--> Gill Blog: The Economics of Fear

Gill Blog

Sunday, November 27, 2005

The Economics of Fear

As the news media picks up stories about bird flu, it's getting increasingly difficult for corporate executives and their workers to make critical decisions how to prepare for the next pandemic flu.
Determined to "cut through the noise" on avian flu and understand what U.S. animal and human health officials should be focusing on, U.S. Sen. Saxby Chambliss, R-Ga., chairman of the U.S. Senate Committee on Agriculture, Nutrition and Forestry, held a full hearing last week to get committee members up to speed on the issue.

Ron DeHaven, administrator of USDA’s Animal and Plant Health Inspection Service, and Julie Gerberding, director of the Centers for Disease Control and Prevention, served on the first of two panels during the 1-hour, 45-minute hearing. A researcher and several poultry industry representatives served on the second panel.

The link between animal and human health is important to keep in mind, Gerberding told the committee members, pointing out that 12 of the 13 emerging diseases in recent times have arisen from animals.

On the one hand, this is "first and foremost" an influenza that affects poultry, although a number of humans directly exposed to infected birds have died, primarily in far eastern countries. On the other hand, global corporations are learning firsthand the effects of a global pandemic on their operations. According to a report in the Business Standard:
Companies such as Wipro, Coca-Cola India and ICICI Bank have already started to prepare a plan of action. While most companies are still at an early stage of health-risk assessment, some such as Coca-Cola India have actually put in place a team to assess how the organisation needs to operate business in the case of a pandemic.

Whatever the impact of a global pandemic in the workplace, the effects of widespread apprehension about avian flu and other influenza pandemics are of real concern for global economics. As the virus spreads across Asia and Europe and the death toll mounts, investors are already placing bets on which companies will win or lose in the event of a global catastrophe, according to a recent report in the Globe and Mail.
"The human cost is terrible -- I'm not trying to diminish that -- but the economic cost will be huge as well," World Bank president Paul Wolfowitz told a conference in Helsinki last month.

In a worst-case scenario, global travel would slow to a crawl as countries tried to contain the virus, sending airline and lodging stocks spiralling downward. Restaurants, movie theatres and other public gathering places would be deserted, poultry producers would see their sales slashed and workplaces would suffer from crippling levels of absenteeism.

"The repercussions on global trade would be devastating," Sherry Cooper, chief economist with BMO Nesbitt Burns, said in a recent report. "Trade disruptions would shutter manufacturing plants and curtail global demand for most commodities."

According to the World Bank, an influenza pandemic lasting one year could cost the global economy $800-billion (U.S.). The World Health Organization has warned that the H5N1 virus, if it mutates into a form easily passed between people, could kill two million to 7.4 million. Some estimates of the death toll are much higher.

In Hong Kong this week, the government organized a preparedness drill, code-named Poplar, in view of the global threat of flu pandemic and human cases of avian flu in neighboring countries. More than 220 players from about 30 government departments and organizations took part in the drill.