‹ Volver a la ficha Doc. dt-2004-09

Could this ever happen in Spain? Economic and policy aspects of a SARS-like episode* by José A. Herce**

DOCUMENTO DE TRABAJO 2004-09

June 2004

This paper was made at the request of the Real Instituto Elcano for one of his on-going research projects on infectious diseases and it holds the corresponding copyright. It is also available at http://www.realinstitutoelcano.org/documentos/102.asp. The author is grateful to the Real Instituto Elcano for its support. FEDEA and U. Complutense of Madrid.

Los Documentos de trabajo se distribuyen gratuitamente a las Universidades e Instituciones de Investigación que lo solicitan. No obstante están disponibles en texto completo a través de Internet: http://www.fedea.es/hojas/publicaciones.html#Documentos de Trabajo

Depósito Legal M-11869-2004

Abstract

This paper has attempted in a rather crude way to set an estimate of the economic consequences of a SARS-like epidemic outbreak in Spain having the country as a secondary hub of the disease. Per se, Spain could hardly be the origin of such an outbreak given her geographical situation but the country is increasingly taking part of global exchanges of persons and goods and in particular with countries where a like epidemics could originate. Several lessons can be derived from SARS the most important one being that prompt and effective action even at the expense of costly and unpopular isolation measures is the best way to limit the overall incidence irrespective of treatments being readily available or not. Based on available estimates on the economic consequences of SARS so far and taking into account the economic size and share of the Spanish tourist sector I estimate an upper range of between 1 and 2,4 billion euros in the “prompt and effective action” scenario according to the seasonal moment of occurrence of the outbreak if this were to happen in Spain.

Resumen

En este trabajo realizo una estimación somera de las consecuencais económicas de un brote epidémico similar a la neumonia atípica asiática (SARS en sus siglas en inglés) que tuviese a España como un nodo secundario. Per se, España no podría ser el origen de un brote de este tipo dada su situación geográfica, pero el país participa crecientemente en los intercambios internacionales de personas y mercancías, especialmente con países que sí pueden ser origen de epidemias violentas. El caso de la neumonía atípica asiática enseña que la acción temprana y eficaz, basada incluso en costosas e impopulares medidas de aislamiento es la mejor manera de limitar la incidencia generalizada de la epidemia independientemente de que haya un remedio para la misma a mano. Basándome en las estimaciones existentes sobre los efectos económicos de la epidemia atípica asiática y teniendo en cuenta el tamaño y la participación del sector turístico en la economía española, estimo una banda de entre 1.000 y 2.400 millones de euros en un escenario de "acción temprana" en función del momento estacional en que un tal brote epidémico se produjese, si acaso, en el país.

Contents

1. Introduction 3 2. Are rare epidemic outbreaks really so rare? 5 3. Epidemic outbreaks as shocks to the economy 7 4. Could it ever happen in Spain? 12 4.1. Some facts and figures about health hazards in Spain 12 4.2. Just imagine: Spain as a hub or a hinterland for a SARS-like outbreak 15 4.3. Policy arrangements 16 4.4. Economic evaluation 18 5. Concluding comments 22 References 24

1. Introduction

Rare and extreme catastrophic events are by definition unlikely, but once they happen their consequences can be very costly on different accounts so that prevention and preparedness are sound policies to limit both their occurrence and their consequences. Also by definition, the shape of rare events is difficult to know in advance and devising the appropriate strategy to react to them is then trickier. Several factors compound the likelihood and the impact of these events such as, on the one extreme, the globalization of exchanges of persons and goods involving the use of mega-carriers or, on the other extreme, the availability of mass destruction technologies to terrorist groups. Before they happened people would attach extremely low probabilities to events like AIDS or S11, but after their occurrence they are already embedded in the imaginary of billions of people. For how long shall humanity bear the heavy burden of the first? How to forget the second? Every rare vent entails a large number of lessons that policy-makers try to translate onto new protocols and preventive measures. But no rare event resembles each other and given recent crises the perception that individuals and societies are relatively exposed to unexpected and unknown risks seems to be growing.

International public health was suddenly put to a hard test when the Chinese authorities informed WHO in February 11 of 2003 about an outbreak of (severe) acute respiratory syndrome in the Guangdong province with 305 cases and 5 deaths. The first know case had occurred in November 16 of 2002 and until three months latter the Chinese Ministry of Health did not report to WHO the first evidence of what was going on. In the next few days new cases were identified and reported in Hong Kong, Hanoi, Singapore and Toronto. One month later, in March 15 of 2003, WHO declared SARS a “worldwide health threat”. By end September 2003, when WHO declared the outbreak contained, if still its resurgence a “distinct possibility”,1 a total of 8,098 cases and 774 deaths could be directly attached to SARS, 99 per cent of them restricted to a small group of APEC countries. The disease was transmitted by direct personto-person contact via virus-laden droplets rather than with airborne particles and spread along international air routes. Relatives of patients, hospital personnel and other care givers, hotels, airports and airlines personnel and clients and attendants to international conferences where among the most exposed people once the disease broke out. It took one month the WHO virtual laboratory networks, from 17 March to 16 April, to discover the causative agent, a new form of coronavirus not previously known. But the only remedy against SARS continues to be prevention and quarantine, which has potentially important economic consequences. Rapid and firm action by global authorities (WHO), sometimes against the narrow opinion of national and local authorities, proved a determinant factor in controlling the disease and curbing panic, economic damage and, above all, the death toll of one of the most potentially severe global health threats, after AIDS, in the last decades.

