RealTime CEO Blog

‘COVID-Zero’: Can We Afford It?

Date: 1 September 2021
Category: RealTime Economic Updates
Tags: Australia, COVID-19

‘COVID-Zero’: Can We Afford It?

By A. F. Cannon,

Writing for RealTimeCEO

The Australian government’s lockdowns and COVID-Zero policies have saved many lives, yet they cost our economy tens of millions of dollars a day. With all the uncertainties surrounding the pandemic’s future, can our current approach continue? This article looks at the health and economic implications of Australia’s policies.

I. The Cost of COVID-Zero

It is late August 2021 and over half of all Australians have been forced into lockdown.[1] After nearly a year and a half of the COVID pandemic, most citizens of NSW, Victoria and the ACT are once again confined to their houses; other states are prepared to enter snap lockdowns if a single new COVID-19 case emerges. In the worst afflicted of all states, NSW Premier Gladys Berejiklian said her fight against the ‘diabolical’ COVID Delta variant is ‘literally a war.’[2] Days later she imposed a curfew upon people in her state’s worst afflicted areas.[3]

The new round of lockdowns is a result of what some have called Australia ‘COVID-Zero’ policy.[4] Since July 24^th last year, Australia has pursued an aggressive suppression[5] strategy to control the COVID-19 outbreak. An alternative to absolute elimination, controlled transmission and ‘do nothing’ approaches,[6] we use hard, early lockdowns to suppress the virus’s spread. It aims to stop community transmission and involves significant restrictions on international travel, social gathering, dining out. It also includes mandates for social distancing and mask-use.

Whatever the health benefits of the lockdowns, the COVID-Zero policy comes with obvious and significant economic costs: lockdowns make lots of business activities impossible. Economists estimate our COVID-Zero lockdowns cost the local economies in Brisbane and Melbourne around $100 million a day; in Sydney, they cost over $140 million. By constraining our commercial activities, this year’s winter lockdowns alone may have reduced Australia’s GDP by $17bn between June and August.[7]

Luckily the federal government has supported those affected by the policies. But as of May 2021, the federal government had spent $291 billion on pandemic-related economic support, a number that will increase with every day our country remains in lockdown.

These are enormous sums, so our COVID-Zero policies raise an obvious question for us: can we afford to keep locking down our economy?

Businesses and working people have suffered immense damage during the pandemic so far. Our COVID-Zero policies severely constrain the hours worked in our economy. After falling dramatically during the early days of the quarantines, quarterly hours worked—a statistic that tells us how much work employed people do in our country every three months—only just returned to its pre-pandemic level in June 2021. With the new lockdowns, we ought to expect them to fall once again.

Furthermore the cost of the lockdowns isn’t distributed evenly through the economy. Low-income service, tourist and retails workers see the greatest risk to their livelihoods during lockdowns,[8] while younger people with more years left to live will bear most of the consequences of policies that protect the elderly more than anyone else. The fall in employment is also concentrated in the private sector. Between June 2019 and June 2020, the private sector shed 541,700 of its roughly 11,000,000 employees while the public sector lost only 5,500 of its 2,000,000 workers. This decline brought the share of total employment made up by public sector workers in Australia from 15.9% to 16.6%; at the same time, the public sector wage bill rose by 4% while the average wage grew by just 1.4%.[9]

This inequality extends to businesses too. Some economists fear the lockdowns will transform the economy’s structure, shifting us away from small businesses and towards international conglomerates. [10] The rationale for their anxiety is sound: during lockdown, consumption declines, small business retail sales plummet and people shift towards online shopping with large businesses like Amazon.[11] Data on the number of Australia small is only available up to the 2018-19 financial year, but it is likely that the COVID lockdowns will exacerbate a trend observable since 2014-15: the share of people working for big business will increase at the expense of the share employed by small businesses.[12] Complicating this however are some surprising stats: after a predictably bad year in 2019-20, the net increase in the number of businesses was 45% higher in 2020-21 than in 2018-19.[13] Many of these will be small businesses so we must wait to see how this surge in business creation affects the economy.

