I have a friend who laughed so much when he said, but where did you call to me? The love nowhere in And I said, look have a little shop store where I can buy my groceries. I have this little bank and they have a pharmacy. And there are two birds. And then he said, why do you have a pharmacy? Where do you need a pharmacy if you have to borrow? Hello, and welcome to Stephanomics, the podcast that brings the global
economy to you. And that was Lowly Garthia, one of many who has used the pandemic as a chance to escape city life. Where we work, how we work, what we're wearing when we work. Is that all really going to change forever? More? In a year or two is time where we wake up find we're all pretty much doing what we were doing before COVID ninety. It's a question we keep coming back to you on this show because if work changes, the entire shape of our economy
might change too. Cities could shrink, a lot of low skilled jobs in those cities could disappear, and governments could find themselves having to completely rethink how they try to tackle poverty and stimulate growth. In a minute, you'll hear me talk about all of that to Spend Smith, one of the co authors of a series of important reports on the future of work and the global economy post COVID. We'll also here why the Irish government is so keen to keep people from going back to work in their
city offices. They're even going to encourage them to work in their local pub. But first, here's our Spanish economy reporter Jeanette Newman in Madrid and a quiet corner of northeast Spain. I'm walking through some outeror dining spats in the west. That's neighborhood in the center of Madrid. This neighborhood history centuries ago. The author of Don Quixote and other legendary writers lived here and as beautiful plus as with fountains and great tapas bars, many of which are open.
Despite these charms, apparently not many people want to live here. To my left, there's an apartment for rent. To my right another there are several dozen apartments for rent just a few minutes from where I'm walking. So many empty apartments is pushing down rental prices. They fell around ten percent at the beginning of this year in Madrid compared to last in major cities around the world. The story is the same. In some central parts of Sydney, London,
New York, and Chicago, prices are falling. The decline shows one way the pandemic has changed US. Urban centers have become less appealing. Let's push some city dwellers to move out. At the same time, it's slow the number of people who would normally move in. This ditching and dodging has major implications for rental prices, inflation, the cost of housing, and inequality. Let's go to the tiny town of Oust
in northeast Spain. I traveled there to speak with recent city transplants about their new rural life and their post pandemic plans. I wanted to find out how permanent this global shift away from cities might be. A century ago, nearly fred people lived the new said, now they're two hundred. The town is located in an area of Spain that has an average of around seven inhabitants per square kilometer. There are few other places in Europe that are so
sparsely populated, except the Scottish Highlands and Lapland. That's right, villains Subarctic wilderness for decades. Then, who said has been a place where people generally didn't want to live. The pandemic has changed that. New residents like Lowi Garcia are moving in. I have a friend who laughed so much when he said, but where did you go to? Middle of nowhere in And I said, Luke, half a little shop store where I can buy my groceries. I have this little bank that it already stole my car. When
I went to take somebody out. Half a church and they have a pharmacy and there are two bars. And then he said, why do you have a pharmacy. Why do you need a pharmacy if you have two bars. Lowly is thirty nine years old. She works in education and is studying to become a kindergarten teacher. In September, she left her rental apartment in Madrid and moved to said with her kids. She wanted space and to be
near nature and family. Lowly has deep ties too, said she spent much of the pandemic in the home that belonged to her great grandmother. Lowly enrolled her two boys in the town school, boosting the total number of pupils to nine. For small towns, like you said, a local school is an existential bell Weather when we came like people. You can feel that people only love me because I have two kids. And a town official called Lowly because
she didn enrolled two kids in school. She had the right to two plots of municipal farmland, hold over from an earlier era when the town administered common lands for villagers. She didn't want the farmland, but she says the town has given her something less tangible and more profound. And the thing that I like very much of said is the fact of nature and freedom is the fact of time.
