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2. Political Influences on the Response to SARS and Economic Impacts of the Disease
Pages 91-136

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From page 91...
... The extent of the long-term economic consequences resulting from SARS will depend on whether -- and how -- the disease returns. The chapter continues with two political analyses that reflect upon issues of both national and global governance impacted by the SARS epidemic.
From page 92...
... Most previous studies on the economic effects of epidemics focus on the economic costs deriving from disease-associated medical costs or forgone incomes as a result of the disease-related morbidity and mortality. However, the direct consequences of the SARS epidemic in terms of medical expenditures or demographic effects seem to be rather small, particularly when compared to other major epidemics such as HIV/AIDS or malaria.
From page 93...
... For example, when foreign investors expect that SARS or other epidemics of unknown etiology can break out in some Asian countries not just this year but persistently for the next few years, they would demand a greater risk premium from investing in affected economies. Their forward-looking behavior would have immediate global impacts.
From page 94...
... However, economic theory provides conflicting predictions regarding the economic effects of negative population shocks. A disease that kills mostly children and the elderly without affecting the economically active population aged 15 to 54 can lead to an initial increase in GDP per head.
From page 95...
... Restricted mobility thus inhibits labor from moving to the places where it is most productive. Researchers simulating the effect of AIDS on growth in Southern African countries find that AIDS has had significant negative effects on per capita income growth mainly through the decline in human capital (Haacker, 2002)
From page 96...
... The response by the Chinese government to the epidemic was fragmented and nontransparent. The greater exposure to an unknown disease and the less effective government responses to the disease outbreaks must have elevated concerns about China's institutional quality and future growth potential.
From page 97...
... There are three main shocks, based on observations of financial market analysts about the existing data emerging from China and Hong Kong:5 · A 200 basis-point increase in country risk premium.6 · A sector-specific demand shock to the retail sales sector, amounting to a 15 percent drop in demand for the exposed industries in the service sector. · An increase in costs in the exposed activities in the service sector of 5 percent.
From page 98...
... Table 2-1 presents indicators on health expenditures, tourist arrivals, and sanitary conditions for selected countries. There are more than 33 million annual visitors to mainland China.
From page 99...
... This will be used to scale down the country risk shocks calculated for all other countries. For example, if a country has an index of 0.5, the country risk premium shock will be the Chinese shock of 2 percent adjusted by the "global exposure to SARS" index, which gives a shock of 1 percent.
From page 100...
... 100 OECD States Other India United Germany France Russia Bulgaria Brazil Australia Africa Asia South East Japan Other Mongolia Korea Indonesia Vietnam Thailand Philippines SARS. Malaysia to Canada exposure Singapore Taiwan Global Kong 2-1 Hong China 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Index FIGURE
From page 101...
... SARS shocks as well as the contribution of each component (i.e., demand decline for services, cost increase for services, and country risk premium)
From page 102...
... 102 Risk 0.00 0.01 0.01 0.00 0.00 ­0.02 ­0.02 ­0.05 0.00 ­1.48 0.00 ­0.07 0.00 ­0.71 0.00 0.00 0.00 ­0.02 Country years Rise 10 ­0.06 ­0.06 ­0.06 ­0.08 ­0.08 ­0.15 ­0.13 ­0.44 ­0.15 ­0.33 ­0.04 ­0.39 ­0.08 ­2.37 ­0.05 ­0.04 ­0.05 ­0.06 Cost over Shock Shift ­0.01 ­0.01 0.00 0.00 0.01 0.01 0.03 ­0.01 0.00 ­0.53 0.00 ­0.07 ­0.01 ­0.12 0.00 0.00 ­0.01 ­0.01 Demand Persistent Effects ­0.07 ­0.06 ­0.06 ­0.08 ­0.07 ­0.17 ­0.11 ­0.51 ­0.15 ­2.34 ­0.04 ­0.53 ­0.08 ­3.21 ­0.05 ­0.05 ­0.05 ­0.09 Total Risk 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 ­0.33 0.00 ­0.01 0.00 ­0.20 0.00 0.00 0.00 0.00 Country Rise SARS Shock ­0.06 ­0.06 ­0.06 ­0.08 ­0.09 ­0.16 ­0.14 ­0.45 ­0.15 ­0.34 ­0.04 ­0.41 ­0.08 ­2.37 ­0.05 ­0.04 ­0.05 ­0.05 Cost to Due Shift Temporary 2003 ­0.01 ­0.01 0.00 0.01 0.01 0.01 0.04 ­0.02 0.00 ­0.37 0.00 ­0.07 ­0.02 ­0.06 0.00 ­0.01 ­0.01 ­0.01 in Demand 50n. GDP in version Effects ­0.07 ­0.07 ­0.07 ­0.08 ­0.08 ­0.15 ­0.10 ­0.47 ­0.15 ­1.05 ­0.04 ­0.49 ­0.10 ­2.63 ­0.05 ­0.05 ­0.06 ­0.07 Total Model Change Pacific)
From page 103...
