Creating a more resilient and responsive government

The pandemic has put demands on the public sector that are likely to increase.

In this episode of The McKinsey Podcast, Diane Brady speaks with Rima Assi and Tom Isherwood about the challenges and opportunities to strengthen government in the face of the COVID-19 pandemic. An edited transcript of their conversation follows.

 

Diane Brady: Hello, and welcome to The McKinsey Podcast. I’m Diane Brady. Governments worldwide are taking extraordinary measures to address the COVID-19 crisis, from shutting down borders to supporting individuals and businesses affected by the pandemic. That’s creating unprecedented challenges and perhaps opportunities at all levels of government.

Joining me to talk about this are two partners in McKinsey’s Middle East office who have been working with officials on the front lines to help in building more resilient societies. Rima Assi is a senior partner who helps government leaders across the Middle East, Africa, and Eastern Europe to create more competitive economies with more sustainable finances. Rima, welcome.

Rima Assi: Thank you, Diane.

Diane Brady: Tom Isherwood is a core leader in the public-sector practice, where he supports governments on topics related to economic development and technology. Tom, welcome.

Tom Isherwood: Thanks, Diane. Happy to be here.

Diane Brady: So let’s start with an overview of the impact. Rima, how deep is the damage?

Rima Assi: Diane, this is a very important question. The damage is significant. This is one of the most severe crises the world has seen. At the heart of it, this is a healthcare crisis that’s led to the loss of significant human lives. That’s spilled over into the economic sphere, where we are still facing the impact of that.

The impact of the pandemic has been very different across different countries. It’s different in terms of the healthcare outcome, but also in terms of the economic outcome. We’re seeing very different reactions from governments, and this will actually inform the recovery. This is why we’re interested at looking at resilience and how governments are thinking about that.

Diane Brady: Tom, just how does this become an opportunity for economic development, as opposed to the beginning of an economic depression?

Tom Isherwood: I think what we saw in 2020 was really just an unprecedented economic shock. What I think is more interesting is what’s happened after that. The economic condition today is really defined by uncertainty: uncertainty over how long it will take to get vaccines broadly distributed; uncertainty around whether governments will need to shut down; uncertainty around, when will consumer behavior start to bounce back in many ways, if ever? When will people start flying again? Will we start flying again the way we used to be flying?

This uncertainty has really made it very difficult for governments to plan. It’s made it very difficult for companies to plan their investments. It’s just made this entire situation quite difficult to navigate. And now, if you think about “What’s the opportunity here?”—the opportunity comes in looking for ways to reduce this uncertainty.

The more that governments can do to manage the spread of the virus so they don’t need to lock down again, the more that companies and governments can do to ensure that vaccine distribution happens rapidly, the sooner we will start to reduce the amount of uncertainty. That will enable governments and companies to start planning more effectively going forward. That’s the path out of this crisis.

The many elements of resilience

Diane Brady: “Resilience” is a term that we’ve used in so many different contexts—climate change, the pandemic, etcetera. What does it mean in the context of governments and societies?

Rima Assi: I don’t think we ever spoke about resilience as much as we have in the past year. We started thinking of it in the context of what makes our societies resilient? That’s the heart of it, what everybody’s trying to achieve: resilience for individuals, for companies, and for government.

And what makes our societies resilient? We need resilient healthcare: How can we overcome the crisis? How can we create an environment where people can move in a safe manner, leveraging all technologies in place? There are so many other elements, too. How can we maintain education, which has been interrupted for a large part of the past year? How can we leverage technology? How can we maintain our livelihoods? How can we have economies that are resilient? How can we be resilient to supply-chain shocks? That’s a big part of how companies are changing in rethinking their supply chain.

As we think about those changes that governments are trying to support, how can they do it in a way that incorporates the long-term objectives of climate change, of equity? All of those components have to come together to have more resilient societies.

Diane Brady: There are certainly some lessons learned. Tom, what impact do you see the pandemic having on governments’ priorities in building further resilience?

Tom Isherwood: I think one of the biggest lessons for governments coming out of this is that resilience will be driven in a large part by technology. We’ve seen that in a couple of ways over this crisis. One way is simply in terms of the government workforce.

