We’ve returned to a medieval economy, dominated by “essential services.” For most of history, some 80 percent of every nation’s economic activity was devoted to providing the basics: food, fuel, and services related to day-to-day survival. But in modern society, tens of millions of people do “nonessential” jobs that are, in fact, essential.
Even in health care, most hospital profit doesn’t come from treating the seriously ill. As the Wall Street Journal notes, elective procedures, from “nonessential cosmetic fixes, such as a rhinoplasty to more serious surgeries like hip replacement,” create the revenue that sustains hospitals. All these surgeries are now cancelled, affecting the capital budgets of hospital chains, and, in time, creating a trail of business and job losses. As we saw during the 2008 economic crisis, hospital profit margins collapse in recessions. Society’s ability to afford nonessential health care comes from a well-off, fully employed population.
Most airline travel is “elective,” too. Prior to the crisis, some 70 percent of airline passengers traveled for pleasure, not business. The entire edifice of sports is elective, as is anything involving entertainment and the arts. Eating in restaurants is an elective activity—and it generates three times as many jobs as farming and shipping food to homes. About as many people are employed in the “leisure and hospitality” sector as in health care. The information sector employs slightly more people than agriculture, with far fewer of its workers doing anything “essential.” Many daily activities, and most jobs, are elective. The arc of civilization’s progress has been to decrease the share of humanity’s economic activity devoted to the “essential.” That is, until the pandemic’s stay-home orders.
Since Covid-19 has been compared with World War II, let’s consider 1940, when some 37 percent of the U.S. economy was devoted to building warfighting machines. Right now, health care represents a comparable amount of our GDP—about 30 percent to 35 percent. That higher-than-normal share is a result of increased spending on disease mitigation combined with the simultaneous decrease in the size of the rest of the economy. Throttling the economy by keeping so many people at home, while throwing money at health care, is a short-term necessity but not sustainable for long.
If we want to avoid replicating the long, flat-bottomed U-shape recovery that followed the 2008 crisis, we need to figure out how to get tens of millions of people back to work—and not necessarily at their old jobs, since we surely face a restructured economy. And we must accelerate the development of a more resilient, capacious, and effective health-care infrastructure without breaking the bank. No collection of Washington policymakers or bureaucrats is up to this monumental task. We need to unleash the productive energies of entrepreneurs and businesses.
And for that, it’s fortunate that technology’s tools have changed so radically in the short decade since the 2008 recession. The smartphone era has emerged since then, along with the emergence of the Internet as an essential infrastructure. Both are now infused with rapidly advancing artificial-intelligence capabilities. These transformations have enabled the growth of new kinds of commerce and connectivity typified by innovative companies, like Airbnb, founded in 2008, and Uber, launched a year later.
Similarly, over the past decade, we have witnessed the emergence of other iconic capabilities, such as Apple’s Siri voice (2011) and Amazon’s Alexa (2015), along with the creation of an entire new product category—the task-specific software application, or “app”—first created in 2008. Just last year, over 1 billion people downloaded over 100 billion apps. Tools like FaceTime, Zoom, and other video-chat apps became robust and effective, making remote work and education far more useful. And everyday computing is now as potent as the most powerful military supercomputers in 2008.
The technology sector has quickly stepped up to help find therapeutics and vaccines. Google and Apple announced a collaboration to develop solutions for contact-tracing, which has always been critical in epidemic control. The White House kicked off an initiative with the Allen Institute for Artificial Intelligence. And, independently, numerous tech companies have offered free AI and Cloud computing to researchers, as well as new consortia—one, for example, led by C3.ai, with a free global Covid-19 “data lake.” Another involves a research consortium of tech giants and major research universities. Many other initiatives are underway to conquer medical challenges and bend the curve on health-care productivity. Fundamental gains in the latter can come only from more automation, which, by definition, increases useful output without increasing inputs.
But resuscitating our economy is equally crucial. We should expect—demand—something different this time as we recover from our engineered recession. If policymakers want to guide and facilitate a fast, V-like recovery, they should look to reducing, or eliminating, regulations—and taxes—that impede job creation and risk-taking. This would accelerate appetites for new and existing companies to “Uberize” and “Amazonify” all facets and interstices of their business—connecting job hunters with employers; training and enabling remote work for those who can’t easily move; and reconfiguring the complex labyrinth of service-and-production supply chains. It’s now possible, for instance, to find out, with real-time connectivity and vision systems, whether “shovel-ready” claims are real. Can we doubt that there will be a need for automated disinfection of, say, aircraft and hotel rooms, along with an app-driven means to create traveler confidence in such processes?
We can get all that, and more, from the sophisticated AI algorithms and robots that so many worried would destroy jobs in the pre-Covid era. Such productivity-driving tools do in fact mean fewer people (and lower costs) to get the same outcome. That’s precisely why the Wall Street Journal reports that companies are already rapidly embracing algorithms and robots. But productivity is critical to survival in hard times, and it is the foundational driving force in wealth and job creation.
In the future, we’ll look back at this time as a pivotal period in history in terms of how our society dealt with the pandemic. We will soon see whether our radically new information infrastructure gives us the power to get better health care, without coming at the expense of our “nonessential” economy—upon which true economic recovery depends.