Support Skift’s Independent JournalismMake a Contribution Now
Skift founder and CEO Rafat Ali talks candidly with travel industry leaders about facing challenges and creating new opportunities in this new one-on-one interview series. As travel grapples with, and recovers from, the coronavirus crisis, Ali explores with executives how to lead a comeback, what lessons the past teaches us, and what are the smartest paths forward. These frank conversations are meant to inspire and to impart best practices for businesses in travel and beyond.
I started thinking about this interview series for Skift as a way to give a bigger historical and geopolitical perspective on the crisis in the global travel industry due to coronavirus and a potential economic downturn coming. One of the first people I thought to speak with, and who understood the new Asia and what it means to the world, was Parag Khanna, author and geopolitical scientist who has written extensively — including articles and multiple books — on the changing centricity of the world. Coronavirus and many previous global virus outbreaks have come through Asia, and he understands what that means in a very interconnected world, and what that means to travel.
I called him up this week on WhatsApp, and we chatted through the 13-hour time difference between me in New York City and Khanna in Singapore, a fascinating interview as you will read below.
This interview has been edited for clarity and length.
Skift: You’ve been a big proponent of Asia as the new center of the world. What does this crisis change?
You’re in Singapore — has the quarantine officially lifted?
Parag Khanna: Well, there actually wasn’t a formal quarantine on Singapore per se. It’s just that there are some countries that are requiring that if you have traveled from Singapore to that place, you have a mandatory quarantine in that destination of 14 days.
Singapore did that, of course, to anyone arriving from certain cities in China. So all in all, that was the micro phenomenon. Only people who were genuinely suspected of having the virus or had reasonable, probable cause based on their travel history were actually quarantined.
So it’s very important to note that quarantining has been — and should be — by and large a micro-individualized phenomenon based on circumstances rather than some kind of tax or penalty on entire peoples based on their nationality.
Now I’ll add what you’re doing with this [Skift Coronavirus] liveblog, providing up-to-the-minute information and transparency is so important in making sure that we don’t further harm ourselves economically by penalizing entire swathes of the human population when there’s very little likelihood that they are infected.
The more transparency we have, and whether it’s the geolocation of microclusters or whether it is being able to trace people’s travel history and interactions, and the temperature checks that are required in different places, the more we can granularize this statistically. That’s what we should do because even when you talk about a pandemic, you’re not exactly talking about a large share of the human population right now. So I think that transparency is extremely important.
Getting back to the economic point as it relates to the travel industry, it is so self-defeating, right? To say, all Chinese people are banned from a cruise ship, right? That’s utterly preposterous. So having more information, this is obviously beneficial in many ways. It doesn’t do harm to people who don’t deserve to be harmed, it doesn’t harm yourself as a tour operator if that is the case. I hope that one of the things that we’ll learn from this, obviously, is how to build in the systems that are more micro, and more real time, so that we can become more resilient from this in the way that Singapore in particular, and Asia in general, learned from SARS almost 20 years ago. There are those countries that learned from SARS and those that didn’t.
Skift: What did Singapore learn from SARS specifically as it relates to recovery?
Khanna: SARS was considered more severe in terms of the number of cases, obviously it was more of a shock. So just the knowledge of the past means that everyone was able to refer to it and say, “Well what did we do then?” The medical systems have improved. The ability to deploy health screening rapidly was instantaneous in this country to have, whether it is surgical masks or temperature checks installed at every building, at the airport for everything, literally instantaneous, overnight.
That’s not something that you are able to do the first time you experience a situation like this, but by the second time you’re prepared, but you have to contrast that with other countries in the region like Thailand that still have imposed absolutely no restrictions on any Chinese travelers entering the country and obviously don’t have the kind of transparent healthcare systems that would allow us to even know how many people are infected.
One of the perversions that we’re experiencing right now is that those countries with really good medical systems are the ones reporting the highest incidents of the outbreak and are therefore undergoing the most external scrutiny even though they’re doing the best job of controlling it.
Transparency is like this double-edged sword in some ways. Japan and Singapore and Korea, you can trust all three of them to get it under control because they’re rich countries with really good healthcare, even Italy too. And yet the world is kind of … let’s say some parts of the media will be mocking these countries and shorting their stock as if they’re all going to be infected and killed. It’s quite the opposite, obviously.
Skift: Last year you wrote the book The Future Is Asian, and I recently saw back and forth in media about you versus this Harvard professor who mentioned that the future is not Asian, whatever people say. So one, explain what did you mean by the original thesis and two, does anything that’s happening now change anything?