The lessons that can be drawn from the SARS episode are many and they should not be neglected. They point critically to the establishment of an immediate response capacity at the global level based on intensive use of coordination, networking and commitment in an uncompromised defense of the public interest. In facing a rare and sudden outbreak, public authorities, whatever their level, should display the most exquisite transparency empowering their public health officials to cooperate and comply without interference with the procedures set up by the WHO that in this case have proven thoroughly successful. They should also make sure that those economic interest most affected by the measures that will be put in place do not influence the whole process even if they have to be compensated some way.

1 As of 8th January 2004 Chinese authorities have informed of two new SARS cases in Guangdong province. Three other suspect cases are also under testing in a Hong Kong hospital.
2 See WHO (2003a) for a summary description of the episode and an evaluation.

In what follows I deal mostly with the analysis of some economic and policy aspects of a SARS-like event were it to happen in a country like Spain where about 52 million foreign tourists, well above her total resident population, spend few days every year and the tourist sector final production accounts for 12 percent of GDP with many areas’ economies critically depending on tourism. Public health protocols, on the other hand, although improving, still suffer from official resistance to admit that a particular alarm should be activated publicly. More often than is desirable, the official reaction to first rumors in the media about particular hazards is “this could never happen in Spain” only to be disavowed days latter by a stubborn reality that puts everybody in place, at a cost unfortunately of precious reaction time lost.

2. Are rare epidemic outbreaks really so rare?

About fifty epidemic outbreaks take place every year world-wide (WHO, 2003a). Most of them provoked by agents already known and locally contained although with rather high fatality rates particularly among deprived populations. SARS however was caused by a then unknown agent and the disease was disseminated in a worrisome way to spots thousands of miles away from the originating area. Official opacity complicated matters considerably and first reactions world-wide could not even avoid thinking of a terrorist attack. The balance however, so far, compared to other well known epidemics seems moderate.

It was the fact that the causative agent was not known that made SARS so frightening given the precedent set by AIDS a couple of decades before. Once the responsible agent identified and effective anti-contagion measures adopted, SARS ceased to be a rare event. Future episodes caused by the same agent are not of course to be ruled out, but then the public health authorities will know what to do provided that the very first lessons have been well understood: Transparency and prompt reaction.

“Rare” means (very) unlikely and thus one tends not to invest too much on prevention against something that has a (very) low probability of occurrence. It also means unknown and again one does not know how to protect against something that is unknown. The result is that rare events may cause much damage not only due to their intrinsic catastrophic effects but also due to either lack of preparedness or inadequacy of preventive arrangements when their nature is of a new kind. Clearly a case of failure for which no “market solution” would ever emerge due to high insurance premiums and adverse selection.

Little by little the idea of specific policy and insurance instruments to cope with the consequences of truly rare events of any sort is gaining ground among the policy community.3 This means that new protocols and an excess capacity of a new sort must be devised based on early warnings issued under global protocols, virtual networks, international reference knowledge, privatepublic partnerships and full accountability and transparence of authorities. The insurance technique could also be here invoked. According to this technique policy resources should be committed up to the point where they equal the expected potential loss caused by any particular rare event. Extreme low probability events however are of a sort difficult to be dealt with efficiently by the standard insurance technique. Both the fact that policy -or its absence- may affect the size of the shock or its occurrence, and the precise shape of the preferences of the policymaker -the loss function- compound to produce a large variety of policy responses with absolute neglect of certain risks being a possibility.4

3 This is the case indeed since the early nineties when unprecedented extreme cases of natural disasters and terrorists attacks revealed the inefficiency of current insurance arrangements. After September 11, the need for proper coverage to protect victims against extreme damages has been exacerbated (Kunreuther et al, 2003).

Even if probability of occurrence is very low the fact that damages may be huge makes the expected loss calculation –the simple product of both- a very relevant one. To be sure, this expected loss is extremely hard to measure in its two components, as well as to identify under whose shoulders would it fall, and thus no efficient “market solution” is likely to emerge spontaneously even if the insurance technique could be made to apply properly. Perhaps not even entire nations would be eager to divert scarce resources to prevent unknown transborder health crises.5 There is thus a genuine case for a supranational authority to organize national and regional resources in a truly global scheme of the sort above mentioned in order to build the new capacity needed to face the occurrence and the consequences of rare catastrophic events. Doing this however means no more than continuing the line that organized societies have been drawing along history. Once more, what is new is the fact that global interactions of all sorts are exposing individuals and communities, increasingly networked, to risks not experienced so far as more conventional risks either disappear or become better contained.6