It seems like you have time again to leave something that in the cities, no matter how much you try to have time, sometimes you always feel running after it. I don't know yet if I I'm going to be a rural woman for the rest of my life, but maybe for two or three more years. It's a fact. If Lowly and others stay, it would slow the exodus that Alberto Sanchez has seemed diminished his hometown. Alberto is
thirty three years old and an historic preservation architect. He counts the cost of depopulation and who SAIDs abandoned buildings. Alberto bought one several years ago. He was supposed to spend part of Madrid doing research for his dissertation. Instead, he spent much of the pandemic restoring the property. I think that this project comes out of both my brain gain in a depopulating town, seeing the population firsthand as a kid. Even during my lifetime, my town loves about
half of its population. When I was a kid, we had around four hundred people, and now we have around two hundred. He shows me around his property, a seventeenth century manor house. There's a coat of arms on the facade, basking in the sharp Spanish sunlight. The house is regal, despite the collapsed ceilings and piles of rubble. I thought that I needed to sur buy it in order to save it from other destinies that will have awaited her, including the militian, which was perhaps the most likely one.
Alberto bought the house from a family who lived here until nineteen at the time tens of thousands of Spaniards were to camping to cities in search of better opportunities. The house is as the family left. It dishes in the pantry, covered in a thick layer of dust, old paintings in the attic. Alberto says the family planned to return but never did. And look at all the pots hanging there. It's beautiful. But again it's like they left and then we'll come back, we'll come back, and then
they never came, and they never came back. For Alberto, the house is a time capsule. It tells a story about who said and rural life in Spain. Despite the challenges, Alberto has become more optimistic about that story during the pandemic.
What I know is that four houses were built last year, and the top four your houses, which is a lot for a town this size, and many people are realizing that it's much cheaper to live in a town like this than to live in a city, especially in large capitals like Madrid and Barcelona, where housing is becoming and possibly expensive. Some people, though, are worried the charms of small town living will wear off once the pandemic fades.
I traveled deeper into what's known as Las Spanavacia, Empty Spain to hear about the challenges in the town of Ourea. I spoke to Manuel Marco. He's fifty one years old. He and his wife moved to this town of around two hundred people just before COVID nineteen hit. During the pandemic. He's been happy to see more than a dozen new residents come to Aurea, but he's worried they won't stay and that others will continue to stay away. The reason
slow internet. The Spanish government has pledged to spend billions of euros and EU pandemic recovery funds to ensure fast internet for all, but Manuel doesn't want to wait, so he's hatched a plan to tap the fiber optic tables have a nearby power plant and extend them to Area and several other small towns. He walks me down to Area's main street and shows me where he would install the cables from that entrance to the town over there,
all along this road, straight down to the end. Didn't My decision to try to install telecommunications in these towns is about my intention to help these towns repopulate, so people can invest, so people can work, and so that the young people don't leave in these towns, don't die out. Okay, what does all this mean for the economy? I spoke to HSBC Global economist James Pomeroy. So you've ended up getting is a big dropping rental demand and a big
dropping rental prices. And big cities, And you're seeing this in pretty much everywhere we can get data BID in the US, BID and Europe, BIT and Asia, my rental prices and big cities of Plumberton, and that really matters for inflation, particularly in the US when rents make up about a third of the inflation basket. Cheaper apartments are good news for young renters in big cities, but James
points out there's a flip side. The problem you've got if you're one of those young people is, at the same time as this rental dynamic is happening, house prices are going through the roof because you've got this weird environment where all the people who are geographically mobile, who have kept their jobs during the pandemic because of being able to remote work, have saved a load of money. And I've got almost zero interest rates or historically low
interest rates. And what's that. What that's meant is that house prices pretty much everywhere in the world I saw the pandemic in that sense has exacerbated income inequality because you're taking that home ownership even further out of reach of a younger generation who already was going to struggle to become home That's why some young people have seized on the pandemic to seek out places where home prices haven't gone up. People like Manuel are trying to invest
in infrastructure to make sure they stay. I think about the people who left you Said and other small Spanish towns decades ago, streaming into cities like Madrid and Barcelona. Their exodus helped to concentrate economic and political power in urban areas. It drained many parts of the Spanish countryside of fatality. Many of those who left you Said decades ago thought they would eventually return to small town life,
and they never did. Maybe this time some of those who have left the city to live in the country will be the ones who never go back. Jeanette Newman, Bloomberg News Now. One of the questions raised by Jeanette's pieces should governments be doing anything differently as a result of these changes in behavior? And it turns out the Irish government thinks they should not only be adapting their policies, but actively encouraging these developments as part of their strategy
to boost rural areas. Dara Doyle is Bloomberg's bureau chief in Dublin. Dara, when I Readinette script. I sort of dimly remembered I'd read something about Ireland wanting to do this, but what exactly is the strategy. Yeah, so back in the spring the government launched this new sort of world development strategy that one involved and encourage people to, you know, continue to work from home where many people have moved back and moved out of Dublin over to the west
