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COVID-19 will reinforce the digital and green revolutions

Neither the digital nor the green revolutions are going away because of coronavirus.

A mechanical robot agronomist gardener has grown agricultural plants in flower pots and poses with a shovel and a rake.

by
John Redwood

in Features

29.04.2020

Before the virus Charles Stanley based forecasts and scenarios for the future around the twin revolutions driving change in business and the major economies. There is the all-embracing digital revolution and the growing power of the Green revolution.  The technology revolution spread rapidly through the choices of many consumers. The green revolution primarily advanced through laws and taxes imposed by governments.

The digital waves spread through the near-universal adoption of smartphones, computer pads and tablets, laptops and desktops by the peoples and companies of the world. We are living in a sea of apps, offering everything from online shopping to smartphone banking, from internet buying of transport tickets to computerised professional services. This has long been forcing change on traditional businesses with shops, banks, travel agents and insurance brokers on the High Street having to find internet routes to market as well. It has transformed media, photography, films and much else, often providing a cheaper and more easily accessed option. Challenger businesses have sprung up to develop new possibilities. Successful traditional businesses have had to set up online competitors to themselves to stay in the game. Much of the public enthusiasm has been enhanced by free offers of service, paid for by the companies that offer the services or by adverts.

The Green changes have come mainly from governments, pushed by an active green political movement. They are no less radical in their chosen areas, demanding a complete transformation in the way we travel, generate electricity and consume energy. They wish to end the reign of the diesel and petrol car, the fossil fuel power station, the aviation spirit plane and the gas boiler heating our homes. They wish to see widespread changes to what we eat and in how homes are designed.

Neither of these two revolutions are going away because of the virus. Indeed, the main advocates of these two avalanches of change will not wish to waste a crisis. The proponents of going digital now can reinforce their messages by saying their methods allow social distancing. They can resolve many of the problems of how a company can keep its workforce in work without assembling too many people in the same space. They can offer more automated solutions for warehouses, offices and factories. We see people and businesses willingly turning to technology to keep in touch and to deliver service to get around the physical bans and controls.

The EU has recently confirmed that it sees green growth as its prime objective. It will convert this into its chosen way out of the virus recession. Democrat Presidential candidate Joe Biden uses the same language as the EU, offering a big Green Deal. He like them wants to pledge to go to net zero carbon dioxide output by 2050, with tough intermediate targets for 2025 and beyond. The EU Commission currently pledges to cut emissions by 40% from 1990 levels by 2030. The President of the Commission is trying to persuade the member states to up that target to 50/55%. Much revolves around their circular economy plans, seeking greater energy efficiency, less waste and much more recycling. These policies are all bad news for big oil, for carbon fuels generally and for conventional transport. Electric vehicles with a worldwide market share of around 2% last year will get more support, whilst diesel and petrol vehicles will attract higher taxes and some bans on use. Candidate Biden wants a carbon tax alongside higher corporate taxes generally. The EU is eyeing energy and carbon for new sources of tax income for itself.

In US politics the Democrats have been winners from the virus so far. It helped force Biden's main challenger out of the primary race early and has united more voters behind the proposition that government needs a bigger role in society to keep people safe.  Mr Trump has suffered from the economic damage done to his strategy, and from attacks on his handling of the virus crisis for not being engaged early enough. The green movement will not be phased by the way the virus will put some people off using trains, tubes and buses. They will seek to capitalise on the idea that more streets should be for walkers and cyclists, drawing comfort from the way the economy under controls managed to function without the usual traffic jams.

If Mr Trump still manages re-election, he will stand out against some of the green agenda. He will continue to distrust the world order as he picks fights with the WHO, WTO, international climate treaties and the rest. He will just find it even more difficult to do so as he goes about trying to rebuild his vision of prosperity based on big oil, the car on the open road and the right of the USA to ignore or deny the international treaty-based order when it chooses. The rest of the world and its markets will be going in the other direction along with Democrat-led states in the USA.

China will claim to be a good world citizen with its own version of green policy, whilst busily acquiring many of the raw materials and technologies to dominate the new products and markets.  For investors, it is important to assess share investments against the impacts of these two dominant revolutionary forces in the modern business world. If anything, the virus has just reinforced both. Plenty of capital will now be written off in carbon-based technologies, in commercial property on the High Street and in other traditional business areas. Opportunity is there for those who look for the investments that do well out of these big forces for change. Overall returns on capital will be lower as we move through the big write-offs and as governments seek to take more in tax from business to help pay for the crisis.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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