3. Epidemic outbreaks as shocks to the economy

Economic concerns soon became, after the death toll itself, one of the most feared consequences of SARS. The peculiar circuits described by contagions and the fact that tourist and business enclaves like Hong Kong and

4 See Svensson (2003) for a analysis of monetary policymaking in the face of extreme low probability shocks to inflation.
5 SARS is an eloquent example of trans-border spread. The West Nile fever that reached the US few years ago is believed to have been vectored through mosquitoes in imported tires. The Spring 1918 influenza wave was first recorded in March among army recruits at Camp Funston, Kansas. It reached Europe weeks after via American troop ships and by June 1918 it had reached India, Australia and New Zealand (Patterson and Pyle, 1991).
6 See Kunreuther et al (2003) for a review of these new challenges, particularly in the case of terrorism.

Toronto where targeted by the WHO as places subject to quarantines lead their economic authorities to believe that a long period of stagnation was about hitting those areas. Airliners also feared that SARS alarm would seriously damage their much waited for recovery after September 11. Not everywhere was the need to stop the epidemic fully understood by economic agents and some of the measures dictated by public health authorities or warnings issued by other governments to their nationals concerning traveling to certain tourist destinations where strongly opposed by representatives of economic interests affected by these measures.

Indeed, some epidemic outbreaks may also badly hit the economy. It all depends on the duration, intensity and spread of the disease. There are several categories of costs to the economy that need to be considered. First is the fact that affected workers are unable to fully contribute to production. These workers as well as non-active patients need to be medically treated at a cost and the former subsidized for lost labor income. Of course, deaths among workers imply a permanent loss to output although on the other hand capital per worker goes up while deaths among non active people increase income per head. Then there is the fact that quarantines and fear of being infected pull people out of shopping malls and tourist destinations where human concentrations are frequent thus provoking a reduction in consumption of goods and transportation services. However, caring services, mass vaccinations and the reinforcement of research capacity may be a bonus for workers and firms providing the necessary services.

Although anecdotal microeconomic evidence at the aftermath of an epidemic outbreak may point towards countless distortions and losses, dynamic general effects may show up differently in the aggregated data. Growth analysts focus on GDP per head as the indicator to be tracked before and after a given shock and this is particularly true when talking about demographic shocks that is shocks that exogenously affect the size and composition of the population. A sudden death of a child aged 10 will immediately increase output per head for ever but will most likely deprive the economy from her contribution to production as a worker or an entrepreneur and perhaps to future generations through her descendants. A sudden death of a retired worker or an inactive person would have the primary effect of increasing output per head. Thus the effects on output per head of an adverse shock to population would depend on the shape of the age profile of the fatality rate. As for total output, or rather its rate of growth, an adverse shock to working age population will almost surely have a negative impact even if mitigated by an increase in productivity.

Since modern economies rely considerably on rapid transmission of information and consumers react swiftly to changing news about emerging risks incurring eventually in deep confidence crises, serious epidemic outbreaks that cannot be properly controlled could trigger economic downturns plunging demand and output for one or more quarters until the situation has been mastered irrespective of their long term consequences. To be sure, so serious epidemics like AIDS may be devastating also from an economic point of view in economies as retarded as those of some Sub-Saharan African countries (Bell, Gersbach and Devarajan, 2003).

Western Europe lost almost one in every three people to the devastating bubonic plague or “Black Death” of the mid XIV century and although historians are yet to produce a proper economic evaluation of its consequences in terms of growth it is widely believed that the disease provoked such a shortage of workers and the subsequent rise in wages that it prompted the end of feudalism.

The 1918 influenza epidemic caused at least 40 million deaths worldwide particularly among young adults and besides enormous human suffering it distorted very much the business life of many localities. In the US alone, where the first outbreak was recorded, about 550,000 excess deaths were due to the disease. Despite that terrible toll Brainerd and Siegler (2003) conclude in a recent study that every additional point to the mortality rate due to the epidemics “resulted in an average annual increase in the rate of growth of real per capita income over the next ten years of at least 0.15 percent per year”. As said before, this evolution is compatible with a diminished growth rate for total real output and a more than proportional fall in the rate of growth of population due to the epidemics, on the one hand, and a more pronounced fall in the first years followed by a rapid catch-up in the next ones, on the other hand.

Most studies on the economic consequences of AIDS so far, however, clearly point towards a negative, and yet a mild one, economic impact of about 1 percentage point of GDP per head per year.7 This pandemic has been compounded in poor countries by inadequate policies, behaviors and resources of all sorts. It is too early however to fully evaluate the dynamic consequences of a disease that has spoilt the chances of a large number of babies (born and unborn) by also killing their parents. Simulations done for South Africa with the help of a dynamic generational model suggest that if nothing is done to stop the epidemics and keep children at school, the country would face economic collapse in few generations time (Bell, Gersbach and Devarajan, 2003).