Khanna: The original thesis obviously still stands because the point simply was that the world is already Asian. I mean if you have 60 percent of the world population in Asia, and you have more than 50 percent of global GDP in Asia, and most of the world’s military powers and nuclear arsenals and mega corporations are already in Asia. So present is Asian, let alone the future.
So I was in a way conservative with the title of the book. Obviously, none of that actually changes just because of this coronavirus, nothing of the sort. So it’s not that there is anything like a counterargument to it. I mean, obviously, the Nikkei piece wanted to create a debate between myself and Joe Nye of Harvard. But of course, Joe Nye made his name as Asianist, right?
So it’s not that he’s anti-Asian, he was the under secretary of defense for Asian affairs [assistant secretary of defense for international security affairs]. But the thing is that his point that he’s making is simply that because China is not accepted as a leader of Asia, therefore Asia is not something that could represent the coherent force. But the whole point of Asian, or rather the main lesson of Asian history, is that you don’t need to have one dominant power for Asia to thrive. You need to have multiple thriving powers that accept each other. I think he misses the whole lesson of all of Asian history.
In terms of where things are going with Asia, actually what I argue in that piece and elsewhere is that when you have these transnational crises, whether it is epidemic or a financial crisis, this is much like European history, European history is nothing but learning from succession, from the succession of crises, whether it’s world wars or otherwise, or even the Cold War, to band together, otherwise you wouldn’t have the European Union as we know it today.
So what’s happening in Asia is that if you take the example of the Asian financial crisis, which was five years before SARS, that taught Asian governments that they need to team up and deepen currency liquidity in each other’s currencies. They need to build up their reserves, their trade surpluses, move toward flexible exchange rates, coordinate their own interest rates.
These are all things that have happened in the last 20 years. There’s no way I could have written that book were it not for the positive legacy and learning from the Asian financial crisis of 20 years ago. I mean, when people talk about crisis in Asia and financial crisis, they don’t mean 2008 and the Western financial crisis, they mean the Asian financial crisis of 1997–1998. So 22 years ago was the pivotal moment that marked the turnaround.
Singapore is sharing its screening technologies and practices with other countries. Japanese are lending resources to China. There is a thought that’s occurring as countries put aside some of their differences right now in order to help each other cope because there is a very, very high degree of interdependence economically in the region.
At the rhetorical level, yes, we will no doubt focus on what you see out of the Chinese propaganda machines saying, “Hey, maybe it was the members of the Korean church who brought this to Nippon, and it all started with the Koreans.” Okay, fine. Yes, superficially you will have that because countries want to save face.
You can simultaneously have the soft nationalism of countries like China trying to find to save face, but also have the reality of economic interdependence where they still depend on each other. Let’s face it, at the end of the day, China doesn’t want Hyundai to move all of its automotive production out of China, right?
This is the difference between people who look only at rhetorical politics versus those who actually understand economics and supply chains. The fact is the latter is a much more significant driver of our behavior than anything else.
Skift: Building on that a little bit, in terms of the world dependence on Chinese tourists, obviously that addiction happened over the last 10 years. Any lessons that the world or countries in the West should learn about diversifying their base across Asia?
Khanna: Oh, I mean, there’s no question, but I think when we look back at this period, we don’t want to claim that the virus was the reason the supply chains began to diversify out of China, because that would be inaccurate. It would be equally false the way people are saying today that the U.S.-China trade war is driving supply chains out of China.
The movement of supply chains out of China began with China’s rising wages about 15 years ago. It accelerated because Japan, which is one of the largest foreign investors in China, really moved the needle. Japan began diversifying its fixed capital formation, its factories out of China, toward Southeast Asia more than a decade ago.
So the proper sequencing is China’s wages rise in the 2000s, Japan makes its move to shift in production. Other countries start to follow that big time. Then you have the trade war and then you have the virus. So you have five overlapping and reinforcing causes of diversification of supply chains out of China over the last 15 years, and the virus is by no means, by a long shot, the most important compared to all the others. So it’s important to get the sequencing of this right so that we don’t conflate the apples and oranges and get our causality wrong.
Then when it comes to travel, it is a subset of the broader economic centers of gravity in the region. Obviously, Chinese tourists are a very numerically identifiable category. We can calculate their importance for country by country and their volumes. So we can measure it. But in a broader sense, Asian travelers and tourists in total are an even more significant number with China as the subset of that.
It’s important to diversify the targeting and the recruitment of visitors to include India and Southeast Asians as well. I’ve traveled to resorts in countries like the Maldives and chatted with various managers, and I always ask, “What is the composition by nationality of your annual occupancy?”
