Dr Dan Steinbock is an recognized expert of the multipolar world. He focuses on international business, international relations, investment and risk among the leading advanced and large emerging economies.
He is a Senior ASLA-Fulbright Scholar (New York University and Columbia Business School).
The Tragedy of More Missed Opportunities
COVID-19 Human Costs and Economic Damage in Advanced, Emerging and Developing Economies
By Dan Steinbock
Shanghai Institute for International Studies (SIIS)
The report at hand is the sequel of The Tragedy of Missed Opportunities: COVID-19 Human Costs and Economic Damage (April, 2020). It focuses on the net effects of the belated responses by the major advanced economies: that is, the past containment failures and failed crisis management, premature exits, continued policy mistakes and the consequent collateral damage in all major income groups and economies – including advanced economies (high-income economies), emerging and developing economies (upper- and lower middle-income economies) and least developed countries (low-income economies).
Legacies of failed containment, poor crisis management, premature exits. As the epicenters of the global pandemic are transitioning to poorer countries, the latter will have to face pandemic challenges – including the recent virus accelerations in a number of advanced economies - with poorer economies, lower living standards and weaker health systems. Consequently, the world is entering a “new and dangerous phase.” That, in turn, is likely to result in further threats when the major advanced economies finally normalize, economies gradually reopen, schools begin, travel and tourism pick up and so on – because that’s when the new virus waves and imported infections could accelerate.
Toward tens of millions of cases and over million deaths. By August, confirmed cases exceeded 17 million worldwide, while deaths were close to 700,000. Worse, the pandemic continued to accelerate with 200,000-250,000 new cases daily, coupled with 5,000-6,000 new deaths daily. At this rate, the accumulated confirmed cases could exceed 25 million by September. In the absence of deceleration, these cases could soar to 50-60 million and deaths to 1.5 to 1.7 million by the year-end. More importantly, due to limited testing and inadequate data, a great number of cases and deaths continue to go undetected, particularly in the poorer economies. As a result, all official estimates are highly conservative, effectively downplaying the true pandemic impact.
US states dominate the most affected economies worldwide. With the accelerated pandemic impact, the associated economic collateral damage continues to deepen. Due to late mobilization and ineffective responses, defective herd immunity has been fostered in major advanced economies, as evidenced by the initial containment failures in the UK, and the COVID-19 resurgences in the US and the Americas. Consider this: If US states were sovereign entities, then by August they accounted for 23 of the top-25 most virus-affected economies worldwide, as measured by confirmed cases per capita. Worse, the Trump administration’s planned exit from the WHO is likely to compound new pandemic risks over time.
Worst regional crisis in Americas, others to follow. The global pandemic exhibits significant regional differentiation, which is shaped by the anchor economies. In East, South and Southeast Asia, China’s relative containment success defused the early spread of the virus in the region. In contrast, failures of containment in Western Europe fostered the spread of the pandemic in Central and Eastern Europe, and worldwide. In the Americas, US failure of containment, poor crisis management and premature exits, coupled with poorer economies and weaker health systems have resulted in the worst regional crisis worldwide. Yet, Canada’s track record relative to the US suggests that appropriate precautions can work, despite elevated risks in the regional neighborhood.
With normalization, new accelerations, waves and virulent strains loom ahead. The assumption of COVID-19 immunity with fast-tracked vaccines could prove elusive. In March, a new G variation of the virus began to predominate at the expense of the original D. In the coming months, poorer economies in South America, Asia, Africa and elsewhere may have to cope with the rapidly-rising risk of imported infections, new accelerations and virus waves and possibly more virulent strains that the quarantines, lockdowns and travel restrictions in the West have so far kept in check.
Unwarranted, unrecorded, undervalued suffering in poorer economies. Without effective vaccine and therapies (and due to inadequate testing and weak data in poorer economies), critical risk groups - the elderly, those with chronic pulmonary conditions, hypertension, diabetes and asthma patients, and those without adequate access to affordable healthcare - could be condemned into unwarranted suffering, even premature death. Due to pandemic accelerations in advanced economies, young age cohorts are no longer immune to mass infections either. In poorer economies, the fall of significant populations, which may go unwarranted, unrecorded and undervalued, could be attributed to Malthusian “war, plague, and famine” rather than COVID-19. Nevertheless, such excessive human costs should not be mistaken with “natural” causes.