SARS has also exacted a toll on the economies of East Asia. In its recent 2003 Economic Outlook the APEC (Asia-Pacific Economic Cooperation) quotes Asian Development Bank estimates of the economic cost of SARS in between 0.5 and 1 percentage points of GDP in the region with Hong Kong, Singapore and Taiwan bearing the highest cost at 1.8, 1.1 and 0.9 pp respectively and China, Korea and Philippines the lower at 0.2, 0.2 and 0.3 pp respectively (APEC, 2003). By May 2003 the WHO (2003) echoed a total cost of US$ 30 billion. These figures may sound like a rather moderate impact although air travel and hospitality sectors were dramatically hit during the high wave of the outbreak -March/April 2003- with restaurants, hotels, airliners and retailers turnover typically below half the corresponding figure on year to year basis in major cities in the whole region. The rapid identification of the causative agent and the efficacy of the quarantines imposed were determinant to halt the spread of the disease and to bring confidence back to consumers. Most businesses were able to reverse the downward trend everywhere so that the economic damage was limited to a relatively short period of time within the year and to minor parts of the whole economy.

7 The Economist, April 12th 2003, p. 75.

Clearly, unless a sudden unknown disease gets out of control and even if the most directly concerned areas and businesses get seriously disrupted or go bankrupt, on a national basis, the economic consequences of some of the major epidemics in recent decades seem moderate provided action is taken to contain the disease and other economic and financial measures come to the help of the most seriously affected areas, firms and workers. Policy in the public health and economic fields is of paramount importance to limit the damages, as it is the credibility of authorities concerning their transparency, commitment and degree of control of the situation.

4. Could it ever happen in Spain?

4.1. Some facts and figures about health hazards in Spain

Spaniards have memories of countless episodes in the more or less recent past when high public officials and members of the government, if asked by the media about rumors of such and such public health alarm, would invariably say at prime time in TV journals “this could never happen in Spain” only to be disavowed hours or days latter by real news. Concerning SARS, however, the current health administration in Spain simply and immediately said what was going on just when primary evidence about a first possible case was gathered by health authorities. Spain has so far had one non-fatal case declared on March 26, 2003.

In November 2000, the Bovine Spongiform Encephalopathy (BSE) or “mad-cow” disease was categorically said not to affect Spanish farms by the Ministry of Agriculture even as cows where already being sent to sacrifice among serious doubts, latter confirmed, that they suffered the disease.8 Suddenly it was brought under the public focus what so far had been common knowledge among a group of interested insiders of some bad practices of animal feeding. The animal variant of the disease has produced in Spain so far more than 350 certified cases with increasing numbers every year although at a decelerating rhythm.9 None of these cases has been due to imported animals from other countries but to improper feeding at home. No human victims have been reported so far, however. Tenths of thousands of animals in contact with the sick ones have been sacrificed since then and generalized testing has been provided by the authorities. The cost to farmers, dealers and government agencies has not been evaluated but could be well above 300 million euros with half that figure accounting for testing.

8 “El País,” 8th November 2000; “El País,” 24th November 2000.
9 As of 19/11/03, see http://www.eeb.es/pags/espana.htm#2000

In spring 1981 a far reaching case of fraudulent adulterated oil broke out that killed more than 600 and affected irreversibly about 20,600 individuals in the following years.10 This “toxic oil syndrome” case as it was then baptized found the Spanish Public Health administration unprepared in almost every front to deal with the many dimensions of the disease although with the help of simple public health measures the incidence of the disease was totally contained in few months’ time. The victims brought the government to court and indemnities were fixed by the Supreme Court in 1997 at a huge economic cost that still in 2002 amounted to more than 300 million euros. Current regular payments to beneficiaries amount to about 20 million euros per year11

Finally, every year the media report more or less acute, although increasing in number, cases of Legionella that systematically leave a few fatalities behind before they can be stopped. Since 1997 weekly reports on the disease are compulsory. In 2002 a total of 1,461 cases where declared which means an incidence rate of 3.69 per 100,000 population.12 The fatality rate for the period 1997-2002 can be estimated at 5.4 percent of those affected.13

Normally infectious diseases like SARS originate in tropical areas like the rainforests of Brazil, South Saharan Africa or South Asia with a microbial ecology not easily found in today developed countries. So in that sense, Spain could hardly be a place where an infectious outbreak like SARS could possibly initiate itself. To be sure, bio-terrorism could release a violent viral agent anywhere including a country like Spain.

10 Fatalities are those exclusively due to the epidemics. See Posada de la Paz (2002) for a comprehensive epidemiologic analysis of the syndrome.
11 See http://imsersomayores.csic.es/documentos/documentos/inss-informe2002-01.pdf, pp 77-83.
12 See http://cne.isciii.es/ve/EDO2002.htm
13 See http://cne.isciii.es/ve/legionelaweb.PDF, Table 1.

Even if the probability of an unknown violent infectious disease originating in Spain is negligible, the country is a very open medium sized developed economy, it hosts an increasing immigrant population of more than 2 million and is a prime holidays destination for more than 50 million international tourists. Although trade, migrations and tourist flows happened mostly with developed nations until a decade ago, more and more often developing countries engage in all sorts of relationships with Spain where Latin American, North African and Asian subjects and products take an increasing share. The country’s geographical position also brings it to play an increasing role in international connections between Africa and Latin America, on the one part, and Europe on the other with the non-negligible aspect that some exchanges are of an illegal nature involving drugs and persons trafficking.

