A sideways look at economics
It’s certainly been an eventful year; and as I wrote in a piece to clients earlier this week, the past few months have been no exception. First came despair. As we moved through autumn towards winter in the Northern Hemisphere, COVID-19 returned with a vengeance to parts of Europe already hit hard in the spring, causing many countries to reimpose nationwide lockdowns, with hospitals working close to full capacity or beyond. But then came hope, with news that a number of vaccines already well advanced in their phase III clinical trials appeared to be extremely effective at preventing the disease. We are not over this yet. Sadly, many more lives will be lost to this disease, in the UK and elsewhere. Nevertheless, the future for humanity today appears a little brighter and a little more certain than it has for what seems like a very long time.
The team at Pfizer/BioNTech published their preliminary results on the morning of Monday 9 November, slightly less than ten months after Chinese scientists first revealed the genome sequence of the virus now known as Sars-Cov-2. That was, of course, a truly remarkable achievement. And yet, since the early stages of the pandemic, I had always been relatively optimistic about our chances of producing an effective vaccine, and in short order. Why? I am certainly no biologist. I am largely ignorant of the natural sciences. But maybe that was a help rather than a hinderance, as I was unable to perceive the sheer impossibility of developing a vaccine against a human coronavirus in the space of a few short months. ‘Necessity is the mother of invention’ – it’s a rather pithy old English saying, but one that rings true here. Sure, we had never succeeded in producing an effective vaccine against a human coronavirus before. But there had never been a need, until now.
When it comes to the industries that have reacted with speed to the coronavirus pandemic, medical science is undoubtedly top of the tree. But it is not the only industry to adapt. Many if not all of us have seen seismic changes to the way we work, and the way we live our lives. Some of these changes will prove temporary; others will not. In early March we at Fathom started to make vague contingency plans. I still have a company-wide email sitting in my sent items that I wrote on 10 March, which seems as if it was written in a different era. It starts: ‘A number of you have told me that you have Windows PCs at home that you could use, in principle, to work from home if we decide to close the office for a week or two’. (Italics added!). Here we are, nine months down the line, and it works. We have adapted, and we have thrived.
I wanted to share the chart below, which comes from our latest quarterly forecast presentation. It tells a powerful story. On 3 May 2019, in response to a request from a member of the public, the ONS dug deeply into its vast Labour Force Survey dataset, and revealed that, by the end of 2008, 3% of UK workers worked mainly from home. Ten years later, that figure had drifted a little higher, to 5%. One might imagine it hadn’t changed a great deal between then and, say, February 2020. Three months later, in May 2020, the proportion of those in the UK with a job who were working exclusively from home stood at a 33%. That figure has remained high ever since. In the week ending 29 November, 30% of those in the UK who had a job worked exclusively from home, 47% travelled to work each day, while 7% did a combination of the two. The remaining 16% had not worked that week, with most in that category on furlough.
In July of this year the ONS published an article that compared 365 different occupations, and rated each according to the ease with which it could be carried out at home. The same article provided an estimate of the median hourly pay of each of those 365 occupations. Using their figures, I estimate that occupations more amenable to homeworking attracted a median wage of £16 per hour, while occupations less amenable to homeworking attracted a median wage of £12 per hour. If – and it is a big ‘if’ – rates of pay are a fair reflection of value added, that suggests somewhere between 45% and 50% of UK GDP is currently being produced in private homes. To me, that is remarkable. Less remarkable than the recent achievements of medical science, perhaps, but remarkable nonetheless.
There are pros and cons of working from home, both from the perspective of the employer and from the perspective of the employee, and I don’t intend to run through all of them in this blog. All I will say is that, for many of us, there are likely to be some parts of our job that can more effectively be done at home, and others that are better carried out in face-to-face meetings, whether with clients or with colleagues. At Fathom, we don’t intend ever to return to the office full-time. When COVID-19 no longer constrains us to the extent that it does today, the current plan is that each of us will spend, on average, 2-3 days per week working in the office, and 2-3 days per week working from home. If we can get the balance right, and plan our week accordingly, this more flexible approach has the potential not just to raise productivity, but to improve our work-life balance.
Of course, the step increase in the amount of homeworking that took place as the UK went into lockdown has been greatly facilitated by the internet. But the internet has been with us, in one form or another, for a long time. Broadband internet, which is necessary for most forms of homeworking, has been with us for 15 years or more. We have had the potential to make these changes for some time, but we have not, because we have not needed to until now.
A client asked me the other day if I felt that the large-scale fiscal support packages put in place by governments around the world, including here in the UK, would create ‘zombie firms’, further worsening the productivity outlook after the pandemic. That’s a risk, for sure. We’ve previously blamed the poor productivity performance that can been observed across the major economies since the global financial crisis on a long period of exceptionally low interest rates. But for now I’m more of a ‘glass-half-full’ person.
‘Every cloud has a silver lining’ is another well-worn English proverb. But I do believe that the intense pressures placed on all of us by the pandemic will lead to advances, in some cases technological and in others procedural, that will eventually leave us all in a better place.
 And the occupation that can most easily be carried out from home? Well, apparently it’s that of ‘actuaries, economists and statisticians’ (quite why we are lumped in with actuaries and statisticians, I do not know). Bizarrely, it seems our work can easily be carried out at home because it requires little physical effort, and little interaction with others (well, zero physical effort, and zero interaction with others, according to the ONS).
 Interest rates set a hurdle for the required return on capital, and that required return is now close to zero. Without the necessity, why invent?