Agencies that were able to very quickly pivot to remote work were able to largely continue functioning. And the ones that weren’t had major disruptions. And so this is one way in which technology has enabled resilience in the face of this crisis.

Another way that this shows up is around what you were referring to: How do you actually run contactless government services? And what we’ve seen over the last nine, ten months is, just like in the private sector, COVID-19 has been a really huge impetus for governments to digitize rapidly. And what we’ve seen is, governments that previously had plans to take different services online in a matter of five years or ten years or 15 years, in some cases do this in just a matter of months.

Going forward, one of the things that will make governments more resilient in the face of potentially future crises like this is being able to take full advantage of technology and really deliver on contactless government. And that’s more than just putting government services online. Because what we find is that the first step is you put the government services online, but then you still actually need people to show up to verify their IDs. You need people to show up to sign something.

And so this goes beyond that. This goes to, how do I actually take full advantage of digital ID? How do I use that to enable you to do all of the things you need to do to interface with government, from your home if you have to. That may not be the mode that we run in on an ongoing basis. But to be able to be truly resilient in the face of another crisis like this, this will become mandatory for governments.

Going forward, one of the things that will make governments more resilient in the face of potentially future crises like this is being able to take full advantage of technology and really deliver on contactless government.

Tom Isherwood

The net wealth of citizens

Diane Brady: Rima, so much of this has to do with fiscal health. How are officials dealing with the reality that they have less money coming in the door?

Rima Assi: Yes, indeed, governments have less money coming in through the doors, but they also have significantly more expenditures to support the healthcare efforts and to fund the stimulus programs that governments announced over the past year.

So our cumulative deficit globally is going to reach $30 trillion by 2023. This is unprecedented. I actually don’t think we’ve ever been able to imagine something like that. To put things into perspective, the stimulus [programs] that were announced during the past year are three to four times what was announced for the global financial crisis in 2008–09.

The fiscal challenge is going to be very big. At the same time, governments have to support their economies and their society. This is what we’re calling the great balancing act: at the moment, governments have issued a lot of debt to fund those outflows. But to issue a debt, [governments must also show] a credible investment history. It needs to have levers that give comfort to investors that growth will come to support payback.

Governments also have monetization plans that allow them to fund their increased liability. In our view, this is going to be the opportunity for governments to widen their abilities to manage their finances beyond the typical levers.

They’re going to have to start having the mindset of the investors, thinking about all the assets. How can they manage them in the best way so that they are maximizing returns? How can they have a greater transparency on their balance sheets?

Companies have balance sheets; countries should, too. So what are their sovereign balance sheets? How can they start thinking about net wealth versus purely income statement, and leveraging those insights to maximize returns for them, and therefore for their citizens?

The fiscal challenge is going to be very big. At the same time, governments have to support their economies and their society. This is what we’re calling the great balancing act: at the moment, governments have issued a lot of debt to fund those outflows.

Rima Assi

Diane Brady: It’s a good point, actually. And I love the investment analogy there. Because we are at a time, Tom, when, in addition to the old rules not really necessarily applying, what makes it more so is that we are on the cusp of all these other factors, the digital revolution, the changing nature of work. What do we have to reimagine, especially from an economic standpoint, to get to where we need to go?

Tom Isherwood: Look, I think “reimagining” is one of these words that maybe has been overused. But I think that there’s quite a bit of it required, whether it’s on the economic front or whether it’s internally in how governments work just on their day-to-day functioning.

But if we stick with the economic side, I think that this crisis has really questioned the whole social contract between governments and companies in many countries. We saw really unprecedented measures take in, as Rima alluded to, a number of European governments essentially guaranteeing companies against losses. We saw a number of other countries that essentially put large kind of employment guarantees for citizens.

In all of it, we’ve even actually seen countries starting to talk about universal basic income in a very serious way, not just in a theoretical way. All of this would really just reshape the economic relationships between governments and their citizens and governments and the companies that are located there.

Diane Brady: Rima, as we’re in different time zones at the moment, as we record this my 15-year-old son is lying in his bed, his eyes apparently open, doing math. And remote learning certainly, at this length, has not worked out so well for students here in the US. And there’s a lot of discussion about education and how we have to really, going forward, unleash almost a learning revolution. Can you talk a bit more about that? Are the officials you work with trying to really focus on the education systems as an engine for recovery?

