As Covid-19 spreads, causing more countries to take counter-measures, Central and Southeast Europe is no exception. ING’s latest report said that collectively it is downgrading the 2020 GDP outlook on the back of virus fears.
Policjant w maseczce z gazy w czasie pandemii hiszpanki, Nowy Jork, 1918 r. (A policeman wearing a gauze mask during the Spanish flu pandemic, New York, 1918). (US NARA)
The coronavirus pandemic is not a “black swan” event. The author of that concept, Nicholas Taleb, admitted that many months ago. In an interview with Bloomberg TV, the economist stressed that the pandemic was not – or at least, shouldn’t have been – a surprise to the world. Scientists were pointing out the likelihood of such a scenario, while experts were warning about the lack of equipment, medications, and procedures. Of course, today it’s easy to criticize governments or international organizations that they didn’t take such warnings seriously. However, in the practice of day-to-day governance, which is always associated with the management of scarce resources, the current needs usually outweigh the hypothetical future needs.
Waiting for a vaccine
More than a million people have already died from COVID-19, and the total number of infections is approaching 40 million. The International Monetary Fund and the World Bank are currently predicting that the global economy will contract by approximately 5 per cent this year. The hopes for a return to the “good old days” – both in terms of public health and the economy – rest on the introduction of a coronavirus vaccine. The World Health Organization (WHO) reports that 169 Covid-19 vaccine candidates are currently under development, and 26 of these projects are already in the phase of clinical trials, i.e. they are being tested on people.
The path to the registration and introduction of these vaccines on the market is still long and will probably take from a couple of months to more than a year. The governments are vigilant, however, and are already acting to secure future supplies. Public-private partnership programs aimed, among other things, at accelerating the development of vaccines and securing their supplies, have been launched both by the United States (Operation Warp Speed) and the European Union (Emergency Support Instrument). The analysts at the German economic research institute DIW Berlin analyzed the agreements signed in the framework of these programs and concluded that although the United States launched its activities a few months earlier, the European Union has already caught up and even jumped ahead of the US in terms of the quantity of contracted vaccine doses. According to the latest data, the Americans have secured up to approximately 800 million doses (about 2.5 doses per capita), while the Europeans have secured 1.3 billion doses (nearly 3 doses per capita). How many of these supplies will actually be completed depends on the success of the clinical trials and the positive decisions of the regulatory bodies supervising the pharmaceutical market.
For the time being, both Operation Warp Speed and the Emergency Support Instrument are investing billions in the research processes of private companies, thereby eliminating a considerable part of the business risk that is normally associated with such projects. One could ask whether this is justified behavior or whether it creates the so-called moral hazard – after all, the pharmaceutical industry is so lucrative precisely because it agrees to take high risks and to incur the enormous research-related costs. Meanwhile, in the face of a real crisis and a genuine need, all those calling for reduced regulation and less government “interference” in business suddenly go quiet. Instead we start hearing calls for the provision of public support. However, let’s leave these considerations aside and see whether the companies exhibit the same enthusiasm for the taxation of their potential profits from the sale of the vaccine as they have for the provision of government grants.
Home sweet home
The experts at DIW Berlin also noted that the companies receiving support under Operation Warp Speed and the Emergency Support Instrument all share a common feature. We shouldn’t forget that the goal of these programs is to ensure access to the vaccines for one’s own citizens, which is why the Emergency Support Instrument invests in companies whose production capacities are located within the European Union, and Operation Warp Speed focuses on production in the United States.
The events of the past year proved beyond any doubt that support for globalization, free trade and international cooperation quickly decreases once a genuine crisis breaks out. The individual states have the power to block the exports of pharmaceutical products – e.g. due to public safety or public health considerations. As a result, the authorities in each country want to reduce this risk by guaranteeing production within their own territory. This was the case with medical supplies and medical equipment at the beginning of the epidemic: each country tried to import as much necessary equipment as possible (or to block the exports of such domestically available equipment to other countries). We’ve seen the end result of such policies: shortages, soaring prices, unfair speculation both at the retail and wholesale level.
The first countries to immunize their citizens against COVID-19 will also be the first to start making up for the GDP losses caused by the pandemic.
It’s not surprising that China’s policies in this regard are much less transparent. The authors at DIW Berlin emphasize that this country is conducting the highest number of coronavirus vaccine development programs. However, neither the United States nor the European Union have decided to enter into any agreements with the Chinese manufacturers. Meanwhile, a coronavirus vaccine could provide a significant strategic advantage – both in the political and the economic realm. Although during the summer it seemed that life was returning back to normal – the companies were working, the people were visiting stores and restaurants, and going on holidays – the second wave of the pandemic, which we are currently observing, is forcing governments to reinstate the restrictions. The first countries to immunize their citizens against COVID-19 will also be the first to start making up for the GDP losses caused by the pandemic.
However, the current crisis will not simply end once the warehouses are filled with the coronavirus vaccines. After all, these vaccines still have to be administered to hundreds of millions of citizens. And they won’t necessarily be overly enthusiastic about getting vaccinated. The influence of the anti-vaccination movement has grown to dangerous proportions. For example, according to data reported by the Polish National Institute of Public Health – National Institute of Hygiene, in 2010 in Poland the vaccination avoidance rate reached an average of 0.7 per 1 000 persons aged 0-19 years, while in 2019 this rate was already 6.6 per 1 000 persons. Moreover, these figures relate to the mandatory vaccinations, and the coronavirus vaccine will likely not be compulsory for all citizens. This poses a problem for the government – how to ensure herd immunity, which would allow us to stop the spread of the virus?