Whenever I hear that they’re dependent on Russians or Chinese too much, it’s a big warning sign. Well, for two different reasons obviously, with Russia it is a finite population and a declining one. Their economy is extremely volatile. So if you’re an Austrian ski resort or you’re a Maldives beach resort, you are in trouble eventually because Russians will be dead and their rubles aren’t worth that much.
Whereas, if you are dependent over Chinese, their preferences can shift very dramatically, and there could be economic disputes that will lead to a massive curtailment of tourism. Even countries that are very close to China, like Korea with Jeju-do Island, have witnessed a negative impact of being overly dependent on Chinese tourists as well.
As with all things, diversification is the most important principle in resilience, and if you are obviously in the travel and tourism industry, much like any other supply chain operator, you want to make sure that you have as diverse a catchment area of people as possible.
Skift: In one of the articles I saw, I think it was the WIRED article that you wrote, one of the lines that resonated with me, where you said, “The more connected they are, the more resilient we are.” But you mean connected not just in terms of travel …
Khanna: Well, in a way it’s a very perfect segue from the last point, so diversification is a key principle of resilience, that how that is physically embodied is having more trade routes, having more internet cables, whatever the case may be. If you look at energy markets, if this were a world where we still depend on oil being put on tankers and shipped through the Suez Canal and the Strait of Hormuz, then anytime there would be any sort of a conflagration or tension between Iran and Saudi Arabia, oil prices would quintuple.
That doesn’t happen anymore, and the reason is because oil is produced all across the world, as is gas. There are many shipping routes, there are many more pipelines. Oil prices are going down, down, down, down, down, down, and will stay down forever.
That is, again, a physical embodiment of this principle that more diversity, more trade routes, more connections means more resilience. Now, look at the internet. Again, a country that has only one fiber optic internet cable, like North Korea. If that cable is cut, everyone loses internet access.
Now take a tiny country like Singapore, this is one of the world’s smallest countries, it has 37 internet cables. So I don’t really fear for my fast internet connection no matter how many earthquakes strike.
That’s again the same principle at work. When it comes again to the travel industry or mobility more broadly, how do people get from A to B? Is it aviation? Is it high-speed railways? Think about Europe when you have these terrible storms and planes can’t take off. People can still take trains because you have a very dense high-speed rail network.
Whereas in America, you don’t, right? When you have those storms you have way more people stranded at airports, whereas Europeans could just get on trains or hop in their cars. So you’ve multiple pathways. Again, this is a mathematical law and there’s many expressions of it, but what’s important is that you want to make sure that there’s, again, multiple ways for people to stay connected and to get to where they want to go and need to go.
On the digital side though, what is interesting is obviously we have the capacity for greater telecommuting than ever before. We actually underutilized it.
Skift: Well, I was going to come to that. Do you think that the remote working that has been promised as a nirvana since internet first came along, do you think this will definitely be the takeoff moment for it?
Khanna: I think again this will be one of the dimensions, it is like supply chains coming out of China. It’s not one thing. It’s five things over time. So when it comes to this it is also cultural shifts, right?
Young people just demand to want to work at home. How is that any less important than the impact of this one virus, right? So generational change, technology, distributed teams, globalization. Obviously, family leave, different practices and habits, traffic patterns.
In Silicon Valley my brother works for Cisco. They invented telepresence, but they weren’t using it much. Then they decided they wanted to save costs on travel. So they just demanded that everyone at Cisco use telepresence and only travel unless they have to. They cut $100 million a year off of their corporate travel. Also because of the traffic on the main Silicon Valley Highway no one wants to commute between any two towns in Silicon Valley. The traffic is just abominable. So my brother works from home most of the day and uses it. That has nothing to do with the virus, right?
It’s the local traffic in a fast-growing economic area that’s the cause of more people telecommuting there. So overall, will we continue to use this technology more? No question about it. Again, corporate culture has been the main inhibitor to more telecommuting.
Skift: Do you think we’re at peak business travel?
Khanna: I was revisiting a section of my next book that actually talks about this in light of the virus and checked if I wanted to still make the same arguments. Again, there are many reasons why we travel. So for example, when you think about peak business travel, OK, you’re again an established business like Cisco and you could cut back on physical travel, but you had to have a lot of physical travel to create the conditions for there to be less travel, right?
For example, my brother had to bust his butt traveling to dozens of countries every single year to set up teams that are the equivalent of his team in San Jose. Now that they all know each other physically, having circulated around the world, met each other, had conferences and team building, now they can communicate more digitally on a regular basis and don’t have to see each other every other month.