... The primary impact is from the persistence in the rise of the country risk premium. Although the same in 2003 as for the temporary shock, the persistence of the country risk premium causes much larger capital outflow from China and Hong Kong.
From page 104...
... Under this model, the SARS outbreak is predicted to have widespread economic impacts beyond the regions immediately infected with the disease and beyond the decline in the most affected service industries. Conclusion The impact of SARS is estimated to be large on the affected economies of China and Hong Kong (SAR)
From page 105...
... 0.6 0.6 0.4 0.4 0.2 0.2 0 0 -0.2 -0.2 -0.4 -0.4 2002 2005 2008 2011 2014 2017 2020 2002 2005 2008 2011 2014 2017 2020 Hong Kong China Hong Kong China Japan Singapore Japan Singapore FIGURE 2-4 Real impacts of temporary versus persistent SARS shock.
From page 106...
... 1.5 1.5 0.5 0.5 -0.5 -0.5 -1.5 -1.5 -2.5 -2.5 -3.5 -3.5 2002 2005 2008 2011 2014 2017 2020 2002 2005 2008 2011 2014 2017 2020 Hong Kong China Hong Kong China Japan Singapore Japan Singapore FIGURE 2-5 Trade and captial flow impacts of temporary versus persistent SARS shock.
From page 107...
... The more persistent SARS is expected to be, the larger the negative economic impacts in 2003 in affected economies, but the smaller the impact in countries outside the core countries. The calculations above suggest that the cost in 2003 of SARS for the world economy as a whole are close to $US 40 billion in the case where SARS is expected to be a single event, versus costs of close to $US 54 billion in 2003 if SARS is expected to recur (this does not include the actual costs of later years if in fact SARS did recur)
From page 108...
... The interdependencies are solved out using a computer algorithm that solves for the rational expectations equilibrium of the global economy. It is important to stress that the term "general equilibrium" is used to signify that as many interactions as possible are captured, not that all economies are in a full market-clearing equilibrium at each point in time.
From page 109...
... This means that in the steady state, all real variables are constant in these units, although the actual levels of the variables will be growing at the underlying rate of growth of population plus productivity. Next, we must make base-case assumptions about the future path of the model's exogenous variables in each region.
From page 110...
... In some respects, the SARS outbreak was nothing new. The great cliché of international infectious disease control -- germs do not recognize borders -- applies to SARS as it applied to earlier outbreaks.
From page 111...
... , and the sternest measure of governance systems is their performance in times of crisis. The SARS outbreak provided the first opportunity to evaluate how the new governance approach for infectious diseases would fare under serious microbial attack on a global basis.
From page 112...
... After its creation, WHO began to concentrate less on horizontal public health strategies (such as those in the IHR) in order to focus more on vertical public health strategies that addressed infectious diseases at their sources inside states (e.g., disease eradication campaigns)
From page 113...
... produce GHG by including nonstate actors in the process of global infectious disease surveillance; and (ii) produce the GPGH of better infectious disease surveillance information for use by states and nonstate actors.
From page 114...
... China's conception of its national interest broke apart in the post-Westphalian public health atmosphere of SARS. In the SARS outbreak, the world did not witness China enjoying the Westphalian privileges normally accorded powerful countries, but rather saw post-Westphalian public health governance humble a rising great power in the international system for disease control.
From page 115...
... . These travel advisories were revolutionary developments in international policy on infectious diseases because, in issuing the alerts, WHO exercised independent power over its member states without express authority in international law to do so.
From page 116...
... John C Whitehead School of Diplomacy and International Relations, Seton Hall University In November 2002, a form of atypical pneumonia called severe acute respiratory syndrome (SARS)
From page 117...
... Through mass mobilization, the government successfully brought the disease under control. While these developments are encouraging, China's capacity to effectively prevent and contain future infectious disease outbreaks remains uncertain.
From page 118...
... According to the Implementing Regulations on the State Secrets Law regarding the handling of public health­related information, any occurrence of infectious diseases should be classified as a state secret before they are "announced by the Ministry of Health or organs authorized by the Ministry." In other words, until such time as the Ministry chose to make information about the disease public, any physician or journalist who reported on the disease would risk being persecuted for leaking state secrets (Li et al., 1999)
From page 119...
