Coronavirus and the global economy

WASHINGTON, DC — The emergence of COVID-19, a new coronavirus, is a tragic public health emergency. The disease, one hopes, will be brought under control quickly, but the International Monetary Fund is already warning that economic growth in China may slow. As we watch the situation unfold, three broader risks to the global economy are also becoming more apparent.

The first risk is obviously in China itself. While the precise origins of the disease remain unclear, it is hard to take a definite view on whether outbreaks of this kind could be avoided — for example, by better control over hygiene in food markets. But it is painfully obvious that a lack of transparency in China has contributed to fear and even signs of panic around the world.

As financial markets demonstrated in 2007-2008, when the precise incidence of big risks is not well understood, people tend to assume the worst. Rapidly falling asset prices may not contain much information — except that there is not much information to be had.

What is the exact mortality rate associated with COVID-19? Why does mortality, supposedly, vary significantly across localities? What explains the ease with which this virus seems, sometimes, to travel great distances? What are the precise effects of quarantining people in a building, a makeshift hospital or a city?

The Chinese authorities surely do not have all the answers at this point, but their inclination to suppress data and interpretation is tremendously unhelpful.

Second, the lack of American leadership is more painfully apparent every day. The United States has the strongest medical health system in the world, with capacity for research and development (government and private) that is second to none. Yet President Donald Trump’s administration seems to be concerned primarily with playing down the risks, while keeping the virus out of the US — a nearly impossible task.

The private sector is working hard on a vaccine, and this is commendable. Unfortunately, over a longer period of time, the lack of a consistent market for such vaccines has undermined investment in this sector. By creating the world’s largest market for many drugs, the US effectively supports research across a wide range of ailments — but only those for which there is large and steady demand in the US.

Even the most fervent believer in Trump’s “America First” must be willing to concede that it is not in America’s interest for the rest of the world to become sick. These are US allies, friends and customers. Also, like it or not, few diseases will stop at America’s borders. Indeed, the US Centres for Disease Control and Prevention (CDC) has said that the question is not if, but rather when, COVID-19 spreads domestically.

The third risk is in emerging markets and developing countries. Poorer countries are ill-equipped to deal with this kind of disease, as seen in African countries’ refusal to airlift their citizens from China.

The news that the coronavirus has reached Italy has shaken world financial markets, but Italy is a relatively well-organised and rich country. A vibrant democracy ensures that people (inside and outside the country) will quickly understand if containment and treatment measures are working.

We should be much more concerned about other countries, where nutrition is worse, housing standards are weak and disease transmission can occur much more readily. If these countries’ health systems come under pressure, the US, Europe and others should step up quickly with technical assistance and essential supplies. But here, too, there is so far a worrying lack of leadership.

It seems unlikely that this disease will prove to be as deadly as some of those that our ancestors experienced. Medical practice and public health have advanced a great deal. The CDC is an outstanding organisation, and the World Health Organisation has a strong track record when the chips are down. Private-sector groups of dedicated doctors and nurses have performed extraordinarily well under the most difficult circumstances, such as dealing with Ebola, when they are given a chance. We are fortunate to live in an age that has so many heroic people.

Still, this coronavirus is a warning. Societies neglect access to healthcare systems and reduce investments in R&D at great peril. Diseases are always evolving, and we must continually increase our capacity to understand and fight newly emerging threats.

The best way forward is by strengthening science, training more scientists and building more labs. Countries that are able to do this — like the US — should share ideas and knowledge as widely as possible.

Investing more in science is an appealing economic proposition. Given very high rates of social return, basic research across a wide range of activities more than pays for itself.

But this is not about the economics. More likely than not, one day a scientist will save your life or the life of a loved one, because his or her previous work produced a drug, treatment or just an idea that made a critical difference. We should invest in scientists to save ourselves and our neighbours. And we must remember that we have neighbours all over our deeply interconnected world.

Simon Johnson, a former chief economist of the IMF, is a professor at MIT Sloan and an informal adviser to US Senator Elizabeth Warren's presidential campaign. He is the co-author, with Jonathan Gruber, of Jump-Starting America: How Breakthrough Science Can Revive Economic Growth and the American Dream.