As vaccine rollouts continue worldwide, we can expect normality to gradually resume in the wake of the Coronavirus pandemic. Unfortunately, however, the economy is unlikely to recover quite as quickly as our social lives.
This is because, in 2020, the global economy shrunk by a staggering 4.4%. According to the International Monetary Fund, this was the worst decline since the Great Depression. As a result, mass job losses have been suffered. For example, in the United States, a decade of jobs expansion was brought to a bitter end by the pandemic. Industries such as travel and hospitality have been particularly affected, as have the countries that mainly depend on revenue from these industries.
Of course, this is not the only economic disaster we have experienced in the 21st century. There was also the global recession of 2008, although this occurred for very different reasons.
So what, if any, parallels can be drawn between the two? Have we learned any lessons from the previous world crisis that might help guide us through this one?
Read on to find out and to receive some advice regarding leadership in a crisis.
The global recession of 2008
The 2008 recession is generally linked to subprime mortgages: loans awarded to borrowers without the credit history to justify them. This is why this recession was referred to as the “credit crunch.” Subprime mortgages are considered high-risk.
From the early to mid-2000s, mortgage lenders increasingly granted loans to high-risk candidates in North America and Western Europe. Financial institutions invested in these mortgages, which meant that when sub-prime mortgage lenders started filing for bankruptcy, the effects were widespread and catastrophic.
One effect was that many homeowners ended up with homes valued at lower rates than their loans. Naturally, the impact of this crisis was felt across the stock market. This was bad news for people who had invested their savings in stocks.
To encourage lending, interest rates were reduced and reduced until they hit zero. This was the first time in history that this happened, demonstrating how severe the crisis truly was.
Responses to the recession
Reducing interest rates wasn’t the only response to the recession. The American president at the time, George W. Bush, reduced taxes and even granted tax rebates under the Economic Stimulus Act. The idea was that people would spend their rebates and therefore kickstart the economy.
This can be compared to the stimulus money granted to US citizens during the COVID-19 pandemic as part of the American Rescue Plan. Unfortunately, many financial institutions continued to crumble. This resulted in governments such as the UK and the USA bailing out banks considered “too big to fail.”
This use of taxpayer resources to maintain private organizations provoked some sharp criticism, and political pledges were made to restrict the financial sector and prevent this situation from occurring again.
When Obama became president in 2009, he signed a second stimulus package, cutting taxes but increasing spending on education, healthcare and green energy.
What can be learned from this previous global crisis?
Based on the response to the 2008 global recession, leaders might consider applying the following lessons in the wake of the COVID-19 pandemic:
- Reevaluate systems
The global recession exposed serious faults in international financial institutions. Similarly, COVID-19 has exposed many shortcomings in our infrastructure: inefficiencies in healthcare systems, inequalities in access to technology, and the lack of social safety net in many economies, to name a few.
The pandemic should be used as an opportunity to identify where improvements could be made across all of the systems our societies depend upon.
- Invest where needed
Because of the crisis, governments in 2008 were forced to reallocate resources. The priority had to be on stabilizing financial institutions and meeting the basic needs of the population.
Although austerity may seem like the logical response to substantial financial loss, pulling funding from vital areas such as healthcare and education is a short-term solution likely to generate long-term problems.
- Acknowledge all losses and commit to change
The 2008 recession forced many institutions into bankruptcy, but it also resulted in personal losses: homes, jobs, and savings.
A failure to adequately address these losses and the factors that caused the crisis in the first place led to the Occupy movement, a large-scale occupation protesting the inequality perpetuated by Wall Street.
If leaders want to avoid this kind of backlash in the future, they will have to meaningfully acknowledge the losses people incurred during the pandemic and commit to positive social change.
Five ways to lead through a crisis
Being a leader is never easy, but it can be especially fraught to lead during a crisis. But, of course, this is when good leadership is needed the most!
With this in mind, here are five ways you can keep your cool and maintain your company during strange and changing times.
1. Focus on what you can control
In periods of crisis, it’s easy to become overwhelmed. A panic-inducing news cycle might make you feel powerless, so be careful about the media you consume.
Avoid these distractions and focus your attention on the areas in which you can make an impact.
2. Be prepared to pivot
Times of crisis tend to result in significant social upheaval. Your organization is likely to feel its effects. Now is not the time to cling to policies and procedures that no longer apply.
A flexible approach will allow you to see opportunities amongst the challenges.
3. Cut back where you can
During a crisis, you may have to make sacrifices to survive. Analyze where resources are most needed and reallocate them from non-essential areas.
Data will be your friend during this process. Make smart decisions based on hard facts.
4. Make time for analysis
You’ll undoubtedly be very involved in urgent conversation and action at this time, but that doesn’t mean you should neglect reflection.
Consider how systems are serving you during this crisis. It may be time to make some changes!
5. Set an example
Remember that people are looking to you for cues on how to react. If you come across as panicked, this feeling will spread quickly! Instead, communicate honestly and confidently with your team.
This is how you lead during a crisis rather than let the crisis lead you.