All the above qualifies the Spain as a indirect hub or hinterland where conventional and non-conventional health hazards could land and propagate from or rebound to other countries. The fact is however that very rarely, in recent times, the country has faced serious risks due to international exchanges. SARS itself has only claimed one non-fatal victim in Spain. The BEE disease originated at home rather than trough imported cattle. The Toxic Oil Syndrome of 1981 was caused by imported oil manipulated domestically. Legionella associated to traveling affects every year to few individuals, but 28 percent of all cases reported in the EU between 1987 and 1997 originated in Spain.14 Tropical diseases have had so far a negligible incidence rate in Spain despite the increasing number of residents traveling to originating countries or nationals from these traveling to Spain. Cholera, for instance, has presented one case in the last three years.

14 This risk is monitored in Spain through a EU Network, the “European Working Group for Legionella Infections” (see www.ewgli.org). Concerning the 28 percent figure mentioned in the text see www.msc.es/medioambient/agenbiologicos/legionelosis/pdf/vigilancia_legionella.pdf.

4.2. Just imagine: Spain as a hub or a hinterland for a SARS-like outbreak

Even if the above data would imply that Spain bears a very small risk of seeing a catastrophic outbreak associated to the kind of diseases so far commented it may be of use imagining what would be the likely economic consequences of a sudden and violent infectious disease associated to travel and having Spain as a major indirect hub or hinterland.

Being a “hub” means being an international network node from which the disease could spread to many other countries thanks to particularly intense exchanges of travelers, goods, etc. In that case, the circuits most frequented by foreign travelers would be hit as were the connections out of Hong Kong, Singapore or Taiwan when SARS first spread out of China to these.

Being a “hinterland” means that local populations are the most affected after the disease carriers that enter the country end their journey in certain rather closed localities without engaging in subsequent international or long-distance connections thus spreading the disease in their immediate social and geographical circles.

In 2002 more than 141 million travelers displacements were registered in Spanish airports of which 84.6 million or 60 percent had an international origin/destination. The country is home to an estimated 2 million immigrants that tend to be concentrated in large cities, coastal areas and agricultural counties where unskilled job opportunities abound15. Spain trades goods and services with the rest of the world at a rate that amounts to more than 60 percent of its GDP or about 400 billion euros per year. Although until the recent past most of persons and goods exchanges were with developed nations, since few years ago all kind of exchanges with developing countries in Asia, Africa and Latin America are increasingly taking place in absolute and relative terms with respect to an ever increasing grand total.

15 Official figures for immigrants in Spain are however much lower, the difference being irregular immigration. The Encuesta de Migraciones of the Spanish Statistical Office (http://www.ine.es/inebase) gives a figure of 984,100 at the end of 2002 of which about half are working. More than half a million come also either from Latin America (368,900), Morocco (110,600) or the rest of Africa (41,200). Less than 20,000 come from Asia.

As said before however, SARS did not hit Spain except for a non-fatal case whose likelihood was readily and well in advance announced by the health authorities in a move seldom practiced in the country due to the misperception that early warnings cause social alarm. This is encouraging as for the policy aspects. SARS itself is precisely the paradigm of how official obscurantism and incompetence can complicate matters at a global scale. Other diseases associated to international exchanges, previously discussed, have had and equally modest impact in Spain. For the sake of illustration however, let us speculate on the economic consequences a hypothetical severe epidemic outbreak that could hit the country from abroad spreading afterwards to other areas in the country and other countries through domestic and international connections.

4.3. Policy arrangements

Since the mid 1990s Spain has been creating different instruments and institutions to gather information on rare and infectious diseases, launch alarms and warnings and take preemptive and curative actions in case of need. Some of these instruments make part of wider European or multinational networks (WHO) and in a way have been the consequence of lessons learned out of past mistakes and or international experience.

As recently as November 2003 an Order of the Spanish Health Department created the Instituto de Investigación de Enfermedades Raras -the

Research Institute for Rare Diseases- a heir of the earlier Centro de Investigación sobre el Síndrome Tóxico y Enfermedades Raras created in December 2001, twenty years after the Toxic Oil Syndrome broke out. A Royal Decree issued in 1995 created the Spanish Epidemiologic Surveillance Network with a clear distribution of tasks among regional and national authorities and detailed protocols as for the major diseases whose declaration by practitioners is compulsory. Among these diseases, Legionella is closely tracked both at home and internationally having entered the compulsory disease register in 1997. This network, in particular would be in charge of activating any alarm related to a health hazard of epidemic nature. Its workings would be supported also by the border control posts of foodstuffs and the associated warning networks that are EU wide or WHO coordinated.16

In principle thus, the Spanish scheme to prevent infectious diseases seems to be well based in up to date arrangements and protocols internationally connected and following closely EU and WHO directives and rules. But policy instruments need to be promptly and efficiently used when needed and, as mentioned before, only recently Spanish health officials seem to have broken a long record of systematically downgrading, when not neglecting, health hazards inspired by the very debatable prejudice that public opinion should not be let to know until it is unavoidable. It happens some times that the delay needed to obtain strong evidence is rather long and prevention needs to be established much earlier if significant damage has to be avoided. No recommendation could then be stronger than that of properly informing as soon as possible the general public as the first step in the preventive chain that will need to be established in order to radically curb the spread of an epidemic outbreak.

