Sat, Feb 22, 2020 page8

• The Liberty Times Editorial: Preparing for future contagions

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  The COVID-19 outbreak in China, known to many as Wuhan pneumonia, has yet to be contained, and there are various guesses as to when that will happen. Some investors optimistically expect it to clear up by the end of this month, while US President Donald Trump has predicted that it would “go away” in April.

  However, Vice President Chen Chien-jen (陳建仁), who is an epidemiologist, has said that people might have to learn to live with COVID-19, as they do with other contagions, such as influenza.

  Another consideration is that to calculate the extent of the epidemic’s impact, one would also have to guess China’s attitudes, determination and capabilities. Uncertainty is a major bane of economic development, and China and the virus are both unpredictable variables.

  The typhoons that visit Taiwan every year often destroy bridges, houses and fertile fields. While the loss of income caused by reduced harvests and production has a negative effect on economic scale, it might not necessarily cause the nation’s annual GDP to fall.

  Collapsed bridges, houses and so on that were built in the past do not count toward the current year’s GDP. Post-disaster reconstruction can sometimes spur economic growth, while delayed consumption can often make up for a temporary decline in demand.

  Epidemics are somewhat different. The damage they cause is to human lives, while the fear they cause has a longer-lasting effect of discouraging people from going out, leading to slower activity in businesses such as travel, restaurants, movies and other services. Epidemics deter both consumption and investment.

  The SARS outbreak in 2003 had a heavy impact on Taiwan’s economy in the second quarter of that year, with private consumption contracting — a rare occurrence for this nation.

  Overall, the economy slumped 1.15 percent compared with the same quarter of the previous year. It also compared poorly with the preceding and following quarters, which both saw year-on-year growth rates of 5 percent, or the 5.85 percent growth seen in the fourth quarter of 1999, when the 921 Earthquake struck, and the more than 7 percent year-on-year growth in the quarters preceding and following that one.

  Human life is priceless, but medical resources, such as reagents, medical instruments and hospital wards, all come at a price, as does the training of medical personnel. All these things need money. The more rigorously the nation prepares now, the less of a loss it is likely to suffer. However, government budgets are not unlimited, so one cannot avoid weighing up the costs and benefits when deciding policies.

  The establishment of disease-control capabilities must therefore be planned from an economic aspect. The losses that can potentially arise from disasters provide an important rationale for expanding the nation’s disease-prevention and control capabilities.

  The relation between health and wealth has long been a topic of academic research. Generally speaking, there is a positive correlation between the two. Countries with higher life expectancies are generally those that have higher GDP per capita.

  A comparison between two major disasters — SARS and the 921 Earthquake — shows that the heavy economic impact that can arise from a viral outbreak justifies the cost of raising the nation’s ability to prevent diseases.

  COVID-19 is caused by a novel coronavirus whose characteristics, survivability and mode of transmission are not yet clear. China is a big country where information transparency is lacking. As with SARS 17 years ago, so it is with the current outbreak.

  Other countries can only obtain information that Beijing is unable to suppress. Aside from making it hard to keep track of the outbreak, this also makes it harder to estimate economic risks. These difficulties are a test of the progress Taiwan has made in disease control over the past 17 years.

  Epidemics and natural disasters all come to an end sooner or later. The duration of their effect depends on what that impact entails. For example, the Black Death had a deep impact on England, causing its population to stagnate for a long period in the 14th and 15th centuries.

  In Taiwan’s case, even though its economic development got back on track following the last few outbreaks of contagious diseases, it had little or no economic growth while the outbreaks were happening. Notably, the survival of some and the death of others had an impact on financial markets and led to a redistribution of wealth. Although the economy seems to always recover, it will never return to what it used to be before the outbreak.

  Over the past few weeks, the public’s main concern and topic of conversation have been about masks, with a shortage posing a direct challenge to the administration’s ability to govern.

  In this extraordinary period, apart from investing NT$200 million (US$6.58 million) to build mask production lines, the government could also consider working in concert with market forces to resolve the shortage.

  It could use a “twin-track system” whereby, as well as requisitioning masks made by existing factories and selling them through a rationing system, it could set a higher, but still reasonable upper price limit that would offer sufficient incentives for manufacturers to quickly purchase equipment to boost production.

  Supply and demand decides what will happen to the masks. When the market price goes up, supply will naturally increase, thus meeting the demand. In terms of economics, when buyers are willing to pay a higher price, it implies stronger demand and that goods will be put to the best possible use.

  If there is a temporary shortage of a strategic commodity, such as masks or consumer goods in general, more can be produced. The nation needs to prepare solutions to problems before they happen.

  The idea that “health is wealth” is as true of the nation as it is of the individual. Thanks to the experience of SARS, the Ministry of Health and Welfare has been able to deploy resources more calmly on this occasion.

  If the nation were, unfortunately, attacked by yet another contagion in the future, let us hope that it can be managed in a more orderly manner.

  Translated by Julian Clegg
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