of Ireland, the Midlands, that kind of place. So it's an idea where you can kind of keep people in those areas. And how are they going to do it? A number of ways. There's a couple of kind of key points that they've talked about. So one thing, for example, is they want to develop a whole network of remote working homes. I guess the country you know we work scenario possibly if you can imagine that pubs. I thought that was going to be in old pubs. Yeah, pubs
have been mentioned. Will say, if you have ever been in a Dublin pub or an Irish pub at Leven Name in the morning, I'm not particularly sure it's the nicest environment to work. In my own experience, it's not somewhere I want to be at Leven Name the morning after a busy Thursday night in Limerick or something. So yeah, so absolutely and these remote hopes including possibly pubs and one idea another idea is you know, possibly tax breaks to keep people, you know, in a rural environment, although
again I don't think very significant. Look, it's hard to know how significant things are going to be. I mean, I thought it was ironic that the tarnished our Deputy Prime Minister Leo Rodker when the when the announcing part of the strategy actually called us to a press conference rather than do Rather than do the launch over Zoom did a press conference in Duldt, which I thought was kind of ironically. We couldn't work from home while he was launching the strategy. So none of the measures have
been costed. They're all very aspirational and it's you know, it's it's a nice idea, but I think we're gonna have to wait and see about how effective they're going to be. I mean, it's quite interesting for people listening from elsewhere in the world because we've tended to think that governments will be broadly encouraging people back to work because they're so worried about those jobs and businesses and
city centers that we rely on so much. So, so why is it that the Ireland is not worried about that so much? So? I think there's one key factor. I mean, possibly more than any other country Europe, Ireland is incredibly lobside around. Population is crammed into Dublin and pushing property prices incredibly high. Such a small, you know, European city person on the edge of Europe, you'd expect housing prices to be kind of reasonable. That's not the case.
You could pay at six seven eight hundred thousand to buy a nice vombily home in Dublin. And that's partly because some of the pressure that's the population prepert that that's in Dublin, and at the same place to infrastructure, our transport systems are crammed up. Buses are full at
all points. So in a way it's an opportunity to to kind of move people away out of Dublin and releasing pressure on the capital city, which is under tremendous kind of yeah pressure, But I guess that I mean that pressure is partly as a result of Ireland's great success in recent years at attracting big international companies to Dublin, and maybe a few more financial sector jobs, recently jobs moving from London as a result of as a result
of Brexit. But we've had so much talk on this podcast and elsewhere about cracking down on the sort of race to the bottom mentality on corporate taxation, and Island has built its development strategy on having the lowest tax rate, attracting those big companies partly on that basis. Do you think the government's also worried about that model long term? I mean, you know, first of all, I'm not sure I agree with the race of the bottom strategy. Yeah, definitely that you do such a term in that kind
of context. And look, I think there are concerns around the model, but these aren't really to do the pandemic there to do with the changes coming internet in the international tax system. You know, I've been reporting on taxes for maybe fifteen twenty years, and this is probably the point where I see government most worried. That they're twelve point five percent rate is understraates, under pressure. And look, the argument cover from the Irish government is that, you know,
there are other factors that attract companies to Ireland. If the fact that it's a relatively well well educated workforce it's a relative cheap workforce. We offer you know, access to the you know, easy access to the European market. So without sounding like a shill for the Irish government, they would argue that there are you know, other vantages
above and beyond tax. But there's no doubt that that they are concerned that the model, which is you know, it's incredibly important, as you said, as I'm saying very on about one of five Irish workers are employed directly indirectly by US firmaments that are base here. So it's a huge it's a huge factor. But I think that including you, not that we'd ever say that was a motivation. No, no clear clear clearing off. But but so but I think, you know, it kind of goes back to which because
about this will distract remote strategy working. To me, ultimately, there is a desire among a lot of workers to move out of Dubland to be based where they're from and you live in a nice part of the country up in the west of our and whatever. But it'll come down to what employers are prepared to kind of accept, like, you know, will Google be happy with its staff to
be three miles away? You know, we'll Facebook be happy with somebody to be, you know, down in Cork or you know, do people have to be in the office to to to to attend meetings as we returned to normality over the next year or so. So ultimately, I think that just going back to your original questions, the successor or otherwise the strategy with large depend on what those kind of companies decide what the model is kind
of going forward. And I know we see lots of commentary now about like hybrid working and it's all going to change, always be very different. I kind of wonder sometimes two years time this is all very different, is it. Are we all going to be in a different situation that you know, are we all going to be kind of working a half time from from home? I'm not sure. I guess. Well, I have you sitting in Dublin and I can see there aren't very many people in the
office with you right now. I should I should ask you how Aland's doing in the recovery. I mean, we've got quite a a big gap opening up between the UK and the US on the one hand, and continental Europe in the pace of recovery right now, and that's very slow pace of the rollout of vaccines and where does alim fit into that? So as everyone are and it's a it's a fairly complicated picture because we have these huge multinationals, your Googles, your facebooks, your big farmer companies.
