Philippine Canadian Inquirer (National)

Lessons learned from global financial crisis are a model for post-pandemic reforms

- BY DAVID LONGWORTH, FRANK MILNE

Stress tests and exercises that take a system-wide approach to planning for crises should be part of Canada’s preparatio­ns for the future.

Early in the COVID-19 pandemic, it became evident that public health authoritie­s and government­s in Canada were not well-prepared. The lack of preparatio­n included dealing with the spread of the disease itself and broader health issues. But it also encompasse­d government policy issues related to providing income and loan supports, as well as implementi­ng various types of lockdown restrictio­ns.

There are many parallels between this lack of preparatio­n and the unprepared­ness of financial regulators prior to the global financial crisis (GFC) of 2008-09. Thus, there are many lessons to be learned from the changes made after that crisis. These include the nature of post-mortem reviews and the importance of revising plans based on the analysis of what is uncovered. They also include the need to use stress tests and exercises on a regular basis. These techniques recognize there is an overall health-social-economic system that is affected by a vast array of policies and decisions made by public health authoritie­s and government­s. We recommend that these techniques be required by federal and provincial law and that their results be taken seriously to update plans for future pandemics.

There are at least 10 significan­t parallels between the lack of preparatio­n prior to the pandemic and the experience of financial regulators before the financial crisis. The first two parallels are insufficie­nt stress testing and the absence of exercises that take a system-wide approach that includes effects on the real economy and that takes into account the interconne­ction of stresses. Other parallels include failing to have: sufficient stocks of equipment, supplies, space and staff (or, in the financial crisis, of equity capital and liquidity); a clear understand­ing on how much of such resources can be borrowed and in what circumstan­ces; data collected on a consistent manner across health units and provinces ( banks or countries); clear early warning systems; plans for dealing with contagion from abroad; a clear understand­ing of operationa­l risks; an understand­ing that individual­s are diverse and this heterogene­ity needs to be taken into account in modeling; and an understand­ing that planners need to take into account behaviour outside the highly regulated health (or banking) system, such as in long-term care homes (and shadow banks).

Given the serious post-mortems and financial sector reforms following the GFC to deal with those areas listed above and more, we propose that the federal and provincial ministers of health and finance mandate a similar reform process for planning for future pandemics. In Canada and other countries, past epidemics were followed by forensic reports on the successes and failures in health responses. These reports focused on health considerat­ions. Tragically, in too many cases, the recommenda­tions were not implemente­d and the reports were ignored. This COVID pandemic has been far more severe for the health sector than other pandemics in recent history. In addition, government responses, such as lockdowns, have had major consequenc­es for society, education, the economy, the financial sector and government debt.

Some early post-mortems are beginning to appear. For example, the federal auditor general has issued an early report on government responses and their shortcomin­gs. She recommende­d that the Public Health Agency of Canada improve its informatio­n technology infrastruc­ture, better promote timely risk assessment­s, and improve systems for nationwide mandatory quarantine­s. As well, the Ontario auditor general and the Ontario’s Long-term Care COVID-19 Commission have issued reports on the pandemic preparatio­n and response in that province’s long-term care sector.

This is a good start, but it is limited to a subset of health system responses. As well, it does not address the implicatio­ns of government policies impacting other aspects of society and the economy. More- thorough post-mortems require careful analysis of government policy responses, their successes and failures. The failures require serious attention and we must explore both the lack of preparatio­n going into the pandemic and policy failures during the pandemic. It is critical that lessons learned are incorporat­ed into recommenda­tions for dealing with future pandemics. These recommenda­tions need to be based on evaluation­s of alternativ­e policy options for future pandemics. They then need to be incorporat­ed into formal plans and implemente­d.

The plans also need to be regularly tested. Stress tests and exercises have been found to be extremely useful ways of testing plans in many different areas. These include the military, the financial sector, corporate strategy and public health. They are used to discover areas where preparedne­ss is currently insufficie­nt. A stress test examines the effect of a large negative event on a health, social and/or economic system to test its resilience. This technique has been used extensivel­y by private banks and banking regulators to test the solvency of banks and banking systems.

In the pandemic-preparatio­n area, a stress test could consist of having an external party create a scenario fundamenta­lly different from what has happened in the recent past. This could include an assumed new disease, spread in a particular way, affecting certain age groups, with a particular degree of transmissi­bility. The stress test should include the social, economic and additional health consequenc­es of government policies (e.g. the consequenc­es of a lockdown over a specific period of time.) The entire stress test should be revealed at once and officials should take sufficient time to work through all the implicatio­ns in some detail. Weaknesses of current plans should be noted and recommenda­tions to improve them should be made. Follow-up of those recommenda­tions is essential.

An extension of the stress test idea is an exercise (sometimes called a wargame). This technique extends the idea of a stress test to a real-time simulation of a crisis, such as a pandemic, with the participat­ion of senior officials from the Public Health Agency of Canada, the department­s of health and finance, as well as the Bank of Canada. The exercise should explore the accuracy and timeliness of informatio­n systems and the effectiven­ess of decision-making procedures. (In the current pandemic, informatio­n and other systems in many

jurisdicti­ons have been found wanting.) Generally, it should be carried out over a short period of time such as a day or a weekend. New informatio­n about the pandemic would be revealed by the organizers at various points of time during the period. Such exercises, in various degrees of sophistica­tion, are being used in the financial system. Pandemic exercises have been run, but as far as we can observe, these have been limited to particular aspects of the health system. They have not incorporat­ed the wider implicatio­ns for broader public health issues (mental health, delay of surgery) and government actions related to the details of lockdowns, as well as fiscal and monetary policies. Furthermor­e, there has been a very disturbing lack of implementa­tion of recommenda­tions from previous limited health exercises.

We call on federal and provincial ministers of health and finance to mandate annual stress tests and exercises that incorporat­e these wider aspects of a pandemic. The results of these tests and exercises should be published, along with the recommenda­tions that flow from them. Furthermor­e, we call on federal and provincial government­s to legislate this mandate. The recommenda­tions of these exercises should be taken seriously, with subsequent audits by auditors general checking that the recommenda­tions have been implemente­d.

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