Beyond economics, the lockdowns have also had significant health effects of their own; the cost to our brains is particularly shocking. Recent research suggests that lockdowns have starved American children of social interaction, leading to a fall in average IQ of 22 points of those born during the pandemic.[14] Neuroscientists also worry about the effects of boredom, isolation, stress and inactivity upon adults, many of whom report experiences of cognitive decline and memory loss during lockdowns.[15] And a paper by the USA’s National Bureau of Economic Research also suggests the unemployment shock caused by the COVID lockdowns has likely increased mortality rates and reduced life expectancy.[16] The NBER researchers forecast nearly a million extra deaths in the US over the next 15 years from lockdown’s unemployment effects alone.

Scientists have also recorded a surge in cases of depression and related mental health problems: partly owing to the lockdowns, a psychological ‘shadow-pandemic’ has accompanied the virus’s spread as people worldwide.[17] In the USA, the share of people experiencing anxiety and depression was at 41% in January 2021, a nearly fourfold increase from the same month in 2019.[18] On a more personal level, a British friend told me the UK lockdowns robbed her of a year of her life. Her mournful sentiments reflect those of others I know, who must now find a way to understand and replace the futures they have lost because of our policy choices.

We should be worried about these health concerns, not least because they carry significant economic costs of their own. Yet we mustn’t discount COVID-Zero’s social and economic benefits. Research from the Lowy Institute places us in the top 10 countries worldwide for our medical response to COVID. It’s easy to see why they did so:[19] relative to other countries Australia has an incredibly low COVID per capita death count – 38.38 deaths per million people. Currently we have had less than 1,000 COVID deaths: had we experienced the UK death rate of 1960.89 per million, 49,000 Australians would have died of COVID. Our excess mortality rate has also been lower than the UK and the US for almost the entire pandemic.[20] Though the government’s lockdown policy has significantly constrained our liberty, so far they have protected Australians against the worst human costs of the pandemic. For that we should be grateful.

Humanistic benefits aside, University of Melbourne research also shows that ‘very hard, very early’ lockdowns may be better for health, life and the economy in the long run.[21] Hard and early lockdowns cause severe economic harm in the short run. Yet they eventually lead to fewer days spent in lockdown and a lower death count, giving countries an overall economic benefit.[22] Plenty of other research reports similar findings: a professor at the Australian National University has argued that stronger COVID suppression policies lead to fewer deaths and less damage to GDP per capita. The argument that we can choose to contain COVID or save the economy, he says, is a false dichotomy.[23] Australia’s Treasury department seems to agree with the university researchers. They say the COVID-zero approach is ‘more cost effective than allowing higher levels of community transmission, which ultimately requires longer and more costly lockdowns.’[24]

IMF data further supports the idea that saving lives is compatible with protecting the economy. Australia had a lower per capita death rate and a smaller percent decline in GDP in 2020 than the UK, the US, Canada, France, Germany and Denmark. We even bested Sweden on both measures – a country that imposed no lockdowns whatsoever.[25]

Most importantly, if we add up the value of increased government spending, lost revenue, and the amount of equity, loans and guarantees provided in each country, Australia spent more in 2020 than only eight other developed countries analysed by the IMF.[26] Our approach has been cheaper and better than many others’.

While we should be cautious about offering conclusions before the pandemic is over, it seems that Australia has done relatively well so far. Of course, we shouldn’t take full credit for our success, nor should other countries like Sweden blame themselves entirely for their failures: in our globalised economies, our recovery depends largely on the actions and successes of our trading partners. Just like the recovery from 2008’s crash, China is partly responsible for our economic health. The value of our exports surged during the crisis, rising by about 33% between August 2020 and August 2021;[27] this was partly driven by the Chinese government’s construction-oriented economic stimulus that drove up the price of iron ore.[28] China’s policies have been good for Australia in some ways. Yet with Chinese demand falling, the price of iron crashing, and our continued lockdowns in the southeast, our economic success may dwindle over the coming months.

The political implications of our success are also serious. The Lowy Institute’s research mentioned before says authoritarian countries had the greatest success in handling the pandemic. Australia is supposed to be a liberal democracy, but our government undemocratically suspended our freedom for months in the pandemic. While Sweden’s liberal approach has ultimately left them in a far worse position than us,[29] our federal and state governments were highly authoritarian during the pandemic; the latest symptom of this is the police suppression of lockdown protests.[30] Without consulting the population, they decided at the pandemic’s start that survival was more important than freedom, even if it came at a great personal cost. They said life trumped liberty. I’ll let the reader think about what this means.