The headline numbers that aren't look really good. If I can think, really the only country in that you to actually grow last year because we had these like massive export figures. But of course that doesn't always translate into jobs. So at the same time we have that, we have unemployment because retail, bars, restaurants were closed down and that's continue to be the situation into the first quarter, in the first half of this year, and we're under very
hard lockdown. Still bars, restaurant, non essential stores, bookshops, et cetera also closed right now there's no sign and when they're going to reopen. So I think it's people are still out of work and so so things at the
moment are tough for people. I will say I would expect a massive rebound in the second half of this year because like the u k els where people have if you if you've been looking at to keep your job, you've a math a law savings, there's going to be a massive consumer being I think the second half of the year, and that will be married with the continued success of your of your of your export sector, your
facebooks or Google's your farmer companies. So I said, so things aren't great right now, but I suspect the second half of the year I think was the bars, restaurants, non as you stories reopened maybe June early July. People will be gone on holidays again. I think we'll have a very big rebound in the second half of the
this year. It will be my sense, Dara Doyle, thanks very much, Thank you, Stephanie m So We've now had two on the ground perspectives from Spain and Ireland on people working differently, maybe the other side of this pandemic, and maybe government's planning differently in response. So I thought we should get an expert take on these issues and pull some of the strands together by talking to Spend.
Smith was one of the co chairs of the McKinsey Global Institute and a co author of three important reports which the Institute has put out recently on the world after COVID nineteen. Spend thanks very much for coming on Stephanomics. I mean those reports they tackle not just the changing world of work, but also changing consumer behavior and indeed whether we're going to see more innovation and growth coming out of this crisis. But let's focus just for now
on the changing world of work. Peace Ash. You start, I guess by asking, does your research support the idea that the work is going to be more widely distributed in a geographical sense, less concentrated in cities as a result of the pandemic. So Stephanie, thanks for having me. I think it does support that. You know, the future of work has been a conversation that was already their pre COVID, and it used to say that fifty of
tasks could be automated with a lable technology. But the good news was that there would be equal amount of jobs gained that's lost roughly even it was so that the net gain was actually slightly positive, so the future
work was actually nicely imbalanced. If you look at the shifts that are now happening, which is remote work, which is e commerce, which is automation, they are accelerating the pre COVID trends, and with that they also shift I think the tension in future work faster on the point of due special distribution of work that is accelerating because
of the remote work, which is a new one. And I think the one thing that we say in our report is that the new lens that COVID has brought beyond the acceleration is basically the notion that proximity is a new lens to look at it when is it needed and when is it not. And we at least think that one more day of remote work per weak
week is possible for the average of the workforce. And that would of course mean that people could live outside cities for more of their time at least and commutes and so one could be sort of dampened a little bit from that. And the you know, the pressure on cities, so I think there is a potential. We don't see it as you know, people everybody will basically no longer work at all together in a physical space because people
still need to meet. I mean, you talk about the pressure on cities, and we heard about it in Dublin, but in some sort of cities have also been the salvation for quite a lot of economies. It's been the great thing that you could bet on the last ten to twenty years that there would be more jobs and more prosperity being driven by cities. If you're a government, should you be just thinking that that model has been turned on its head or has it just been toned down a bit? I would say it's a shift, not
a on its head. So when we say you go from average about one day a week remote work to two days a week, so adding a day to the average workforce, of course, but for some parts of the workforce it's much more, and others it's much less. That is not yet turning the model up and its head. But you see impacts on rent prices already, you see some impacts on where people choose to live and so on. So it is a real shift. Whether that's something that then will accelerate or it's sort of is a level shift.
