order. Conversely, the global flu pandemic of 1918 to 1919 appeared to establish no new norms, suggests Harvard political scientist Joseph Nye. Rather, the approximately 50 million flu deaths seemed to blend into the general slaughter of World War I and go on to be all but forgotten until modern historians began to write about the calamity in the 1970s.
As a catastrophe, Covid-19 itself appears so far to be a hybrid in impact — vastly speeding up some potent trends while quickly dispelling others that people thought were happening but actually weren’t. Cliff Kupchan, chairman of the Eurasia Group, says such acceleration is a natural byproduct of crises like pandemics, which “tend to jolt the current system.”
Against the backdrop of a two-century period of faster and faster transformation, the coronavirus is compressing and further accelerating the arc of events.
“There is pressure on all trends, and only the strongest, most vibrant continue to be underway,” he says. “Only the fittest survive. You have a Darwinian moment for trends.”
What Kupchan is describing is an economic time machine. Against the backdrop of a two-century period of faster and faster transformation, the coronavirus is compressing and further accelerating the arc of events.
Consider the shift to driverless automobiles, one of the most-predicted events of our time. In the popular vision, repeated countless times by Silicon Valley, Wall Street, Detroit, expensive consultants, think tanks, and governments around the world, the human race is quickly shifting to a world of autonomous, shared cars. Starting in the early 2020s, it has been said, people will travel in such vehicles, heedless to their surroundings, relaxing, working, or shopping in smart metropolises looking substantially like Orbit City, home of the Jetsons, perhaps even including a few flying cars. This newfound liberation from the steering wheel would be a bonanza for automakers and Silicon Valley alike, producing tech-laden vehicles that would suck up a constant flow of lucrative data from the passengers. So certain was this future that the major automakers and Silicon Valley went on a spending spree to make it a reality, investing a collective $16 billion.
That was then. Even before Covid-19, many auto hands were already expressing private doubts about the timeline. But now, prominent names have mostly stopped making predictions about what they will produce and when they will produce it. Ford has outright postponed the 2021 debut of robotaxis and driverless delivery vehicles, saying that the virus could have an unknown, long-term effect on consumer behavior. BMW says people seem not to want to get into the kind of shared, autonomous vehicles it had planned but instead to drive their own car. GM has shut down Maven, its car-sharing service, and laid off 8% of the workforce at Cruise, its driverless vehicle division.
One reason for the doubts about the revival of gains for workers is yet another byproduct of the coronavirus: an accelerated automation of jobs.
Some of this is the auto industry feeling its own mortality: Ford expects to lose $5 billion this quarter after a $2 billion loss in the first three months of the year. Fiat Chrysler also lost just under $2 billion the first quarter. GM made a little money — $294 million — but that was an 86% drop year-on-year. It has been the same abroad: VW’s earnings plunged by 75% in the first quarter, and Toyota says it expects its full-year profit to plummet 80%.
But the industry has also lost confidence that a fully autonomous, go-anywhere vehicle is possible any time soon. In a Wall Street Journal report on May 18, Uber — whose business model until recently centered entirely on mastering autonomy — was said to be reevaluating driverless research after burning through more than $1 billion. It was stunning news since just last year, Uber’s self-driving unit was valued at $7.25 billion. In addition to the major players, tens of millions of dollars of venture capital has gone into countless startups, among them Argo AI, Zoox, Aurora, and Voyage.
No one is publicly giving up — that would be too much of a concession given the hit they would probably take from Wall Street. Rather than an admission of failure, look for one after the other to embrace lesser, limited autonomy such as lane changing, highway driving, and automatic parking.
A primary economic bright spot in 2019 was the lowest-paid tier of workers, whose wages rose by a dramatic 4.5% after decades of a shrinking share of the economic pie. Companies were snapping up some of the hardest-core unemployed — among them the long-time jobless, felons, and drug users, necessary because, with the unemployment rate at 3.6%, there was no one else to fill the jobs.
The coronavirus has erased all of that, returning many of the newly hired workers to jobless status and making the prior year’s wage raises look hollow. According to a new paper published by the National Bureau of Economic Research, 42% of those laid off won’t get their jobs back. How most will ever regain what they have lost is not clear since the economy had almost no cushion for them, says Rick Wartzman, director of the Center for a Functioning Society at the Drucker Institute. “The progress that was finally beginning to be made in raising all boats is now sinking the smallest boats most rapidly,” says Josh Bolten, head of the Business Round Table and former chief of staff to President George W. Bush.