... In fact, the Chinese Center for Disease Control and Prevention did not issue a nationwide bulletin to hospitals on how to prevent the ailment from spreading until April 3, and it was not until mid-April that the government formally listed SARS as a disease to be closely monitored and reported on a daily basis under the Law of Prevention and Treatment of Infectious Diseases. Evidence also indicates that the provincial government, in deciding whether to publicize the event, considered not only the public health implications of the outbreak, but also the effect such information might have on local economic development (Garrett, 2003; Pomfret, 2003a)
From page 120...
... Beyond Guangdong: The Ministry of Health and Beijing The Ministry of Health learned about SARS in January and informed WHO and provincial health bureaus about the outbreak in Guangdong around February 7, and yet no further action was taken. It is safe to assume that Zhang Wenkang, the health minister, brought the disease to the attention of Wang Zhongyu (secretary general of the State Council)
From page 121...
... . In the public health domain, territorial governments like Beijing and Guangdong maintain primary leadership over the provincial health bureau, with the former determining the size, personnel, and funding of the latter.
From page 122...
... On April 2, Premier Wen Jiabao chaired an executive meeting of the State Council to discuss SARS prevention and control. Based on the briefing given by the Ministry of Health, the meeting declared that SARS had "already been brought under effective control." The growing dispersal of political power at the highest level in the post-Mao era further reduced the autonomy of the top leaders in responding to the crisis in a timely manner.
From page 123...
... The State Council held its first meeting to discuss the SARS problem 2 days after the Wall Street Journal published an editorial calling for other countries to suspend all travel links with China until it implemented a transparent public health campaign. The same day, the WHO issued the first travel advisory in its 55-year history advising people not to visit Hong Kong and Guangdong, prompting Beijing to hold a news conference in which the health minister promised that China was safe and SARS was under control.
From page 124...
... An order from the Ministry of Health formally listed SARS as a disease to be monitored under the Law of Prevention and Treatment of Infectious Diseases and made it clear that every provincial unit should report the number of SARS cases on a given day by 12 noon on the following date. The party and government leaders around the country were now to be held accountable for the overall SARS situation in their jurisdictions.
From page 125...
... According to these regulations, the State Council shall set up an emergency headquarters to deal with any public health emergencies, which are referred to as serious epidemics, widespread unidentified diseases, mass food and industrial poisoning, and other serious public health threats (Xinhua News, 2003b)
From page 126...
... . On December 1, Premier Wen Jiabao appeared on state television shaking hands with AIDS patients and called on the nation to treat them with "care and love." This event was significant because until then, no senior Chinese leader had even discussed the disease in public.
From page 127...
... As evidenced by the government campaign against SARS, an infectious disease can potentially trigger the party-state to organize a political campaign to reach deep into the hinterlands and snap people into action. This government capacity to mobilize against a disease outbreak is enhanced by a more institutionalized crisis management system.
From page 128...
... While the health sector is now receiving increased attention at high levels, the government so far has placed top priority only on preventing the return of SARS. The top leaders have been generally silent on other major infectious diseases.
From page 129...
... . While China's Law on Prevention and Treatment of Infectious Disease did not until recently explicate that quarantines apply to the SARS epidemic, Articles 24 and 25 authorize local governments to take emergency measures that may compromise personal freedom.
From page 130...
... By placing great political pressure on local cadres in policy implementation, mobilization is a convenient bureaucratic tool for overriding fiscal constraints and bureaucratic inertia while promoting grassroots cadres to behave in ways that reflect the priorities of their superiors. Direct involvement of the local political leadership increases program resources, helps ensure they are used for program purposes, and mobilizes resources from other systems, including free manpower transferred to program tasks.
From page 131...
... The above analysis clearly points to a need for the Chinese government to significantly enhance its capacity to combat future outbreaks of SARS and other infectious diseases. Given that a public health crisis reduces state capacity just when ever-increasing capacity is needed to tackle the challenges, purely endogenous solutions to build capacity are unlikely to be successful, and capacity will have to be imported from exogenous sources such as massive foreign aid (PriceSmith, 2002)
From page 132...
... An incident in New Jersey during the SARS outbreak, in which artists of Chinese background were denied access to a middle school, suggests that when SARS becomes part of a national lexicon, fear, rumor, suspicion, and misinformation can jeopardize racial harmony in any country (Newman and Zhao, 2003)
From page 133...
... 1999. International Law and Infectious Diseases.
From page 134...
... 2003. The SARS Outbreak: How Bad Could it Get?
From page 135...
... September 12, 2003h. Renmin ribao, overseas edition.
From page 136...
... 2003a. World Health Assembly, Severe Acute Respiratory Syndrome (SARS)


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