Only cooperation can tackle the pandemic
Christos Cabolis and Salvatore Cantale
THE most devastating war in terms of casualties was World War II, with some estimates reporting 85 million dead; COVID-19 has so far killed almost 360,000 people worldwide with 5.9 million cases. Yet, out of one of the darkest moments of modern history sprang momentous intellectual and political developments that resulted in the creation of powerful political and economic institutions to safeguard peace and prosperity.
After WWII, governments around the world understood that securing world peace had to be the outcome of a concerted effort of many countries and strong wills.
The World Bank as well as the IMF were founded in 1944. On April 7, 1948, the World Health Organization was established “to promote health, keep the world safe and serve the vulnerable.” Seventy years on, we are facing a similar situation. This pandemic affects everyone and everywhere.
The current pandemic should push our collaboration efforts, and on three fronts.
Regional coordination
When COVID-19 broke out, in Europe there was no concerted effort initially.
With hindsight, it was naïve to think that the virus would stop at the border.
The fact is that in Europe, the battle against COVID-19 began as a highly country-specific attempt with “unfortunate” actions from different EU members.
The EU’s lack of leadership has been criticized.
And yet, as Executive Vice President of the European Commission Margaret Vestager has reiterated, the EU can coordinate its members but cannot harmonize their health systems.
In fact, it has neither the mandate nor the power to do so.
It can promote coordination and collaboration but ultimately, the individual governments of the member states draw up the policies.
And so, as the severity of the pandemic has intensified with respect to the number of people infected and the number of deaths, the attitudes of member states has changed, bringing forward collaboration on medical supplies, availability of hospital beds and coordination in terms of economic support.
Sadly, it has been too little too late.
Independent health body
If collaboration among countries is important, the creation of a global health body is even more so.
It should be as independent from politics as it can be, and have the mission to create and disseminate intelligence, thereby providing an ample playing field across nations and people.
Additionally, the agency should have the objective, capability, and most of all the means, to design and coordinate a global response, and to impose it across member states.
Financial resources
Finally, as wars have devastating financial effects, so too will this pandemic. WWII resulted in a 70 percent loss of manufacturing capacity in Europe while thousands of its cities and towns and those in the then Soviet Union were destroyed.
The IMF’s recent estimates were alarming: The global economy might decrease by 3 percent in 2020.
Financial markets can help to reduce and hedge risk and should be used in the future to coordinate the financial resources around viruses and pandemics.
The financial markets could help to coordinate financial resources in at least two ways.
Firstly, through the securitization of this risk, the financial markets allow capital to flow to companies researching cures and vaccines against viruses.
We may see venture funds being launched with the sole objective of financing research projects and eventually startups of companies involved in this field.
As a result, we could see a more efficient allocation of resources in companies that engage, or can engage, in the production of health-related goods and services.
Thus, the likes of Brooks Brothers converting factories in different US states into sites for the production of masks, and Dyson, Ford and GM who did so for ventilators will not appear as an unplanned afterthought.
Instead, such actions would be more efficient if they are the results of a planned scenario.
The second way that financial resources will become more coordinated is through the wider use of more standard insurance contracts.
Whilst we do already have pandemic insurance, it is not used widely.
The All-England Lawn Tennis Club, organizers of Wimbledon, has been using this kind of insurance against the possibility of a pandemic in the last 17 years.
As a result, this year it will recover about a third of its lost revenues due to the tennis tournament being cancelled for the first time since WWII.
Financial markets can help to reduce and hedge this risk and should be used more in the future to coordinate the financial resources around viruses and pandemics.
In order to successfully address a global health crisis, we need a global reaction.
Our initial reaction to COVID19 was not coordinated enough, but we can learn from that to outline the actions to be taken when the dust settles.
Christos Cabolis is adjunct professor of economics and competitiveness at IMD. He is also chief economist and head of operations at the IMD World Competitiveness Center. Salvatore Cantale is professor of finance at IMD. Copyright:IMD. The views expressed are their own.