Bold Action Today can Ensure a Brighter Tomorrow

Heeding history’s lessons learned during past catastrophes can strengthen the response to the COVID-19 pandemic.

(Essay by Kearney Consulting Group)

When you’re in the middle of a crisis, it’s easy to overestimate the short-term impact while overlooking the potential long-term outcome. This is certainly true now in the midst of the COVID-19 pandemic—a once-in-a-lifetime event but one that is actually quite similar to four other events that have occurred over the past century. Each crisis—the 1918 flu pandemic, the Great Depression, World War II, and the Great Recession—was marked by a period of economic contraction, an uptick in mortality (especially during pandemics and wartime), and swift destruction of value. We already see all three of these occurring in our current crisis.

The past offers four lessons for how to put our best foot forward:

• Take big, bold, fast action.
• Balance any efforts to reduce costs with ingenuity and innovation.
• Prepare to serve tomorrow’s consumer, not yesterday’s.
• Use emerging technologies to soften the blow of disruption.

The importance of these lessons cannot be overstated as any missteps will be extremely costly. The 1918 flu spread rapidly because many people refused to quarantine despite the cries of public health experts. And during the Great Depression, US President Herbert Hoover’s laissez faire approach after Black Tuesday sent the economy into a freefall. Stronger short-term responses during World War II and the Great Recession suggest leaders learned from history.

In this article, we examine the four major crises from the past as well as the COVID-19 pandemic, and we take a glimpse into the short- and long-term reactions. Then, we discuss how past lessons are shaping today’s responses.

From 1918 to COVID-19: a brief history of crisis responses

The 1918 flu pandemic

The flu outbreak in 1918 occurred in three waves over the course of a year and ultimately took more than 20 million lives globally. In the United States, the initial inadequate response centered on funding for the Public Health Service coupled with an effort to mobilize doctors to treat localized outbreaks. Far more effective was the banning of public gatherings to “flatten the curve”—a phrase we are all familiar with now. St. Louis did this early on with great success, while Philadelphia waited and suffered far more flu-related deaths. Longer-term positive moves coming out of the pandemic included coordinating public health on an international level by establishing what ultimately became the World Health Organization as well as a move across the United States to promote vaccinations.

The Great Depression

The 1918 pandemic was rooted in a viral contagion, but the Great Depression was the result of a manmade confluence of events. The Roaring Twenties saw the stock market rapidly expand as a result of speculation, peaking at a time of declining production and rising unemployment. A perfect storm led to the stock market crash of October 24, 1929—forever known as Black Tuesday. By 1933, US industrial production was slashed in half, GDP fell by 30 percent, unemployment exceeded 20 percent, and one in five banks went out of business. Hoover’s hands-off approach failed to stimulate the economy, and new tariffs exacerbated the effects of the depression.

After President Franklin Delano Roosevelt’s inauguration in 1933, Congress passed legislation that established a number of useful new laws and agencies. These New Deal policies created safety nets that would help cushion the effects of business cycle downturns, along with the Securities and Exchange Commission and programs such as Social Security, unemployment insurance, and minimum wage. The corporate response during this period is exemplified by Procter & Gamble and Coca-Cola, which strengthened their brands and boosted sales by advertising via new marketing channels.

World War II

Just as the Great Depression was ending in 1939, World War II was breaking out in Europe and Asia. Initially, the United States was neutral, but the March 1941 passage of the Lend–Lease Act led to American goods, including warships and airplanes, being provided to the nations that became US allies after Japan’s attack on Pearl Harbor. US manufacturing output increased, with many factories that had previously produced items such as cookware and automobiles transformed to make ammunition and tanks. Throughout the war, the government purchased roughly half of all American-produced goods. In the short term, civilians experienced rationing, and many women worked in manufacturing as more than 8 million men went off to war. In 1944, the GI Bill was passed—providing veterans with educational support, unemployment benefits, and loan guaranties and paving the way to the nation’s postwar prosperity.

After the war, factories returned to producing commercial products, and the US economy benefitted from worldwide demand for the materials and products needed to rebuild. The private sector emulated the US military’s supply chain prowess to bring goods to this global market. The immediate postwar era also saw companies spending tremendous amounts on advertising to compete for consumer dollars, and materials that had been developed for the war effort, including nylon, plastic foam, and aerosol spray cans, were used to make new products. Looking farther ahead, improvements to radar technologies during the war helped lead to the development of GPS. 

The Great Recession

More than 60 years of relative peace and prosperity passed until the next major crisis: the Great Recession of 2007–2009. Throughout the 2000s, housing values in the United States surged, and lenders grew lax in their standards as they were selling many mortgages to investment houses that bundled them into mortgage-backed securities. When the housing bubble burst, the financial industry was crippled, the US GDP dropped, and unemployment surged. In 2008, outgoing President George W. Bush signed the Troubled Asset Relief Program to stabilize the economy by investing in failing banks and businesses, and the following year, incoming President Barack Obama signed a $787 billion stimulus package to jump-start consumer spending, expand unemployment benefits, and quickly create jobs. In 2010, the Dodd–Frank Act put in place new regulations on lenders and banks to protect consumers—although mistrust in big banks lingers, especially among Millennials. Tech companies responded by launching online competitors, which has reshaped the financial services industry. Since then, the stress tests applied to financial institutions have helped keep them strong in our current crisis.

COVID-19

And now, after more than a decade of economic expansion, the COVID-19 pandemic has swiftly decimated the employment ranks as most of the United States is under stay-at-home orders that have closed many non-essential businesses. In a three-week period ending on April 10, more US jobs were lost than in all of the Great Recession. The government has already passed several major bills to help the economy, including a $2 trillion stimulus package that provides direct payments to individuals, expands unemployment benefits, and offers loans and grants to businesses. While we cannot be certain about the long-term impact, the recovery could take some time because of the debt that households, businesses, and government bodies alike are taking on. Many supply chains will need to be reinvented to create the flexibility needed to respond to future calamities. One winner seems to be e-commerce, which has seen nearly a doubling of retail transaction volumes year over year in the first month of this emergency as Americans seek the sort of touchless transactions that brick-and-mortar retailers have yet to master.

Lessons learned

Unprecedented times such as these call for big, bold, and immediate action. In each crisis discussed above, the worst outcomes were avoided when strong measures were taken early on. The speed element cannot be overemphasized. Many of these situations saw successful responses within their first 100 days, and the Trump administration and Congress continue to work on legislation to help the economy just over a month since the World Health Organization declared that the outbreak had become a pandemic. Conversely, dithering leads to destruction, as clearly evidenced by the 10,000 deaths in an “open for business” Philadelphia during the 1918 flu pandemic and Hoover’s tepid responses to the Great Depression. 

During a global crisis, forward-thinking companies make shrewd investments. Rather than cutting costs and shying away from investing, those that have weathered the storms of the past focused on improving their operational efficiency, which in turn lowered their costs. They also put their limited resources to work in creative new ways. Forward-thinking investments in marketing, R&D, and even new assets can lead to growth. 

Looking to the future, keep in mind that tomorrow’s consumer may well be very different from the one we have become accustomed to as global crises tend to reshape behaviors and lead to the creation of new industries. Success will come to those that capitalize on these new behaviors by shifting their business models and creating consumer-focused programs to meet them where they are rather than where the company wants them to be.

Finally, emerging technologies can soften the blow of disruption. During a global crisis, many supply chains and even the means of production are upended—as we are now seeing in consumer products and retail. Ensuring business continuity requires launching new technologies and digital tools to reinvent supply chains—creating a whole new normal.