Multiple indicators needed to assess COVID-19 evolution. In the report at hand, the progressive course of the COVID-19 in all income groups worldwide was assessed in terms of the timing of the official first cases, accelerated spread, effective reproductive number (Rt) in three time periods, transmission classification, flattening of the curve, new accelerations (typically as the net effect of premature exits, residual clusters etc.), and potential susceptibility to new waves.
In a 2-phase progression, pandemic spread intensified in late spring. The evidence suggests that while the original virus was first officially recorded in China, it was largely contained in the mainland and multiple other economies in January-February. The pandemic spread in most income groups was fueled by importations from Western Europe, containment failures in North America and major advanced economies, which fostered early but initially undetected local transmissions. In particular, premature exits and continued policy failures resulted in multiple virus accelerations in the summer and will compound susceptibility to new accelerations, new waves, more virulent straints and imported infections in the future.
Baseline scenarios still underestimate collateral economic damage. As the analysis of the economic collateral damage in the major income groups indicates, the IMF/WEO update of June 2020 remains too optimistic. It downplays the impact of the prior grim global economic landscape; It underestimates the adverse impact of the secondary virus waves, which were initially anticipated only toward late fall 2020 but materialized already around May/June. And it largely suspends the likely negative impact of the escalating US Cold War against China and several other countries and groups of countries. Since the US is the largest advanced economy and China the largest emerging economy, such escalation is likely to further undermine prospects for global recovery.
Largest economies face greater collateral damage and lost years. The impact has been relatively worst in those major economies that were coping with challenges already before the coronavirus contraction. Among high-income economies, most may face 5-7 years of lost progress (as measured by losses in per capita incomes), whereas in outliers prior challenges are contributing to far greater declines (e.g., Italy, Japan). Among upper middle-income economies, China and possibly Indonesia may navigate through the crisis without negative contraction. But most countries have already lost 5-7 years of progress and in some economies, typically Brazil and Argentina, the lost years may prove twice as many as among their peers. Among lower middle-income economies, even the best performers have already lost 3-4 years (India, Kenya, Philippines, and Vietnam), while others may lose a decade (Nigeria). Among low-income economies, the best performers have lost 5-7 years of progress (Ethiopia, Mozambique). Some have had losses of up to 20 years (Madagascar), or over 25 years (Yemen); they suffered from falling living standards long before the pandemic, due to political instability, civil war and foreign invasions. Due to minimal testing and undervalued COVID-19 case counts, devastation in poorer economies could prove significantly higher than currently acknowledged.
Failed multilateralism and misguided unipolarity account for historical losses. What further aggravates the human costs and economic damage is the failure of the major advanced economies to implement the WHO’s multilateral preparedness plan, which should be scaled up to preempt future pandemics. The WHO’s updated fund-raising target represents barely 0.01% of the world’s (current) cumulative output loss. Strong multilateral global action would be vastly preferable to (and only a fraction of the cost of) these unipolar actions, which compound pandemic damage. Setting aside the huge costs of monetary easing and other relevant measures, the fiscal packages alone, which are used to cushion the pandemic collateral damage, amounted to $11 trillion in the first half of 2020. The final costs of these packages are likely to result in a series of future debt crises in major economies. Worse, efforts to couple the trade wars with technology wars and financial wars could destabilize the long-term prospects of global recovery, particularly in the poorest economies, and undermine the promise of the “Asian Century.” After decades, even centuries, of colonial legacies, Cold War and new “forever wars.”
Science-based policies work against pandemics, not politicized agendas. What is desperately needed to overcome COVID-19 and the coronavirus contraction is multilateral cooperation among all major economies and across political differences. In turn, this cooperation must rely on science-based policies rather than politicized agendas, or efforts to overwhelm public agendas with private interests. Global pandemics are not overcome by political ploys or efforts at private gains. Only evidence-based decision-making that relies on modern science can provide the basis for successful policies against the pandemics.
Tragically, what is most needed to overcome COVID-19 and the associated economic contraction seems unlikely to happen in the near future. With the Spanish flu, it was not the first wave that proved fatal, but the second. If such painful lessons have not been learned by now, they will be learned over a major crisis that is likely to be compounded by a more protracted pandemic and a multiyear global depression.