The level of herd immunity necessary to stop the spread of COVID-19 is 60-70 per cent of the population.
In an Ipsos survey conducted in 27 countries, 74 per cent of the respondents indicated that they would agree to get a COVID-19 vaccine (incidentally, it’s worth noting that when it comes to the vaccination intent, Poland was ranked second to last alongside Hungary, with 56 per cent of the respondents willing to get vaccinated – the only country with a lower share of adults willing to get vaccinated was Russia). Will this be sufficient? Dr. Soumya Swaminathan, the Chief Scientist at the World Health Organization, estimated that the level of herd immunity required to stop the spread of COVID-19 is between 60 and 70 per cent of the population. However, this is not equivalent to the number of people vaccinated. Anthony Fauci, the White House adviser on matters related to the coronavirus, said that he hoped the effectiveness of the vaccine would reach 75 per cent. This means that three-quarters of the people who get vaccinated gain immunity to the virus. Fauci added, however, that in light of the exceptional circumstances he would settle for a lower effectiveness of 50-60 per cent. Such a level of effectiveness is significantly lower than the effectiveness of vaccines against other diseases, introduced in “normal” circumstances – their effectiveness often reaches 90 per cent and more.
Robert E. Litan, an analyst at the US think-tank Brookings Institution, arrived at a similar conclusion. A basic calculation shows that in order to achieve herd immunity at the level of 60 per cent of the population using a vaccine with an effectiveness rate of 75 per cent we would have to vaccinate 80 per cent of the entire population. Meanwhile, the previously cited survey indicated that one-third of all Americans would not agree to be vaccinated. This means that we need solutions that would encourage a greater percentage of the population to get vaccinated – otherwise a return to normal life will not be possible. And after all, the entirety of the social and economic costs, which we have been bearing, only serve a single objective – to keep the spread of the disease at a certain manageable level while waiting for the vaccine to be invented. In this way, we can avoid a situation where the demand for hospitalizations exceeds the capacity of the health care system, thereby preventing the deaths of millions of unnecessary victims. But all this will have been in vain if it ultimately turns out that the population is not willing to get vaccinated.
In this context, the expert from Brookings Institution explores the possible use of financial incentives: paying USD 1000 to every person who gets vaccinated. This is a simple, ad hoc solution – but it would give us a chance to succeed. Litan further suggests that a part of the payment should be held back until an appropriate percentage of the entire population gets vaccinated: USD 200 would be paid upfront and the remaining amount of USD 800 would be disbursed once 80 per cent of the population gets the vaccine. What about the costs? In the case of the United States they would reach USD 330 billion. At first glance this might seem like a lot, but if we take into account the fact that the United States government’s fiscal stimulus implemented in response to the pandemic reaches into the trillions of dollars, then such a one-off payment no longer seems as outrageous.
If we were to perform the same intellectual exercise (i.e. a payment of PLN 1000 per person), then the total cost in Poland would amount to PLN 38 billion – less than one-eighth of the overall spending planned as part of the so-called “anti-crisis shield”.
Never let a good crisis go to waste
In a message directed to the world’s governments, the WHO has pointed out that “the best time to prevent the next pandemic is now”. All the efforts and resources are currently being used on the fight against the pandemic, which has been affecting humanity for months. Ad hoc institutions are being created, procedures are being simplified, and funds are being mobilized – all this in order to protect as many lives as possible and to beat the virus as quickly as possible. And humanity will likely succeed. Maybe in six months, and maybe in a year – but the pandemic will ultimately end, and we will return to normal life.
Some of the behaviors from the days of the pandemic might stay with us in the future because they are effective in the prevention of other infections such as the flu – perhaps we will continue to wear masks in public places, use liquid hand sanitizers in stores, and maybe some lucky people will be able to work remotely. But what will the public institutions learn from this experience?
The WHO warns against repeating the cycle of panic-then-forget. It is natural that once the coronavirus ceases to be a danger, people will want to exhale, unwind, and let off steam after putting their lives on hold for many months (and possibly years). So, can we expect a period of festive celebration in the economic life – a carefree moment of indulgence and over-consumption, which would serve as compensation for the hard times that we are leaving behind? Or perhaps the political discourse will be dominated by the supporters of a restrictive fiscal policy, who will seek to quickly reduce deficits and public debt, which have ballooned due to the implementation of the pandemic stimulus programs? Time will tell.
It seems that the governments and international organizations – if they really want to be ready for the next cataclysm – should come to terms with the necessity of incurring significant expenditures in order to maintain their readiness for activities that may not be necessary for many years. Perhaps the health care systems should maintain a certain level of reserves capacities, including equipment, human resources, hospital beds, laboratories, and production lines for the manufacture of personal protective measures, which would be readily available in the event of an emergency. It will be hard to explain, however – both to the auditing institutions, and to the public opinion – that we are allocating significant amounts to empty hospitals and respirators kept in warehouses, when there isn’t enough funds for the current pressing needs. It’s not clear how this problem can be solved – it is certain, however, that after the end of the pandemic is finally announced, we cannot forget that the outbreak of the next one is only a matter of time.