Which should scare us more — the bird flu or what it might do to our standard of living? Much news space has been given to people getting sick. Time to think about how sick the economy could get, too. It could be nasty.
The Treasury is scoping the potential economic fallout from a bird flu strike. Involved are the Reserve Bank, the Ministries of Economic and Social Development, the Customs Service and the Inland Revenue.
No one knows what will happen. But up to 30 per cent of the workforce over an eight to 10-week period may be off work at some point — ill, looking after someone who is ill or minding children whose schools are closed.
Just keeping essential services, including financial services, going will be challenging. And if the borders are closed the costs in trade and tourism would be high.
Of course, none of this preparation may be called into play — just as preparations for Wellington’s big earthquake may not be needed in our lifetimes. While there will be an earthquake — we just don’t know when — there is no inevitability, as much of the news coverage seems to assume, that bird flu will turn into a pandemic.
So far it hasn’t mutated from a bird-to-human disease to a human-to-human one and some experts think that if it hasn’t mutated yet, it won’t. There is no pandemic, just as SARs turned out not to be a pandemic a few years back.
Nevertheless, say some experts, there will be a pandemic sometime, just like the earthquake. And some say it is overdue.
If so, it makes sense for the Health Department to develop medical mechanisms to deal with it — though whether stockpiling vaccine of dubious protective efficacy is value for money is a moot point. Australia is buying 300 extra ventilators for its hospitals.
It also makes sense for the Treasury and other economic agencies to think through what would be needed to keep the cash flowing and the economy operating if large numbers of people cannot turn up for work.
* What do government agencies have to do to help households and businesses operating through an unknown length of time when there may be limited facilities available?
* Do the banks have contingency plans for an event that may take out a large number of staff — or sharply reduce the scope for face-to-face contact with customers, especially commercial customers?
* Will cash machines be able safely to dispense cash? Will the interbank transaction system keep working? And will the Ministry of Social Development be able to keep benefits flowing?
* Do insurance companies have contingency plans?
* How will the Inland Revenue Department treat tax on people forced on “furlough”, as one senior official puts it?
If this all seems rather remote, that’s no surprise. There is no way to estimate accurately what might happen — or the economic cost. The best the bureaucrats can do is paint a range of scenarios.
As one adviser puts it: “Such an event is a long way outside the econometrics of existing models.”
But the impact could be large. One academic estimate of the cost of a pandemic killing 50,000 people in Britain (the equivalent of about 3300 here) is that it would cut GDP output by 8 per cent. For a comparison, in the coming slowdown in this country GDP is still expected to be growing, not falling.
The crunch would come in two main ways.
One is from closing the borders to movements of goods and people. Exports and tourism would suffer, possibly seriously. SARs killed only 50 people in Canada but was costly nonetheless.
And this is not a matter for authorities here alone: other countries would want to make decisions whether to let people visit here (or return from here) and to let goods in. No one knows how long the borders would be closed if a “cluster” of cases was reported here.
The second crunch is internal. Back in our last big flu attack in 1918 (the pandemic that killed 25-50 million worldwide and 6700 here, four-fifths of them Maori) the economy was much less time-sensitive than today’s “just in time” standard.
Overseas supply lines would dry up very quickly if the border was closed and manufacturers and retailers could therefore quickly run out of supplies. Even internally, if there were quarantined areas, there could be serious disruptions, forcing thousands out of work.
Add it up: there are semi-official estimates around that a foot-and-mouth disease outbreak would cost 8 per cent of GDP. A pandemic which closed the borders and took 30 per cent of the workforce out temporarily could push the cost considerably higher.
And even if we don’t get the flu and others do, there would be damage. World trade would slow, possibly drastically — in fact, already trade is being affected as the virus shows up in a widening range of countries. Europe has blocked imports from nations where bird flu has been detected.
As an export-dependent nation — and one highly dependent on moving food and tourists — New Zealand could be badly hit.
So bother about the family’s survival. But start making contingency plans for your business’s survival, too.
But also put it all in perspective: there is no pandemic yet. And there may not be one.