16 Up to ten EU wide networks are at present tracking different diseases in Spain as well as the WHO Computerized Information System for Infectious Diseases (CISID). See RNVE (2003).

To be sure, interested parties that may be economically hurt by early warnings or measures will criticize and oppose these pretending that evidence is unwarranted and that over-reaction is dangerous. But these concerns unless fully justified should not deter policy from being implemented at all. Extreme rare events, let us bear in mind, are unlikely but may be very damaging. When they break out, petty economic interest will need to be sacrificed to avoid larger costs. The former could always be compensated at a much lower cost. Policymakers thus need to be isolated, possibly by formal law, from that kind of interference but they also need to be advised, also possibly by formal law, by the best independent scientific opinion available.

4.4. Economic evaluation

Were a violent epidemic outbreak happen in Spain, a first consideration would need to be taken into account also as for its economic consequences: whether action would be readily undertaken or not with the needed intensity. This has turned out to be the first lesson from the SARS outbreak. Delayed or limited action would increase the range of spread of the disease both at home and abroad leading to wider consequences of all sorts. Even if the outbreak did not originate in a country that at some stage could become an indirect hub for its further spread, the extent to which health authorities in this particular country neglect their duties would determine the global pattern the spread of the disease would follow. Take the SARS case once the WHO took control in mid February 2003. WHO declared the disease a global threat one month latter, the time it took to discover the causative agent, and health authorities started to act decisively to stop de disease. Quarantines were imposed everywhere and the spread started to be stopped by end April in Viet Nam. The delay with which Chinese authorities reacted helped to disproportionately spread the disease. Scientific evidence soon showed that the infection had a mean reproduction number of 3 persons infected by each patient and a mean serial interval or incubation period of 10 days. A disease is said to be controlled when the reproduction number falls below 1, thus killing its geometric expanse, which happened everywhere immediately after quarantines were established.17 These parameters characterize a rather easily controllable epidemic once proper action has been taken. This did not happen until after about three months of the occurrence of the first case. The delay was then critical in setting off the spiraling spread of the epidemics and the consequences that followed.18

Prompt and effective action

Just a few controlled cases will prevent major consequences to follow, but proper control means imposing quarantines upon persons and establish ments and would also entail unaffected people avoiding all sorts of contact at risky places like airports and airliners, restaurants, shopping malls and entertainment areas, etc. The medical treatment of a few dozens of cases properly quarantined would have very limited direct economic consequences disturbing normal working in a handful of hospitals or care units. Consumption and travel restraint in risky places would inflict more serious costs albeit also limited as people’s perceptions would sooner than latter embody the conviction that the situation is under control. Clearly, a SARS-like outbreak would require a considerable international effort to identify the causative agent and possibly the treatment. An effort that a medium sized country like Spain would not be able to deploy by itself. But other lesson learned from SARS was that simple old good measures like quarantines and personal hygiene if firmly adopted to the necessary extent can put a strong check to any epidemic.

17 See WHO (2003b).
A reproduction number of 3 and a serial interval of 10 imply that the number of infected patients grows to 3 in x 10x days. Take , or three months (90 days), and the number of theoretical cases will be 19,683.x = 9 When x is taken to be 6, or two months, the number of cases is 729. The number of cases would descend to just 27 if x takes the value of 3, or one month delay.

The above scenario would doubtless create uncertainties but not necessarily panic, at least a lasting one. Under this scenario, travel from abroad to Spain and expenditure at suspected places would suffer perhaps intensively but for a few weeks. As mentioned before the total direct economic cost to patients and distortions to the health system would be low. As for the costs to concerned businesses this would depend on their location and time of year at occurrence of the outbreak.

At high tourist season, an international warning not to travel to some areas in Spain would reduce significantly the number of foreign tourist and their expenses. Out of more than 52 million visitors per year, around 7 million visitors peak at months like July or August and less than 3 million in January. If the crisis were to reduce international travel at half these numbers, which is a severe shock even if temporary, the effect of that would be to reduce by between 7 percent (August) and 3 percent (January) the annual turnover associated to international travel of the sector. About the same pattern would be followed by activity at hotels, restaurants and other businesses located in tourist areas. Final consumption by non-residents in Spain amounted to more than 5 per cent of GDP in 2002 or 35 billion euro and against this figure should be projected the likely impacts. To these the effects of reduced domestic travel to and expenditure at the concerned areas should be added but most probably the loss of travel to and activity at crises sites would be compensated by increased travel to and activity at alternative places elsewhere in the country. Also part of the costs suffered by the affected businesses would be recovered latter once the alarm was off as some consumers would have merely delayed their plans to travel. Linkages to other non tourist sectors of the economy (agriculture or manufactures) would not be significant on annual basis.