Rima Assi: Online education has been a savior in maintaining some level of learning for students. The hybrid model showed a lot of advantages, a lot of outreach, a lot of ability to reach the best teachers and the best insights globally, anywhere you are in the world.

It also showed some limitations when it came to the teamwork that is so important in these kids of the future and the competencies of the future generation. It also does not help emphasize all the skills of empathy, leadership that you want to develop in the future generation.

I wouldn’t be surprised if we wouldn’t evolve into a more advanced hybrid model where certain skills will be taught online. But there will be sessions in person, maybe when it comes to group work to experiment through projects.

Learning has become and is becoming more and more an imperative for everyone. It is not anymore for the students, the kids. It’s for each and every person in the society. We will be seeing more and more national learning programs.

That will open the doors for questions as to how do we evolve in a world where employees will apply for jobs and may have, on their CV [curriculum vitae], a series of curriculums that they followed, that they chose, that they designed? How will companies recognize that? That will be a very interesting innovation journey we’re going to be seeing.

The learning evolution

Tom Isherwood: I think this imperative for everyone to kind of go through a bit of their own learning evolution is going to intensify. Before the crisis, there were a number of solutions on the market to essentially automate, through AI [artificial intelligence], call-center work.

But the uptake was really, really low. And what we saw in the first couple of months of the crisis is that during the lockdowns, a number of call centers, many of them changed how they worked and continued functioning, but some of them actually had to almost shut down. What replaced them were these solutions that had already been on the market but just didn’t have a lot of adoption. Some of them grew by ten or 12 times.

This is going to create real disruption in a lot of, let’s say, service jobs that could over time be replaced through AI and new technologies. That’s going to require many people in the labor market to reskill themselves and retool their skills so that they can find additional jobs when those ones go away.

Diane Brady: Because automation is permanent, right?

Tom Isherwood: Yes, that’s right. That’s not something that is going to go back to the way it was after this. This was something that was already happening. But the crisis has just been a massive accelerator of transitions like this one. We’re going to be feeling the aftereffects of this for years to come.

Diane Brady: It does get to not a question of politics, more just the reality of, the burden has been borne very differently at different levels of society, whether you’re a frontline worker. Certainly here in the US, Black and Hispanic Americans have borne the brunt both from the jobs and the health impact, which is kind of the societal fabric. What can we do on an objective level, Rima, to sort of rebuild that, just keep more cohesion as societies?

Rima Assi: Yes. This is indeed a very challenging societal problem. If you think about the type of job, be it frontline worker but also automatable or manual work, has been affected far more than desk jobs that would be done and conducted virtually from home.

If you also think about gender, it has been proven that women lost jobs far more than men. In recent reviews and surveys we’ve conducted, women have 1.8 times more chances to lose their jobs as a result of the COVID-19 crisis than men.

So indeed, certain discrepancies and inequalities that we’ve been working hard over the past years to try to bridge are going to be unfortunately accentuated. And while there’s no one lever that’ll be the magical solution, we believe governments and societies are becoming more and more aware of discrepancies and will have to put more effort—more effort in learning, more effort in reintegration, more effort in support. The role of the private sector and the government tier will become critical.

Diane Brady: We talk about capabilities building a lot in companies, Tom. How does it apply to the public sector? What capabilities do they need that perhaps maybe haven’t been as emphasized in the past?

Tom Isherwood: Look, I think the last year has really put a spotlight on areas where the public sector needs to build capabilities faster. The first one is around data, analytics, technology. In this space, this is driven just by the kinds of decisions that governments needed to make. They went from having decision cycles that often, in many cases, take years to having to make some of those same decisions in a matter of weeks.

This is actually something that is, in some ways, a good thing. We’ve actually done a study over multiple years in the private sector looking at companies. And the highest-performing companies make decisions significantly faster than other companies in their sectors, whether it’s around budgeting, whether it’s around people reallocation.

This crisis forced governments to actually move a bit in the same direction and start making those decisions a lot faster. But to make decisions fast, you need good data. To have good data, you need to have the right technology in place. You need to have the right people to analyze the data.

