Crawford School of Public Policy

Policies combatting the dual health and economic crises of the COVID-19 pandemic are commonly framed as a trade-off between lives and livelihoods. Public health interventions reduce avoidable deaths but inhibit economic activity. The job and growth losses resulting from initial lockdowns have seen many governments attempt a rapid ‘return to normal’ without having contained infection spread or implemented sustainable mitigations.

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A cross-country comparison of outcomes to date calls the ‘health versus economy’ characterisation into question. A cursory examination of the headline data shows countries with higher fatality rates have generally experienced higher GDP contractions. But headline comparisons ignore the direct costs of premature deaths, which once accounted for further discredits the zero-sum framing.  

The Economic Value of Lives Lost

Premature deaths have economic as well as human costs. Quantifying how costly by assigning a value of a statistical life (VSL) is common practice when evaluating policies involving mortality (like road safety or medicine subsidies), and should not be confused with controversial welfare metrics. There is no international standard VSL and it is primarily deployed in high-income countries where costs – and therefore values attributed to living – are higher.

Adopting US government agency VSLs as a baseline and adjusting for income differences between economies,  Figure 1 plots the economic value of lives lost against GDP growth for OECD and East/Southeast Asian economies in the first half of 2020 (H1). The figure also provides a value for lives lost in the second half (H2) to 30 September and a counterfactual value for lives saved (in H1) using the mortality rate in Peru - one of the worst affected countries in age-adjusted deaths per population terms.

Apart from Singapore, economies that avoided mass casualties performed better in traditional growth and combined GDP plus VSL terms. The Western European countries hit hardest by pandemic fatalities have effectively lost another 10-15 per cent of GDP in VSL. Accounting for lives lost in Sweden and Belgium doubles the economic damage. Even the large and populous United States lost 6 per cent of GDP from COVID-19 deaths in H1 and is on course to exceed that in H2.  

East and Southeast Asia, Oceania and parts of Northern and Eastern Europe have fared better. Five of the top six economies in combined loss terms are from East/Southeast Asia, and overall the region (including Japan and South Korea) has lost 4.2 per cent of GDP in H1 compared to 20.1 per cent in the rest of the OECD. Compared to counterfactual Peru, East/Southeast Asia saved lives worth 24.2 per cent of GDP compared to 13 per cent for the rest of the OECD.

Developing Asia, Not Rich Countries, Proving Better Prepared

Policy responses in East/Southeast Asia are providing inspiration on effective pandemic handling, more successfully engaging societal norms, deploying centralised bureaucracies and utilising learned experience from endemic diseases and previous virus outbreaks.

Yet according to a leading metric on pandemic preparedness, the region’s success appears wholly unexpected. The Global Health Security (GHS) index assessed country capabilities across an extensive range of criteria and was compiled by a genuinely international panel of experts. High index scores indicate greater pandemic preparedness.

Plotting the sample economies’ GHS index values against H1 VSL shows that many of the best COVID-19 responses come from those rated worst prepared (Figure 2). Vietnam, China and the Slovak Republic are lowly ranked yet have mounted far more effective responses than the better equipped US, UK and the Netherlands. Latvia, Malaysia and Belgium have adjacent index scores yet their outcomes have differed tremendously. The index does a poor job of predicting pandemic handling efficacy, though strictly speaking it measures resources available to economies not whether political leaders have the sense or foresight to use them.

Healthy Economies Require Less Stimulus

East/Southeast Asia has not only fared better in combined GDP plus VSL terms but has done so on a lesser budget. Without the deep pockets of OECD economies, developing Asia is relying on sustainable public health interventions to avoid further harsh lockdowns and associated costs.

Charting GDP growth in H1 against COVID-19 Economic Stimulus Index scores illustrates this point (Figure 3). The index combined announced fiscal, monetary and balance of payments policy measures into a single stimulus metric up to 25 August. Except for two rich East/Southeast Asian economies (Japan and Singapore), the region has deployed relatively modest stimulus responses. The regional average is slightly lower (9.9 per cent of GDP) than the rest of the OECD (10.7 per cent); less than half (5.2 per cent) excluding Japan and Singapore.

That the index is based on announced stimulus not its implementation further reinforces that developing Asia has contained the economic fallout better with less stimulus (as institutional constraints in developing economies likely widen the gap in stimulus delivery).

Learning from the Healthy Economies of Asia

What’s remarkable from H1 outcomes is that even short-term trade-offs between health and economy defy zero-sum framing. Longer-term, sustained virus containment should further promote a stronger economic recovery.

Successful economies acted quickly and firmly to contain outbreaks and developed safeguards for a cautious reopening. They have since moved to shorter and geographically targeted lockdowns, extensive testing, compulsory tracing/registration systems, mandatory personal protective measures (social distancing guides, masks, temperature checks, sanitiser stations) and persistent public health messaging around continued vigilance.

While few economies have explicitly committed to a ‘new normal’ centred on indefinitely maintaining these measures, they would be well advised to do so. The experience to date for East/Southeast Asian and OECD economies demonstrates that the health-versus-economy framing is unhelpful, and the blueprint for sustained success can be found in the collective experience of Asian economies.