fbpx “A very, very serious headache on economic activity”: Q&A with Ricardo Hausmann. | Harvard Kennedy School

Ricardo Hausmann, the founder and director of Harvard Kennedy School’s Growth Lab, is helping developing countries around the globe create capacity to model the coronavirus pandemic and develop economic and epidemiological responses. The Growth Lab COVID-19 Task Force explores the macroeconomic and fiscal implications of the pandemic and offers strategic guidance on policy decisions for collaborating nations including Albania, Ethiopia, El Salvador, Honduras, Peru, Namibia, South Africa, and Saudi Arabia. Under Hausmann’s leadership, the Growth Lab, which is based in the Center for International Development, has grown into one of the world’s most well regarded and influential hubs for research on international development. Hausmann has served as principal investigator for more than 50 research initiatives in nearly 30 countries and is the Rafik Hariri Professor of the Practice of International Political Economy at Harvard Kennedy School.

(This Q&A was excerpted from an upcoming episode of PolicyCast, the podcast of Harvard Kennedy School hosted by Associate Dean for Communications and Public Affairs Thoko Moyo.)

 

Q: Some people are raising the question whether strict lockdowns are appropriate for poorer countries—the argument being that if you've got fragile healthcare systems in those countries anyway, what does the lockdown help? Because you then have the added challenge of people not being able, particularly people in the informal sector, to go out and make a living. Is this the right direction?

Of the countries where we're working, the only one that hasn't imposed a lockdown is Ethiopia. And the reasons are the ones you’ve mentioned. First of all, it's 80-something-percent rural. So people are fairly spread out. The infection came in through people that got into the country through the airport, and they were able to track and trace those people. They've kept the number of cases and the number of deaths really, really low. In addition, there are many people who are very, very close to subsistence. So if you lock them down and don't allow them to eat, they'll starve to death. You have to be more careful in urban areas, where densities are larger. So say in Addis Ababa, you need to be more careful. But fortunately, they were extremely aggressive in testing, tracking, tracing.

In the case of Namibia, another country that we're working with, the numbers are extremely low. They have had zero deaths. They've had a couple of dozen cases. They're on their lockdown and they have announced a plan to start opening up. But the numbers look really good, in part because it's not a coincidence that things got really bad in New York and Lombardy, because these are sort of highly developed places where many, many people come into contact with each other. They have very good transportation systems. People work in great proximity to each other. Those are the conditions in which this particular disease spreads very quickly. Ecuador had the bad luck that it was traditional for the Ecuadorians who work in Spain to go back home in February to Guayaquil. Apparently the people from Guayaquil go back home in February and the people from Quito go back home in July. So the ones that go back to Quito haven't gone back home, but the ones who go home to Guayaquil went there and it produced a really, really nasty spike.

 

Q: To get to a point where we're actually out of the woods, you’ve said we need 80 percent of the people to have been infected to develop that herd immunity. So how do you achieve that, given that you're also trying to prevent that many people getting infected, because you also don't want to overwhelm the health system?

We should know that we will have restrictions, significant restrictions, on human activity until 80 percent of the people become immune. In principle, there are two ways of becoming immune. One is to get sick and the other one is to get vaccinated. So really, I think this is a waiting game until we get the vaccines and we get everybody vaccinated, so we get immunity without people having to get sick. That's one outcome. Obviously, if the vaccine were ready today, that would be the obvious choice. The problem we have from a policy point of view is that we think there'll be a vaccine in the future. We're not certain. So if countries clamped down enough so that the pandemic doesn't overwhelm their healthcare system, that would put the peak sometime next year. The question is, do you go for a gradual process where everybody gets sick and you'll probably get a death rate that will be perceived as socially disastrous and unacceptable? Or do we really wait it out until the vaccine? Is there any policy decision that might speed up the process of clinical trials? Can countries offer themselves for clinical trials, maybe in exchange for a quicker access to the vaccine?

So countries need to prepare to be ready to vaccinate everybody before they actually have the vaccine. I personally think that this disease is going to be a very, very serious headache in terms of economic activity until we get the vaccine. Until we get the vaccine, you won't see the recovery of travel and tourism and countries opening up their borders because it will just be too risky.

 

Ricardo Hausman.

“Really there are two worlds: One where there is a vaccine in, say, a year's time and one where there isn't. And those two worlds are really different.”

Professor Ricardo Hausmann

Q: What are some of the options that you're talking to officials in developing countries about in terms of how you lift or ease the restrictions during this waiting period until the vaccine is ready?

What I think is going to happen—say in a country like the United States—is that they're going to start opening up. It will cause a spike and it will lead to a second lockdown. So it's very important that this opening-up process has a constant eye on the R factor, the reproduction number of how many other people are infected by each infected person. Then when that R number goes above one, you get exponential growth. Because of that, I think countries need to think of ways in which to start generating economic activity, but with an eye on controlling R. One idea says you allow people to work for four days, and then we lock them down for the subsequent 10 days. The idea is that by the time people become infectious, they are locked down. If they don't have symptoms, they can come out. If they have symptoms, they have to stay home. So that mechanism will get only some economic activity, but it would really control the R factor.

One idea that is less severe was proposed by Professor Baruch Barzel from Bar-Ilan University in Israel. The idea is that you have interlocking lockdowns. You will have families divided into evens and the odds. So the evens come out this week, and they're locked down next week. The odds are locked down this week; they come out the next week. So businesses are open all the time, but with half of their labor force. And the idea again is that if you work from Monday to Friday, if you've got infected, you're still not infectious. By the time you become infectious, you are locked down. So again, you don't spread. That would get the economy going probably with an R factor that, in some simulations, is below one.

 

Q: So now let's talk about the economic impact on developing countries, what this is doing for the public policy space, and how you deal with these issues.

So if you are the United States, you can say, "Guess what, we're going to shut down the country and we're going to send everybody checks. We're going to send checks to families. We are going to send checks to companies. We're going to have the Federal Reserve print money as if it was going out of fashion, buy all sorts of bonds, government bonds, municipal bonds, corporate bonds, whatever. We're going to flood the place with money, with liquidity.” In that process, the United States just allocated over two and a half trillion dollars. That's about 12 percent of GDP. That's for the time being for, for these couple of months. That gives you an idea of what it takes to kind of make these lockdowns socially tolerable. Well, 12 percent of GDP is an infinite amount of money for countries in the developing world. The organization that can mobilize the largest resources by far right now is the International Monetary Fund (IMF). The International Monetary Fund has said that it has essentially a trillion dollars that it can deploy. There hasn't been, in my opinion, enough leadership from the G7, the G20, in terms of having a more forceful response. But the IMF has put some resources on the table. Much, much more will be needed.

Banner image: Doctors with the Ecuadorian health ministry's rapid response team for the COVID-19 perform a medical exam on an 80-year-old woman who is showing symptoms of the disease, at her home in Guayaquil, Ecuador.

Photo by Santiago Arcos

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