Most companies in the world are not Cisco. If you’re trying to build your business and trying to expand globally, you can’t literally just start cold calling and sending emails and hoping that you’re going to start landing big deals on the other side of the world.
For most companies that want to expand, whether it is across state lines in America or internationally around the world, you still do have to go there. Then let’s remember there’s other motivations, like regulatory barriers as well.
We don’t actually live in a flat world. So you have to go and negotiate in a world where protectionism, industrial policy, resource nationalism, all these things are kicking in and you have to set up local operations in those countries because there’s nothing seamless that are doing global business today.
Then there is a very important factor and that is secrecy. At the end of the day, we also know that all of our communications are being monitored by someone or the other. And the only way to actually have an honest conversation that isn’t being surveilled is to do it in person.
Then on top of all of that, there’s the experience factor. What collides with the idea of peak travel for business or for leisure is that this is an age whereas you know very well, people want to pay more and more for experiences, and experience just means moving, means mobility. It means travel. So how are you going to gain a competitive advantage over your rivals in banking or any other industry if you’re not offering people that added something, which is very often a physical experience?
We’re talking about a generation, a younger generation that has less and less possessions, that wants to travel, is more and more mobile, and see more and more things, that it literally is living the experience economy. So. I would say, no way. All the flight shaming in the world, all the viruses in the world, are not going to stop people from justifying either at a visceral or human level or at a business level the human need to travel.
Skift: You speak at a lot of conferences yourself. A lot of those conferences have been hugely disrupted. Any change you see on that front beyond the short term?
Khanna: I think what is factually happening is that just the lead time for event planning will get compressed. People will not plan things one year ahead, but instead, just look at the near-term horizon if they feel that they can be more secure or confident in. I think that is going to lead to some interesting adjustments in the events industry. What kind of facilities are much more flexible in terms of their bookings and able to orchestrate events with much more adjustment in time and level and short lead time, that could be one of these practices that is now permanently built into the system.
The long-term lesson is obviously, plan shorter time horizons and be capable of doing things quickly. That again is already what is the immediate response that I think will also be a long-lasting shift in practice.
Skift: Last question. How hopeful are you about the Western hemisphere response versus what has happened and is happening in Asia?
Khanna: Well, a lot depends on what happens in the U.S. and in Europe in the next month because it does represent a huge share of global travelers. The thing is that you have the feedback loop effect. On the one hand I have faith that Japan and Korea and Singapore for sure, and then China and Australia, will get it under control because they are dependent on it, a strong social cohesion, good health systems, have populations that are going to listen to instructions and would be obedient.
However, complexity matters. You have feedback loops and even in Singapore, they’re talking about the second wave. Just yesterday I was having lunch with a senior government official and he was saying that, “Look, things are really calm right now, but the second wave will inevitably come because we have to remain open. We can’t sustain having such low, slow business activity for so long. We’re going to be welcoming with open arms the Americans and the Europeans, back again, and some of them are going to be infected and you’re going to have another wave.”
Whether or not the feedback loop materializes hinges on what happens in this second phase and whether the second phase becomes the third phase. So Europe and U.S. are critical of that right now.
Numerically the situation in U.S. isn’t bad today as we speak, but we know that that could change. But U.S. is also so big that if one can contain the geography of the clusters, then the size of the cluster matters less. That is again a lesson from China. There you’ve got enormous clusters, think about Wuhan. You don’t have as large clusters elsewhere, and so you can try and isolate and contain that cluster. So if it remains in Seattle or one or two other places, that’s certainly not the end of America by a long shot. So the short answer is, we don’t know, it depends on, I guess how much are those people moving though?
Americans are statistically not necessarily that mobile. So it really depends on how much of those people are moving. So bad infrastructure also means that people don’t travel as much. But it’s not so much the infrastructure, again it is the preparedness.
When I was highlighting the resilience in Asia, it wasn’t about just the wealth of the country. It is social cohesion, the kind of culture of following orders and just having a certain kind of discipline. It doesn’t have to be a martial discipline, it just has to be a common sense discipline.
Here in Singapore, there was one guy who was under mandatory quarantine at home and he was caught, he went out. They kicked him out of the country, told him he will never set foot in this country again. “Pack your bags, you’re gone.”
Not a single person that I’m aware of either in this country or even in the global commentary about this case was critical of that decision. Absolutely no one even criticized that decision because it’s not like it was a draconian practice. It was like, “Dude, you probably live in like a fabulous villa, just relax at home for two weeks and have Deliveroo bring your meals,” you know?