Handling COVID-19 Isn’t a Trade-off Between Health and Economy. Here’s Why.


Since the onset of the COVID-19 pandemic, responses to the dual health and economic crisis have often been framed as trade-offs between lives and livelihoods.

Public health interventions reduce avoidable deaths but constrain economic activity. Job and GDP losses resulting from initial lockdowns shocked many governments into ‘returns to normal’ before infection spread had been contained and sustainable mitigations implemented.

Governments are instinctively short-sighted and the pandemic context has worsened myopic policymaking. Health-versus-economy misconceptions are an unhelpful manifestation.

Even a cursory examination of headline data fails to support this framing, as countries with higher fatality rates have generally experienced larger GDP contractions. A fairer comparison of economic losses alongside the costs of premature deaths further discredits zero-sum characterisations.

Government agencies assign a value of a statistical life (VSL) to quantify the cost of premature deaths when evaluating policies involving mortality like road safety or medicine subsidies. There is no international standard VSL and it is primarily deployed in high-income countries where costs — and therefore values attributed to living — are higher. To provide a simple and fair cross-country comparison, US government agency VSLs were adjusted for income differences (GDP per capita PPP) and used to convert COVID-19 deaths into percentage of GDP terms.

Comparing OECD and East/Southeast Asian economies in the first half of 2020 provides a sobering assessment of developed country performance. Apart from Singapore, economies that avoided mass casualties have performed better in traditional growth and combined GDP plus VSL terms. Western European countries hit hardest by pandemic fatalities have effectively lost another 10–15 per cent of GDP in VSL. Accounting for lives lost in Sweden and Belgium doubles the economic damage. Even the large and populous United States lost 6 per cent of GDP from COVID-19 deaths in the first half of 2020 and is on course to exceed that in the second half of the year.

East and Southeast Asia, Oceania and parts of Northern and Eastern Europe have fared better. Five of the top six economies in combined loss terms are from East/Southeast Asia. Overall, the region (including Japan and South Korea) has lost 4.2 per cent of GDP in the first half of the year compared to 20.1 per cent in the rest of the OECD.

Peru is one of the worst affected countries in age-adjusted deaths per population terms. Using it as a counterfactual mortality rate to estimate the VSL for lives saved, East/Southeast Asia saved lives worth 24.2 per cent of GDP compared to 13 per cent for the rest of the OECD. The counterfactual VSL saved for the OECD is around double its VSL lost — that is, things could have been three times worse. The ratio is over 115 times for East/Southeast Asia.

Policy responses in East/Southeast Asia are increasingly providing inspiration for effective pandemic handling, having more successfully utilised learned experience from endemic diseases and previous virus outbreaks. Countries like VietnamChinaThailandMalaysia and South Korea have very different characteristics, challenges and resources available to them but have achieved relative success. They remain an underappreciated and secondary reference point for numerous developed countries looking to each other for best practice.

According to a leading metric on pandemic preparedness, these countries success appears wholly unexpected. Comparing Global Health Security index scores against VSL lost and saved, many of the best COVID-19 responses have come from those rated worst prepared. Vietnam, China and the Slovakia are lowly ranked yet have mounted far more effective responses than the better-equipped United States, United Kingdom and the Netherlands. Latvia, Malaysia and Belgium have similar scores, yet their outcomes have differed tremendously.

The index does a poor job of predicting pandemic handling efficacy. Strictly speaking, it measures resources available to economies — not whether political leaders have the sense or foresight to use them.

East/Southeast Asia has not only fared better in combined GDP plus VSL terms but has done so on a lesser budget. Without the deep pockets of OECD economies, developing Asia is relying on sustainable public health interventions to avoid further harsh lockdowns and associated costs.

The purpose-built COVID-19 Economic Stimulus Index combines announced fiscal, monetary and balance of payments policy measures into a single stimulus metric up to 25 August. Except for two rich East/Southeast Asian economies (Japan and Singapore), the region has deployed relatively modest stimulus responses. The regional average is slightly lower (9.9 per cent of GDP) than the rest of the OECD (10.7 per cent). The figure is less than half (5.2 per cent) if Japan and Singapore are excluded.

That the index is based on announced stimulus not implementation suggests the gap could be wider still, as institutional constraints in developing economies limit stimulus delivery.

What’s remarkable from these outcomes is that even short-term trade-offs between health and economy defy zero-sum framing. Over the long term, sustained virus containment should further promote a stronger economic recovery.

Successful economies acted quickly and firmly to contain outbreaks and developed safeguards for a cautious reopening. They have since moved to shorter and geographically targeted lockdowns, extensive testing and compulsory tracing/registration systems. They have also implemented mandatory personal protective measures such as social distancing guides, masks, temperature checks and sanitiser stations, and persistent public health messaging to maintain vigilance.

All are public health interventions with minor imposts and major benefits in avoiding significant outbreaks and associated disruptions that imperil business and consumer confidence. And while some measures involve freedom and privacy concerns that needn’t be as easily dismissed in Western democracies, judicious design and public messaging can largely mitigate these.

Few economies have explicitly committed to maintaining ‘new normal’ measures indefinitely. They would be well advised to do so. Countries should ditch the counterproductive health-versus-economy framing and look to Asia for approaches fostering healthy economies.

Stewart Nixon is a Research Scholar at the Crawford School of Public Policy, The Australian National University. He is currently a research visitor at the University of Malaya.

This article is part of an EAF special feature series on the novel coronavirus crisis and its impact.

