Capitalism 1.0 Just Suffered a Virus Crash..what’s the System Upgrade?

31 March 2020
Sven Stenvers

In our corner of the world at Impact Seed, in a few short weeks since early March, we’ve seen very significant practical ‘operational’ impact of the coronavirus pandemic, including delays and disruption to a number of projects working with social entrepreneurs and impact investors, particularly in regional Western Australia given our very place-based approach. We’re also hearing from our social enterprise network that they are facing extraordinary challenges, especially our retail, tourism and hospitality focused employment-based social enterprises which actively look to employ some of the most vulnerable Western Australians (numbers of which will increase with COVID19).

Internally we’ve moved almost entirely to Zoom, Hangouts, Asana and other collaboration tools and online resources where possible. But, what really will be the ‘new normal’?

If Ever a Situation Called for Innovation its the Looming Economic Corona-crisis.

None of us can crystal ball gaze on what the future looks like in such a fluid and rapidly changing situation. Many opportunities will emerge over time, but both the health and economic situation are likely to get worse in the foreseeable future before they get better.

In the short to medium term even with ‘stimulus measures’ in place Australia faces unemployment of ~20%.

There is also a real risk of a drawn out global recession. Past economic collapses have originated in the financial system, and this one being driven by this virus has no precedent, but it will certainly be much broader and deeper, disrupting supply and demand across the world. A coronavirus-led business and trade collapse in the US/EU would have a significant impact on China as their largest export markets. In turn, Australia’s biggest resources export market would be pincered.

The impact would be severe in Australia, and with insurers denying coronavirus business interruption claims, business failures could domino with foreign and private equity coming in to acquire, consolidate and ‘cost-out’ (ie shut down and sack workers).

As the highest household indebted nation in the world, Australia’s home foreclosure rate could increase substantially, together with failing businesses placing pressure on banks, which in turn would be looking for govt/central bank support. Western Australian households are in a particularly precarious position having already suffered 5 years of economic decline post-2013 mining bust.

This isn’t a ‘black swan’ or a doomsday scenario. It’s a very significant possibility in our highly leveraged, free market, deregulated, globalised economy which is wholly reliant on fragile ‘just in time’ supply chains. It would not produce a ‘short sharp recession’, but a seismic long term economic shift.

We have a choice in shaping the post-corona economy now..

In these times we need to think differently than just more stimulus and hope for recovery of what more and more people are realising is a broken system.

The economic value and social impact of local manufacturing and jobs, especially through employment based social enterprises cannot be underestimated at this time, or at any time in the future. The coronavirus is showing us that. These businesses create resilience in the system. For example the only Australian manufacturer of surgical masks in Shepparton, is now scaling its production from 2 million to 50 million to meet current demand for COVID-19 because China imports simply can’t meet demand.

The Med-Con example of a rare and endangered specimen of a near-extinct local manufacturing industry surviving against cheap imports literally saving our lives in an emergency could also be found across the food system, textiles, machinery, retail products and many electronics in any future shock to a ‘fragile system’ like Australia’s.

Even our fossil fuels supply chain would be in ruins in the event of a supply shock (Australia only has 3 weeks emergency reserves of fuel.. thanks to offshoring fuel refineries over decades). The supply chain impact of Australia running out of fuel in 2020 would literally be a national disaster of epic proportions (NB. at the time of writing the price of oil – which WA’s gas industry is pegged to – has plummeted 80% to a $20 level unseen since the late 1990s).

We should all expect unexpected shocks in a fragile operating system.

What Can be Done to Build a New, Resilient Operating System that Works for All?

If there was ever an idea whose time has come, then its social, circular, regenerative local ventures emerging from this unprecedented disruption to capitalism 1.0.

This evolution must include re-localisation of supply chains, reversal of the rampant globalisation push which has offshored thousands of jobs across manufacturing and value add industries, externalised costs to customers through overseas call centres, and is currently decimating retail through Amazon-ification of everything.

To truly diversify and build a resilient economy, we need to reinstate and publicly support existing and new local manufacturing capacity and skills, and recognise the premium and benefit of localised, regional production through appropriate government support to support re-localisation.

When this disaster is over we had better start making our own stuff in this country, with vulnerable people and the social enterprises that support them at the FRONT of the queue. Not in an order book or awaiting a call back based on dollars and cents.

What now?

Now is not the time for government, investors and the community sector to bunker down and narrow their perspective; if ever a situation called for innovation and taking risks on new ideas its this crisis.

Today: With the economy (and all of “us” who the economy exists to serve) still in shock and being triaged by the ‘ambulance’ of governments, we still have a way to go before we recover. Best we start thinking about that now..

Tomorrow: The unfolding recession of the COVID19 and post-COVID19 period will cause unprecedented homelessness and myriad social issues as a result to the economic pressures placed on individuals and families. This unemployment/under-employment means these people in our communities will need jobs that a broken economy won’t be able to provide in time, or perhaps not for a very very long time under the current 1.0 operating system.

We can turn COVID19 into an opportunity to upgrade the economic operating system to 2.0

• a diversified economic system
• investment in inclusive social change through social and worker cooperative enterprises;
• developing resilient, regenerative, social, circular, local economies;
• supporting local and social procurement and business.

In the era of coronavirus-induced social and economic destruction and fragile supply chains, corporate and government social procurement through employment based social enterprises would truly diversify our ‘one trick pony’ economy.

If this social enterprise effort is also leveraged through investment by a not-for profit, government, lottery grants and the philanthropic sector who are typically the first-responders and ‘first-loss-funders’ to the people suffering in our communities; then the systemic impact, and economic diversification for positive social impact could be truly transformational for Western Australia.

Together we can make this unprecedented challenge a catalyst for inclusive change through social enterprise and resilient, regenerative systems and business.

Check out the Preliminary Report on the WA Social Enterprise sector, and join with us to launch the Western Australian Social Enterprise Council