That requires new capabilities and new skills, not just in the data scientists or the technologists that you hire, but also in pretty much everybody else who has to make use of that data in their day-to-day job to actually be able to make better decisions and serve its citizens better.

To make decisions fast, you need good data. To have good data, you need to have the right technology in place. You need to have the right people to analyze the data.

Tom Isherwood

This is definitely one area where there’s a real uplift needed in capabilities in most governments. This will be a challenge because many private sectors struggle with these same skill sets. But that’s one very important area.

The other thing I would say, and this is more of an institutional capability, not necessarily just about individuals, is I think that this crisis has also put a spotlight on how governments need to think of new ways to partner with the private sector and new ways to partner with social institutions.

Doing what’s right for society

Tom Isherwood: So let me give you a few examples. If we look at the way that the whole vaccine race has unfolded, this has required governments to do things they would never do. This has required governments to make bets on essentially purchasing large amounts of doses of vaccines that are not even approved. But doing that is a way of offsetting the risk for companies, to be able to incentivize companies to do something they wouldn’t do normally.

This has created an environment where to be able to actually do what’s right for society, you have to work with private companies differently as a government. You have to kind of work with your people differently. The kinds of requests and impositions the governments have put on people, asking them to stay home for months at a time, this is not the normal way that these things work.

Whether it’s about actually signing agreements with companies, whether it’s about more effective communication to every citizen, how government interfaces with its stakeholders and forges partnerships is also an area where there’s just a real need to improve.

Diane Brady: Let’s go back a second to the role of technology, because I’d like to synthesize how important it’s been in both the recovery and how important it’s going to be going forward in terms of building resilience, Tom.

Tom Isherwood: Yes. Look, there is no doubt that the crisis has accelerated the adoption of technology. It has reinforced the importance of technology for governments to become truly resilient. It has really put a lot of momentum behind this agenda in pretty much every government I talk to. Every government official that I talk to sees technology as one of their top one or two priorities now. Everybody would have said it’s important. But that level of prioritization was not the case a year ago.

The other thing we’re seeing is people moving beyond the kind of, let’s say, experimentation phase. What we’ve seen over the last couple of decades is that governments have started to adopt technology, but it’s been a bit haphazard. Many government institutions have an app. Many government institu­tions have 20 apps. And many of those apps are not good, not connected with each other, overlapping.

This crisis is forcing people who think about these topics in government to also think about doing them differently. How can you really introduce technology in a way that actually improves citizens’ journeys in terms of how they interact with government, whether they want to buy a home and interact with all the bureaucracy they need to do that? How can you actually make that simpler? Whether they want to open a business, whether they want to get a passport, whatever it is.

Try to solve for real citizen challenges. That requires also taking a hard look and consolidating some of what’s been done over the last couple years and eliminating some of what’s happened the last couple of decades. I just think we’re on the cusp of a really important moment for governments as they take a new look at their technology with a really new level of priority.

The agile public servant

Diane Brady: So, Rima, that seems to apply a much higher level of agility on the part of public servants.

Rima Assi: Totally. Public servants have to go through changes and experiments in a matter of weeks that they have been talking about or interested in for years. The remote work, the digitization of processes, the leveraging of digital tools and platforms for everything that had to do with meetings, communication, signatures has been unparalleled.

That agility was a matter of needs during the lockdowns in the middle of the crisis, because we had lack of resources and competencies in certain areas and significant needs in others. We’ve seen many countries and governments starting to experiment by, for example, moving front service desk employees that wouldn’t be working because of the closures to support on call centers, to support on online remote support, as much as their skills allowed.

The way we’ve designed and thought about governments in the past was informed by legacy and how we saw the world, but also the technology that we had available. This is going to be the opportunity for individuals to become far more agile and to do a variety of different things, but also for institutions of governments to evolve.

Diane Brady: Are we going to be seeing government become a more attractive place to work, given the role and the power it has? And does it basically bring in a new or wider pool of individuals?

Tom Isherwood: Look, that’s a good question. Without a doubt, this year has really reinforced the importance of government getting its job right. For many people, that will be attractive. That will be exciting. That will be something people will want to be part of. But I don’t necessarily think that this is going to change how job seekers look at governments overall.