All in all, under the prompt action scenario, the Spanish economy could suffer a limited economic impact that could lay in an upper range of between 1,050 and 2,450 million euros depending on whether the outbreak would happen at, respectively, low or high season. These limits imply a range of between 0.15% and 0.35% of GDP. A limited impact indeed even if some particular business would suffer considerably or go bankrupt. This is in line with the estimated economic effects of SARS in the less affected APEC economies (APEC, 2003).

Of course, an epidemics with a higher reproduction number and/or a lower serial interval would lengthen the prevalence period of the disease even if prompt action is taken and thus the consumers reaction and economic losses of the sectors affected.

Delayed or insufficient action

Delayed or insufficient action could take several forms. If health authorities were to hide to the public that a rare SARS-like epidemic outbreak was underway, open measures would not be taken to low the reproduction number and the number of cases could grow following the pattern discussed in note 18 above. Rumors and news would anyway circulate and panic among travelers and consumers would grow until proper action was taken. After this, damages would be limited but to the above estimated cost some unspecified extra costs should be added, probably of the same or higher magnitude. The human toll however and the distortion to the health system would have been meanwhile considerably higher than in the prompt and efficient action scenario described above. Legal procedures against health authorities would also most likely be initiated ending in high indemnities to be paid to the victims.

On the other hand, if action was taken at the outbreak but it failed to reduce below 1 the reproduction number prolonging open-ended the prevalence period of the disease, economic consequences could be much more serious mounting to up several percentage points of GDP in a given year. Remember that SARS has been estimated to cost up to 2 pp of GDP to the most affected APEC economies or 30 billion US$ in all (APEC, 2003). As it went, the SARS episode so far can be characterized as a case of delayed action, due to obscurantism and incompetence of the Chinese authorities in the first three months and prompt an efficient action, notably by WHO, in the following month. The open-end case of an epidemic outbreak in which consumers panic would mount unchecked for a long period of time has not yet been recorded in recent decades, the nearest cases being the 1918 influenza epidemics and AIDS.

5. Concluding comments

This paper has attempted in a rather crude way to set an estimate of the economic consequences of a SARS-like epidemic outbreak in Spain having the country as a secondary hub of the disease. Per se, Spain could hardly be the origin of such an outbreak given her geographical situation (and economic status) but the country is increasingly taking part of global exchanges of persons and goods and in particular with countries where a like epidemics could originate. It is also home to an increasing immigrant population.

Several lessons can be derived from SARS the most important one being that prompt and effective action even at the expense of costly and unpopular isolation measures is the best way to limit the overall incidence irrespective of treatments being readily available or not. Health authorities must be convinced by any means not to adopt obscurantist or delaying attitudes for that would exponentially increase damage to the population and the economy.

Not all epidemic diseases, even violent ones, have the same economic effects as the 1918 flu case shows, but consumers panic associated to isolation measures no matter how promptly taken would clearly have negative economic effects. Based on available estimates on the economic consequences of SARS so far and taking into account the economic size and share of the Spanish tourist sector I estimate an upper range of between 1 and 2,4 thousand million euros in the “prompt and effective action” scenario according to the seasonal moment of occurrence of the outbreak if this were to happen in Spain.

Similar raw computations could be made concerning different “rare” and extreme events occurring in Spain or elsewhere. There is a growing public perception that new sorts of risks from epidemics to mass terrorism or a combination of both extremes can happen more often than ever before. Clearly it is new policies and new insurance instruments what are needed in order to counter that perception if not the occurrence of these events. To be sure, natural disasters, terrorism and wars, not rare events after all, unfortunately, cause considerable more human suffering and economic loss than the kind I have been dealing with here.

References

  1. APEC (2003), 2003 Economic Outlook, APEC Economic Committee, October 2003.
  2. Bell Clive, Hans Dersbach and Shanta Devarajan (2003), “The Long-run Economic Costs of AIDS: Theory and an Application to South Africa.”, The World Bank. Downloadable at: http://www1.worldbank.org/hiv_aids/docs/BeDeGe_BP_total2.pdf
  3. Brainerd Elizabeth and Mark V Siegler (2003), “The economic effects of the 1918 influenza epidemic.” Discussion Paper No. 3791, February 2003, CEPR.
  4. Kunreuther Howard, Erwann Michel-Kerjan and Beverly Porter (2003), “Assessing, Managing and Financing Extreme Events: Dealing with Terrorism,”NBER Working Paper 10179 (www.nber.org/papers/w10179).
  5. Patterson, K David and Gerald F Pyle (1991), “The Geography of Mortality of the 1918 Influenza Pandemic.” Bulletin of the History of Medicine 65 (1), 1991, pp 4-21.
  6. Posada de la Paz, Manuel (2002), Registro de morbi-mortalidad de los pacientes del síndrome del aceite tóxico: aplicaciones científicas de un estudio poblacional, Tesis Doctoral, Universidad Autónoma de Madrid, Mayo 2002.
  7. RNVE (2003), Inventario de redes de vigilancia epidemiológica internacional de enfermedades, Red Nacional de Vigilancia Epidemiológica, Instituto de Salud Carlos III, Madrid, March 2003 (http://193.146.50.130/ve/invenvig.pdf)
  8. Svensson, Lars E. O. (2003), “Optimal policy with low-probability extreme events,” MBER Working Paper 10196 (http://www.nber.org/papers/w10196).
  9. WHO (2003a), “Severe acute respiratory syndrome (SARS): Status of the outbreak and lessons for the immediate future”. World Health Organization, Communicable Disease Surveillance and Response. Geneva, 20 May 2003. Downloadable at: www.who.int/csr/media/en/sars_wha.pdf.
  10. WHO (2003b), “Consensus document on the epidemiology of severe acute respiratory syndrome (SARS)”. World Health Organization, Communicable Disease Surveillance and Response. Geneva, October 17, 2003. Downloadable at: www.who.int/csr/sars/en/WHOconsensus.pdf.