I think that the jury is still out, and there's a big inequality piece because the people, as we've learned over the months, of people who can work from home and will maybe be taking advantage of voice opportunities buying houses in the country and building up prices. There are people who already relatively well off, whereas the lower half of the income distribution, what what are all these changes
going to mean for them? So I think it is um you know, disadvantaged groups are going to be impacted more. I think there's two kinds of pressures that we need to take into account. As I said, pre COVID, the jobs gained jobs lost was imbalanced and even slightly positive. We think about a hundred million more jobs will be displaced by COVID and faster because everything is going across lots of different acrourse how many countries I'm just trying to and so you get a hund million more jobs
displaced earlier. So it used to be lots of jobs displaced to more than two one a million, but you get off that tournament, you get on a million that are let's call it earlier, And by being earlier, the mismatch might be bigger, which means that real skilling needs to go a lot faster. One of the things that makes this makes it all easier is if you have faster growth. And the big thing that determines whether or
not we do grow more quickly is productivity. We've had relatively slow productivity in the last growth in the last few years and making more stuff with the same number of people. Uh, if you listen to what you're talking about in terms of more automation and more things online, people working differently. It sounds like productivity is going to go up. Is that what you found in your report?
What we wrote in the report Productivity and Growth, is that the productivity potential has accelerated and could actually lift one or two points in multiple brackets. And therefore the productivity potential exists for a significant growth and so we should say, sorry, just but one or two percentage points for productivity. That's a big deal because the average is
between one and two potentially. So we think that on a GDP per capital basis, if you have the nice world of that productivity and demand, you can get to a three percent growth for the next decade. If you, however, are in a place whether demand doesn't come and this productivity stays tepped as you described, you know, you're more
in the below one percent uh typic. And of course you have an art scenary where the productivity comes the demand doesn't, and that will lead to lots of labor tension again because then basically we use the productivity to do the same work with less. You know, the goldilocks are that we do the productivity and demand and the one thing that we have learned. I think in COVID
is it is possible to stimulate the demand. We can have a whole debate about that point, but the reality is we have secured an economy in twenty twenty, and we're probably going to come out with a reasonable economy now because we support it, and so then demand and
supply of time could be in sync. If it's not in sync, this productivity will lead to more tension on the job market, pressure on the job market story, I should say, So there's a I mean, there is a big difference in those two scenarios, and it feels like the lower the demand that you see, the more likely you're going to have this very unequal outcome with even more even worse impacts for the people who have already not done that well out of the last ten years
or so. So, if you're a government trying to make sure that you're in the good scenario and not the bad scenario, what should you be doing right now? I think this exit out of the stimulus area needs to be very carefully done, and it's not easy because it's stuff that we haven't done at this scale. H Ever, I think, or in at least in a long time
at this broad base across the world. But if you kind of pull back before the engine runs, you might actually get a temporary standstill, and you're more in the negative scenario. If you hold it too long, of course, it could be overheating, which is another discussion. But what you would love to sort of say is, so take the stimulus gas off when the underlying engine runs, because then you know it will sort of at this and
and that that's a careful balancing act. If you look at recoveries in the US that we studied over the last seven years, you had once where it was in sync post Wars, of course one of the bigger ones um and where it was less in sync. Uh. And also there have been disparities about that between the US and Europe. I would say in the global financial crisis, the US had more of a multiplier effect of stimulus
at the outset, not even at the highest levels. Then Europe at at the moment, Europe is actually catching up on the stimulus levels. So I think in that area there's a lot of learning going on whether that will be enough to put the demand and supply in sync. But is any demand the right kind of demand? Because this has obviously been one of the debates about the
stimulus in the US. It's it's massive in scale. But one of the criticisms has been from the likes of Larry Summers and others, is if you're going to spend two trillion dollars and you want to be maximizing the long term impact on growth and productivity, this isn't necessarily
how you would spend the money. I mean, do you think is there a risk that this money is going to be sort of gone in the next year or two and you're still left with a need to do the kind of investment infrastructure and other things that you talk about in your report in order to really make that longer term growth come through. You would always prefer good long term growth as long as it also has the short term growth in it, so because you don't
want that short term dips. So there's there's a nirvana here that you would like to have. Um I think we're i would say, in an experimental phase where we're learning how this will work out, whether the productivity potential will be balanced in the right way or not. Anyone, Like we say you can't predict the business cycle, I don't think you can really predict how this will fully play out in the sentiments of people, uh, in how
it will be spent. But of course you would love a fair share of this to go to long term investment. But at the same time, you don't want a massive restructuring wave to occur right now at the moment the said handover things. I think the thing where we're now learning we knew little about the virus. I think we know very little about this handover moment where you need to keep people in business, but you also trying to achieve structural change. I mean it says it's a difficult balance.