This article first appeared on East Asia Forum.

Image: Reuters



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Health versus economy trade-off isn’t a solvable equation


Donald Trump and others may have argued the cure shouldn’t be worse than the disease but the renewed outbreak in Victoria, whether it’s a “second wave” or an acceleration of the first, underscores the reality that, until there is an effective and widely-distributed vaccine, there is no cure for either the virus or the economy.

The Treasurer, Josh Frydenberg, has said that the six-week Victorian lockdown will cost the national economy about $1 billion a week.

Until Victoria lost control of the virus the national economy was expected to shrink by slightly less than 4 per cent this calendar year, with a horrific June quarter followed by a significant bounce back as the economy reopened.

The numbers – the more visible and calculable economic costs of the pandemic – are now clearly going to be worse, given that Victoria represents about a quarter of the national economy and that its lockdown will have spillover effects even into those states that have, so far, been able to suppress the virus.

The great unknown is whether the virus can actually be suppressed, given how infectious it has shown itself to be.

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In the absence of a vaccine, is the Victorian experience likely to be the norm, with economies veering continuously between cautious reopenings and then hard lockdowns and is there an alternative to Victoria’s harsh response to the surge in its infections?

The obvious reference point is the much-discussed Swedish strategy. The Swedes didn’t impose a lockdown, instead advocating voluntary social distancing, bans on large gatherings and table-only service in bars and restaurants.

There have been about 6000 deaths attributable to the coronavirus in Sweden and its economy contracted by 8.6 per cent in the June quarter.

The economic impacts weren’t as severe as those experienced elsewhere in Europe – Germany’s economy, for instance, shrank 10.1 per cent – but they are very similar to those of its Nordic neighbours and the death rate is about four times that of Germany’s, about 10 times Denmark’s and nearly 25 times Norway’s, countries where the restrictions on activity have been far more stringent.

Sweden took an unconventional approach to a lockdown. Credit:AP

That would suggest there isn’t that much difference in the economic costs of doing little to contain the virus or adopting strong measures but there is, however, a very large disparity in the health outcomes.

Economists are scrambling to put some kind of analytical framework around the “lives versus economic costs” question but there is no conclusive answer because the inputs of data aren’t sufficiently reliable, given the unprecedented nature of the pandemic for modern economies and the novelty of communities’ responses to it.

One of the great unknowns is whether – even if the virus were suppressed – consumers would still behave differently relative to their pre-pandemic norms.

Some studies of mobility, using mobile phone data, have found that even as restrictions eased consumers did behave differently, with less activity, an avoidance of congested areas such as shopping centres and a shift away from non-essential activities.

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It’s obviously premature to determine whether that could be a permanent shift in consumer behaviours but, as long as the threat of the virus and fresh outbreaks persist, consumer fear of infection is likely to impact and depress economic activity.

That suggests that even when the hard lockdown of Victoria ends, there will be an ongoing reduction in economic output and not just in Victoria. As the Victorian experience has also demonstrated, at this point in the life cycle of the virus, infections can be contained but not to the point where they are eradicated.

As restrictions are eased, infection rates can rise rapidly and, with some in the community considering themselves relatively immune to anything but mild effects, quickly get out of control. The initial boost to the economy from reopening can evaporate almost overnight.

It is, perhaps, the human and economic costs of continually opening and closing economies – big businesses won’t invest or employ with that kind of prolonged uncertainty and smaller businesses won’t survive it – that says prioritising the health response is also the best economic strategy.

In the absence of a vaccine, that may have to be a long-term strategy, albeit hopefully with fewer restrictions and a reduced economic cost. There are academic papers that, having come to that conclusion, argue for more targeted containment measures once the virus is under control.

They advocate strict quarantines for the infected and the most vulnerable groups in the community but a gradual normalisation of activity for those with some level of immunity or at low risk and argue for a granular approach to different industries and activities, depending on their levels of perceived risk.

Constraints on activity could be dialled up or down, incrementally and tightly-targeted at a local level, in response to infection rates.

It is possible to try to put a value on the lives lost to the pandemic and then try to compare that to the economic cost of the lockdowns but, apart from being a distasteful calculation with significant moral dimensions, the inputs are very rubbery and the concept is simplistic.

Health systems do put a value on lives to decide how much to spend on particular treatments. Comparisons between the value of lives lost and losses of economic output are made in a lot of pandemic-related research.

Containing that side of the health-versus-the-economy equation to the value of lives directly lost to the virus would, however, grossly underestimate the pandemic’s wider health and welfare costs.

On the other side of the equation – the broader economic impacts – the experience of Victoria relative to those states that have reopened their economies will provide better insights into the costs of a harsh lockdown after an economy has started to reopen.

With the threat of renewed infections still affecting the psychology and behaviour of consumers and businesses in the more fortunate states, we’ll also have a better sense of what a post-pandemic normal might look like if the virus is suppressed but not eradicated.

It is unlikely, however, to alter the convictions of politicians and many economists that the best economic strategy for responding to significant outbreaks of the virus is to lock the economy down as tightly as possible for as long as it takes to choke the rate of community transmission.

A six-week or even three-month lockdown appears preferable to the long-term damage done if there were a rolling series of reopenings and closures. The health and economic outcomes don’t appear, from the evidence to date, to be conflicting priorities but rather inter-dependent.

Setting aside the moral questions, sustainable economic growth, even at a pandemic-reduced level, can’t be achieved unless the virus is sustainably contained, whatever the immediate economic cost.

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