RELACION DE DOCUMENTOS DE FEDEA

DOCUMENTOS DE TRABAJO

References

  1. 2004-09: “Could this ever happen in Spain? Economic and policy aspects of a SARS-like episode”, José A. Herce.

References

  1. 2004-08: “capital humano en España: Una estimación del nivel de estudios alcanzado”, Javier Alonso y Simón Sosvilla-Rivero.

References

  1. 2004-07: “Modelling vintage structures with DDEs: Principles and applications”, Raouf Boucekkine, David de la Croix y Omar Licandro.

References

  1. 2004-06: “Substitutability and Competition in the Dixit-Stiglitz Model”, Winfried Koeniger y Omar Licandro.

References

  1. 2004-05: “The short-run dynamics of optimal growth models with delays”, Fabrice Collard, Omar Licandro y Luis A. Puch.

References

  1. 2004-04: “Currency Crises and Political Factors: Drawing Lessons from the EMS Experience”, Francisco Pérez-Bermejo y Simón Sosvilla-Rivero

References

  1. 2004-03: “El futuro de las pensiones en España: Perspectivas y lecciones”, J. Ignacio Conde-Ruiz y Javier Alonso.

References

  1. 2004-02: “Do temporary contracts increase work accidents? A microeconometric comparison between Italy and Spain”, Virginia Hernanz y Luis Toharia.

References

  1. 2004-01: “Job Match Quality throughout the Business Cycle in the Spanish Labour Market”, Cristina Fernández.

References

  1. 2003-30: “Innovation, Investment and Productivity: Evidence from Spanish Firms”, Omar Licandro, Reyes Maroto y Luis A. Puch.

References

  1. 2003-29: “Efectos de las ayudas europeas sobre la economía madrileña, 1990-2006: Un análisis basado en el modelo Hermin”, Simón Sosvilla-Rivero y José A. Herce.

References

  1. 2003-28: “Canarias y los Fondos Estructurales europeos”, Simón Sosvilla-Rivero.

References

  1. 2003-27: “How Brand Names Affect the Price Setting of Carmakers Producing Twin Cars?”, Nora Lado, Omar Licandro y Francisco Pérez.

References

  1. 2003-26: “La desigualdad salarial en España. Efectos de un diseño muestral complejo”, Juan Ramón García López.

References

  1. 2003-25: “Sobre la efectividad de la política regional comunitaria: El caso de Castilla-la Mancha”, Simón Sosvilla Rivero, Oscar Bajo Rubio y Carmen Díaz Roldán.

References

  1. 2003-24: “El diseño complejo de la Encuesta de Estructura Salarial 1995: Implicaciones sobre la estimación de medidas de desigualdad”, Juan Ramón García López.

References

  1. 2003-23: “Polarization, Inequality and Tax Reforms”, Juan Prieto, Juan Gabriel Rodríguez y Rafael Salas.

References

  1. 2003-22: “El efecto del capital humano sobre el crecimiento: ¿ Importa el periodo muestral?”, Simón Sosvilla-Rivero y Javier Alonso Meseguer.

References

  1. 2003-21: “On-the-Job Search in a Matching Model with Heterogenous Jobs and Workers”, Juan J. Dolado, Marcel Jansen y Juan F. Jimeno.

References

  1. 2003-20: “Purchasing Power Parity Revisited”, Simón Sosvilla-Rivero y Emma García

References

  1. 2003-19: “Credibility and Duration in Target Zones: Evidence from the EMS”, Simón Sosvilla-Rivero y Francisco Pérez-Bermejo.

References

  1. 2003-18: ““Mondays at the sun”: Unemployment, Time Use, and Consumption Patterns in Spain”, Namkee Ahn, Juan F. Jimeno y Arantza Ugidos.

References

  1. 2003-17: “Protecting Against Labour Market Risk: Employment Protection or Unemployment Benefits?”, Tito Boeri, J. Ignacio Conde-Ruiz y Vincenzo Galasso.

TEXTOS EXPRESS