Political concerns aside, if our goal is to save lives while protecting our economy, the story of 2020 seems pretty unequivocal: COVID-Zero was not only better for our health; it was also better for business.

II. The Future of COVID-Zero (or, What Happened to ‘Flattening the Curve’?)

Australia has fared better than other countries both medically and economically. Fewer lives have been lost to COVID, our government has spent less and our GDP is in better shape. It seems that our COVID-Zero policy is responsible for our success.

But some questions remain: when and why did we decide to aim for ‘no community transmission’? Weren’t we supposed to ‘flatten the curve’ and go into lockdown for only a few months?

Those unaffected by lockdown-induced memory loss might recall that COVID-Zero was not our nation’s original strategy. In March 2020, we rejected both New Zealand’s ‘eradication’ approach and Sweden’s decision to let the virus run free. Instead our government first tried to contain and control the virus’s spread: they chose to ‘flatten the curve’, prolonging the pandemic while making it less severe.

On April 17^th last year the Australian Health Protection Principal Committee (AHPPC) explained the strategy’s purpose. Flattening the curve means reducing the ‘rate of epidemic growth’ to a manageable level. To do so, the government would use temporary lockdowns, masks, and social distancing to make sure the medical sector wasn’t overwhelmed and give them time to build their capacity to treat the seriously unwell.

In the pandemic’s early stage, there was widespread support for ‘flattening the curve.’ People often compared it positively against New Zealand’s hard ‘eradication’ approach.[31] You might even recall Scott Morrison telling us to ‘flatten the curve’ throughout April, then triumphantly claiming that ‘we have flattened the curve’ in May.[32]

For a couple of months, Australia flattened its curve: we saw a constant and small trickle of new cases. Yet soon after Morrison spoke, Melbourne entered its second lockdown, and our national strategy quietly changed. On July 24^th, Scott Morrison and the AHPPC introduced the COVID-Zero approach in two separate press releases, where they said that our goal was no longer to flatten the curve but to ensure there was ‘no community transmission’ of the virus.

Public health specialists have the eradication approach over ‘flattening the curve’ since the pandemic’s start;[33] some have even endorsed it. Yet when we changed our policy, neither Morrison nor the AHPPC explained why the shift was necessary.[34] The AHPPC even doctored history a little in their release, saying that ‘no community transmission’ was their goal ‘from the start of the pandemic,’ even though their first public use of that phrase in the context of COVID strategy occurred on July 24^th.[35] As they stated on March 17^th, their strategy beforehand was to keep the epidemic growth rate below one:[36] only in a pedantic sense is this the same goal as zero transmission.

The lack of explanation for the change to COVID-Zero is disturbing, even if later evidence largely vindicates the government’s choice. But whether COVID-Zero was the better policy, recent developments have opened a new pathway for us.

The COVID-Zero policy successfully minimised community transmission for about nine months. Between September 2020 and June 2021, daily new case counts remained in the low-double digits. Yet with the latest outbreaks in the southeast states, Australia is now on track to break 1000 cases a day. With this soaring case count, it would be incredibly difficult—and not to mention costly—to return to a point where we record only a few new cases a day. Morrison himself has said it’s ‘highly unlikely’ we would do so.[37] The days of COVID-Zero may now be a thing of the past.

Yet there is a new alternative: Australia will soon have enough vaccines to inoculate the population against COVID-19. Relying on modelling from the Doherty Institute,[38] Morrison now says lockdowns ‘won’t be necessary for much longer.’ Once they vaccinate 80% of the population, the government will impose only ‘highly targeted’ restrictions on the Australian people.[39] At the moment, it isn’t exactly clear when exactly when we will reach the required vaccination level.[40] There are even murmurings among the state governments about whether they will refrain from lockdowns once we achieve this target;[41] Berejikilian recently said some restrictions will remain in place even after NSW reaches the 80% vaccination target.[42] But now safe and effective vaccines are available, it seems like the end of the lockdowns is in sight. For once we are vaccinated and hospitalisation rates have fallen, the public health justification for lockdowns will be no more.