Just going back to the world of worth, the big numbers that you were talking about in terms of people having to change jobs and reskill. Um. You know, the great thing about your research is that you're always looking
at the experience around the world. Are there positive stories you can tell about reskilling those workers because a lot of governments are, certainly in the UK, there's a thing that we're just not very good getting people from one sector into another if they perhaps don't have the right kind of skills. So I think there are a couple of angles of positivity here. One is I think companies
are taking more responsibility for this task. Let's just be clear this is also out of self enlightened interest because many of the workers you need in the future are not available in the places where people are located. So companies are taking a larger share of this work in retraining their workers. Another interesting thing which is a more policy idea that is I think getting more attraction, which is that it's no longer about job to job, degree to to degree, but it's task to task. So let
me give you an example. If you have a job but tent task and the new job had another tent task, it could take four years to relearn it, whereas if you go from tent task to you specialize in two tasks, the relearning could be one or two years, and so that thing gives a little bit more of potential for speed of reskilling and the from from those two tasks. People can of course an upskill to more tasks, but it's no longer directly if you go away from you have to have the full degree for the full job
to something that is more doable. In ref skilling, you open up the gates for that. Some regulation changes are sometimes needed because the regulation is sometimes oriented towards jobs with full degrease rather than the task level. And it's actually at the task level where the change is happening.
I guess finally we should say, I mean, do you ever think about we've we've you've written a lot and an enormous amount of energy has been focused on how the world's going to change as a result of COVID. Do you sometimes, maybe in the bath or something, wonder what would happen if a year's time everything is exactly the same and we've we've gone back to work and we've actually decided that we really enjoy being at work five days a week, and a lot of these long
term changes have just not happened. I mean, do you think that's possible that this is all just a big overreaction. I think there will be a fairer amount of you know, catch up demand in parties, in bars, in travel, and we see the early signals of that. So business travel we don't see it yet, but we see it in commercial travel, in personal travel. And I don't think people have lost They need to go on all the day, they need to go be together and solved. I don't
think that has changed. But will people make more careful choices for what they will travel in business? Will they more more careful choices when to stay one more day at home and be efficient that way, I think that will have shifted. I have a very simple framework and that might help you think about this. If everybody likes what happened, it's gonna stay. If nobody likes it, it's not. Let me give you two examples. In telemedicine, on first
line contact, there's a big step up. The doctors actually like it, the patients like it, the regulators like it, and government likes it. So I do think there will be heightened levels of telement in first line contact and just got a lot better, like people actually like digital with the bank. However, home schooling, the kids don't like it, the parents don't like it, and the teachers think it's
better done in class. So guess what, when we open schools, we went back, and when they're not open yet, when we open them, we will go back. And so to me, that might be a way to think about what sticks are not And lots of things will be on a spectrum in between these things, but that might be just a way to think about it. Spencemit Coachure of the Kinsie Global Institute. That was very clear. Thank you very much. Thank you. So that's it for this episode of Stephanomics.
I'll be back next week with a lot more from around the world. In the meantime, please if you could take the time to rate the show, it would help us broaden our reach. And for more news and analysis from Bloomberg Economics, you can follow at Economics on Twitter. This episode was produced by Magnus Hendrickson, with special thanks to Janett Newman, Alonso Soto, Dara Doyle, and spend Smid. Lucy Meekin is the executive producer of Stephanomics and the head of Bloomberg Podcast is Francesco