Diane Brady: It’s more like the public- and private-sector partnerships, then. Perhaps that’s where we see that level of innovation come into play.

Tom Isherwood: What this has done is it’s reinforced that it doesn’t matter what sector you’re in in the private sector. But no matter what sector you’re in, what government does matters a lot for you. That was always the case in some sectors, like in pharmaceuticals or in defense or in other heavily regulated sectors. Oil and gas is another one.

All the companies in those sectors have always thought a lot about government relations, and how do they think through what’s going to happen on regulations. But this year has showed us that it doesn’t matter what sector you’re in. You could be in fashion, and you could be in retail. You could be in travel and logistics. The actions the governments have taken this year have just fundamentally altered the landscape in those sectors.

This will require, going forward, a greater degree of coordination, a greater degree of communication from governments, and also, like we mentioned in the article we wrote on resilience, a different form of partnership between the private sector and governments.

There’s a real dialogue right now going on in the private sector, corporate America, but also globally around corporate purpose. More than just shareholder returns, how can companies contribute to improving the societies in which they operate?

There is a real opportunity in intersection between this new focus on corporate purpose and the increasing needs that society has that government will struggle to fulfill by itself. I can’t help but be a bit optimistic that there ought to be an opportunity there for forward-thinking companies and for agile governments to find a way to actually do something that is better for society.

Closing the gap

Diane Brady: Rima, there’s also been a lot of discussion around inclusion and diversity. I know you’ve done a lot of work in that area, even prior to the pandemic. What do you see there?

Rima Assi: Yes, indeed, diversity and inclusion is a very important priority. It has been. The importance of it gets exacerbated by certain events that make us all realize that despite all the effort, we have still a much longer way to go. And we still have significant gaps.

This is going to be a very important priority. We’re seeing it become paramount for governments. Because for their societal development, they’re realizing the gap between certain segments of the society cannot continue.

Diversity and inclusion is a very important priority. It has been. The importance of it gets exacerbated by certain events that make us all realize that despite all the effort, we have still a much longer way to go.

Rima Assi

People that are working in manual jobs, the level of education, where do they live? What is their gender identity? That is going to actually become, as we’re thinking about partnership—public–private partnership but also partnership with societies—the way forward. The hope is and the will is that such diversity turns into further inclusion and helps us all achieve a better outcome.

Diane Brady: To close off, let’s just bring it back to the individual. Because we’re all looking at our governments. We’re all worried and nervous, maybe optimistic about the future. Or what would you say to individuals in terms of the possibilities here? I’m going to start with you, Tom.

Tom Isherwood: At the end of the day, everything we’re talking about comes down to the individual level. The economic impact we talked about manifests in terms of people who have lost their jobs and people who struggle to make ends meet.

The response of governments that we’ve talked about comes down to people or individuals who either got the services that they needed from governments—and over this last year, a lot of that was around healthcare—or they didn’t. And that has real consequences for individuals.

What the last year has really shown is that what government does really matters. The difference between good government and bad government makes a big difference in our lives.

Diane Brady: Rima, help us see around the corner a bit. What’s the message to individuals?

Rima Assi: Individual points of views, actions, and behaviors matter. What we say and what we do has a far bigger impact now than years back. Because technology supports and maximizes our reach.

Therefore, for us to be relevant and for us to have an impact, we need to continuously think and balance economy, society, and helping others, but also invest in oneself. Because to maintain our relevance and our ability to help each other, we need to continue to invest in our competencies. The journey ahead is one of hope, but one of higher requirements on investing in our capabilities.

Diane Brady: Great. I can’t think of a better way to end than right there with hope. Rima and Tom, thank you very much for joining us.

Rima Assi: Thank you, Diane.

Tom Isherwood: Thanks a lot, Diane.

Diane Brady: And thank you and the audience for joining us. Obviously, this is a big conversation to be continued. If you’d like to read more about rethinking resilience and the priorities for governments, do go to McKinsey.com. I’ve been joined by Rima Assi and Tom Isherwood, both in McKinsey’s Middle East office. I’m Diane Brady. Thanks for joining us, and see you next time.

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