Despite this glimmer of hope, it isn’t clear that Morrison will be able to uphold his promise. Things remain highly uncertain. Currently, scientists worry about the emergence of a vaccine-resistant variant of COVID-19, and the Pfizer CEO has said one is likely to emerge eventually.[43] The Delta strain of COVID is already more resistant to vaccines compared to the original and Alpha variants.[44] Recent research also says that Delta’s viral load is up to 300 times greater than the original strain, while vaccinated people can carry a similar viral load to the unvaccinated.[45] Vaccines, it seems, do not stop the spread of Delta; instead, they reduce its harm to individuals. More worryingly, the newer Lambda variant—one of at least five other COVID strains you may not know about—might be even more vaccine-resistant.[46] The Lambda variant has followed the Delta variant to Australia, and it may only be a matter of time until the virus overwhelms us again and the government starts imposing lockdowns once more.

In the first year of the pandemic, it seems that COVID-Zero was the right policy. But if the pandemic continues and lockdowns remain necessary even after we are vaccinated, can we afford to return to COVID-Zero? The policy is enormously expensive and people are tired of the interruptions to their lives. Despite this, the short-run evidence suggests we really can’t afford to do anything else: as we saw COVID-Zero leads to better outcomes for our health and economy.

Yet the question is far more complicated than most of our politicians and scientists are prepared to admit, for we ultimately have no idea what our political decisions today will bring in the long term. The virus inflicts death and suffering and while the lockdowns mitigate its mindless violence, they cause losses of their own. Both are a source of grief and as Ellen Cushing wrote in The Atlantic, ‘we simply don’t know the long-term effects of collective, sustained grief.’[47] The long-term economic, political and psychological effects of the COVID-19 crisis and our response to it are unknowable today. The passage of history and grief and loss is completely unpredictable. The best we can do is to act with moderation and caution while constantly re-evaluating our approach. It seems like we have moved in the right direction so far, and in the absence of other ideas, arguably we should continue. But only time will reveal whether our COVID-Zero policies were worth it. Let’s hope they are.

REFERENCES

[1] See https://www.bbc.com/news/world-australia-58277503

[2] See https://www.aljazeera.com/news/2021/8/14/lockdown-fines-raised-as-australia-faces-worst-covid-situation and https://www.stuff.co.nz/world/australia/126071729/covid19-in-australia-415-new-cases-as-diabolical-delta-strain-continues-to-spread-in-nsw

[3] See https://www.theguardian.com/australia-news/2021/aug/23/nsw-covid-19-lockdown-restrictions-sydney-suburbs-regional-new-south-wales-lgas-act-canberra-update-coronavirus-face-mask-rules-explained-5km-radius-travel-masks

[4] See https://www.bloomberg.com/news/newsletters/2021-07-21/australia-s-covid-zero-strategy-hits-a-wall and https://edition.cnn.com/2021/08/22/australia/australia-morrison-zero-covid-19-borders-intl-hnk/index.html

[5] See https://www.health.gov.au/news/eliminating-covid-19-a-false-hope

[6] See https://www.pm.gov.au/media/update-coronavirus-measures-160420

[7] See https://www.smh.com.au/politics/federal/cost-of-lockdowns-is-17-billion-and-counting-20210812-p58i58.html and https://theconversation.com/yes-lockdowns-are-costly-but-the-alternatives-are-worse-163572 and https://www.couriermail.com.au/business/qld-business/bloody-furious-lockdown-anger-as-economy-takes-700m-hit/news-story/96532c6a20084944621f73e3852616da and https://www.brisbanetimes.com.au/national/queensland/off-a-cliff-qld-businesses-pay-multimillion-dollar-toll-for-lockdown-20210630-p585la.html and https://www.smh.com.au/politics/federal/capital-lockdowns-to-deliver-2-5b-hit-as-business-takes-another-blow-20210629-p5859c.html

[8] See https://www.frontiersin.org/articles/10.3389/fpubh.2020.00241/full

[9] See https://www.abs.gov.au/media-centre/media-releases/annual-wage-growth-remains-14 and https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/jun-2020 and https://www.abs.gov.au/statistics/labour/employment-and-unemployment/employment-and-earnings-public-sector-australia/latest-release and https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/jun-2020

[10] See https://www.washingtonpost.com/outlook/2020/07/09/after-covid-19-giant-corporations-chains-may-be-only-ones-left/

[11] See https://www.smartcompany.com.au/finance/economy/lockdowns-small-business-owners-pandemic-jason-murphy/