One reason for the doubts about the revival of gains for workers is yet another byproduct of the coronavirus: an accelerated automation of jobs. Some parts of the country were long fearful of the possibility of robots taking over swaths of the economy, and companies, big consultants, and thought leaders worked overtime to assure people that automation would help workers, not replace them.
But the moment of truth forced by the virus has seen worker-replacing automation even by companies that had not previously turned to robots. The trend is more pronounced in China, where investment in automation technologies is surging, but U.S. companies are trying out more robots, too. “Many companies are experimenting with automation in ways that they might not have today without necessity — from A.I. to replacing shut-down call centers in the Philippines and India to robots using ultraviolet light to sanitize,” says Karen Harris, managing director of Bain Macro Trends. “As we have a greater installed base of automation, the cost will come down, and the number of use cases will rise.”
One of the key buyers of these new robots are retail stores, already among the most disruption-stressed sectors on the planet. Since 2015, about 32,600 stores have shuttered across the U.S. as consumer taste shifted online. Since the virus, the industry’s implosion has sped up, with new bankruptcy filings this month by J.C. Penney, Neiman Marcus, and J.Crew and forecasts of 100,000 more store closings over the next five years. Combined March and April sales fell a calamitous 24%, a record.
Yet, look closer at the numbers: Leading up to Covid, just 15% of retail sales happened online. Now, during the coronavirus — with almost every store around the country shuttered, apart from groceries, pharmacies, and some other essential shops — the number rose to 25%, UBS said. That is, despite a majority of the country sheltering at home, captive to their computers with all those online websites, physical stores still rang up three-quarters of all sales.
The virus clearly changed consumer behavior; in just a few weeks, e-commerce achieved years of growth. Yet the pandemic, at least so far, has not driven most buyers online. This may make retail another case in which what we thought was happening may not be: Against the drumbeat of forecasts of the demise of physical stores, people still prefer them — perhaps not the current number of stores but physical shops nonetheless.
If there is a perverse positive gloss in the retail fallout from Covid-19, it is the opportunity for vulture investment firms. As if to underscore that possibility, Women’s Wear Daily reported last week that Amazon was in talks to acquire J.C. Penney. Both companies declined to comment, but it seems the e-commerce behemoth’s interest in physical retail has not waned.
Since taking office, President Donald Trump has campaigned for American companies to return their manufacturing activities home in what experts call a “decoupling” of the U.S. and Chinese economies. Until Covid-19, he didn’t have much luck on this front — big companies traditionally favor globalization since a presence everywhere can mean richer profit. Most simply refused to pull up stakes in China.
But in an interview with Fox News on May 14, Trump renewed a call for Apple to make the iPhone entirely in the United States. And he raised the dramatic specter of the U.S. breaking off “the whole relationship” with Beijing.
What most of the biggest American companies will be able to count on is their own survival.
That pressure, combined with U.S. tariffs and the spectacle of the coronavirus shredding far-flung American company supply lines, many CEOs are now quickly strategizing how to better diversify their offshore supply chains, suggests David Dollar, an analyst at the Brookings Institution.
U.S. companies such as Apple and Google are begrudgingly embarking on what will be a yearslong process of finding and establishing the right new partners, according to reports. Mauro Guillén, a Wharton professor who teaches a new class called Epidemics, Natural Disasters, and Geopolitics: Managing Global Business and Financial Uncertainty, says companies are likely to contract with duplicate sources of supply, adding to cost but resulting in a tradeoff: higher prices but a more secure manufacturing chain.
What most of the biggest American companies will be able to count on is their own survival. For years, trends have favored so-called “superstar companies” — Big Tech and other mega-businesses that typically attract the best research talent, buy up the most valuable new patents, and cut the most advantageous deals. The Covid-19 age is entrenching their dominance, says Tania Babina, a professor at Columbia University.
Babina is the co-author of a new paper called “Crisis Innovation” in which she describes how, during the Great Depression, the most important inventions, regardless of the creator, ended up in the hands of the largest companies, too. Not right away, but eventually. Under pressure, it turns out, future corporate behemoths may simply be faster, hardier versions of their current selves.