INOCULATING AGAINST RISK

Larry Summers: Using the lessons of economics to stop global pandemics before they start

You may not have heard of Basil O’Connor, but there is a strong argument that he was one of the most successful investors of the 20th century.

In 1938, O’Connor was asked by Franklin D. Roosevelt to run the National Foundation for Infantile Paralysis—now known as March of Dimes. It decided to invest around $26 million not in buying iron lungs for polio patients, but in the efforts of Jonas Salk and Albert Sabin to find a cure for the disease.

Today, the world stands on the brink of eradicating polio altogether. And that $26 million investment in a polio vaccine has delivered a net global benefit in treatment cost savings of around $180 billion.

And now we have the opportunity to make a similarly sound investment.

We are all aware of the heavy cost of pandemic diseases in terms of human life. Ebola killed 11,000 people. Zika will scar the lives of thousands more.

But less often mentioned is their economic cost. Activity is disrupted; productivity plummets; travel, tourism and investment evaporate; and the labor force contracts. The Ebola outbreak more than halved GDP growth in Liberia. The SARS epidemic in 2003 cost the world economy $30 billion in only four months. The 2009 swine flu outbreak in Mexico caused tourism to fall by 43%, and its pork industry to suffer millions of dollars in losses. And many of these costs persist long into the future: a child born with microcephaly in the US as a result of the Zika virus will require an estimated $4.1 million in medical care over the course of their lifetime.

In a recent paper I co-wrote with Victoria Y. Fan and Dean T. Jamison, we attempted to calculate the likely future impact of pandemics on the global economy, combining both the mortality cost and the losses in income. Our conclusion was that it was in the same range as that of climate change—although at the lower end of the possible scale.

A moderately severe pandemic, of the kind that occurs every few decades, would knock 4-5% off global output. The “ultra scenario”—a pandemic similar in virulence to the flu of 1918—would raise that to 12%, reducing GNI in some developing countries by more than half.

Pandemics are, inevitably, far more expensive to respond to than to prepare for. And our current system of health spending—and indeed of spending more generally—places them far down the priority list.

At the moment, some 80% of aid money in the field goes into supporting domestic health systems, and 20% on global public goods—transnational issues such as pandemic preparedness or antimicrobial resistance.

This is exactly the wrong way round. The evidence is clear that using such money to tackle global threats not only delivers far more bang for the buck than supporting domestic public services (which is actually a remarkably inefficient form of aid), but addresses a gaping hole in the current system.

As we found during the Ebola epidemic, it is possible to get governments, donor organizations, and pharma companies to work together to produce a vaccine. But that can take months, if not years—and relies largely on a combination of luck and goodwill. There is no market incentive for a firm to leave production capacity unused just in case an outbreak happens. Or for it to invest the considerable sums to develop and test a new drug on the off-chance that it may one day be put to use.

This is why the creation of the Coalition for Epidemic Preparedness Innovations is so welcome. The goal of CEPI is to move pioneering vaccines from the theoretical and experimental stage to the practical one. It is supported by a public-private alliance that includes the governments of Norway and India, charities, and pharmaceutical companies.

CEPI’s plan is to set up a pipeline, capacity, and incentives to fund the development of vaccines for the diseases that present the clearest threat to global health and the global economy—including Ebola, MERS, Nipah, and Lassa. More broadly, it will build capacity to tackle viral threats as and when they emerge, rather than waiting until they have cost thousands of lives and billions of dollars.

Economics is defined as the study of the allocation of scarce resources among competing ends. At the moment, the spending and attention given to threats such as terrorism, cyber-warfare, or climate change is an order of magnitude greater than that given to pandemic prevention.

Even if you were to only take into account the financial costs of pandemics, there is an exceptionally strong case that the kind of global insurance policy that CEPI offers represents a valuable use of those resources.

Once you factor in their appalling human cost—the loss of life and loss of opportunity—that case becomes overwhelming.

Follow Lawrence on Twitter @LHSummers. Learn how to write for Quartz Ideas. We welcome your comments at ideas@qz.com.

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