The cost of SARS

Experts have predicted huge economic losses resulting from SARS – the World Bank, for example, forecast $15billion (£9.4billion) in Asia alone.

But while there may be billions of pounds of economic costs associated with SARS, the greatest part of these losses will be the result of an irrational panic rather than the disease itself.

The public health costs of dealing with SARS are probably minimal. As Michael Fitzpatrick has previously argued on spiked, the medical impact of SARS is being hugely exaggerated (see Apocalypse from now on). The losses caused by the public panic, which have already led to a decrease in tourism and could hit production, are a different matter.

Perhaps the clearest example of irrational panic is the widespread avoidance of Chinese restaurants and Chinatowns in the USA. According to the latest figures from the World Health Organisation (WHO), there have so far been 65 cases of SARS in America, and no deaths (1). David Baltimore, a Nobel prize-winning virologist and the president of the California Institute of Technology, argues that: ‘The de facto boycott of Chinese restaurants across America is the most alarming overreaction, since there’s absolutely no reason to think that SARS can be transmitted through food, or by people who happen to be Chinese.’ (2)

Worldwide, industries such as airlines and hotels are already suffering from a fear of travel – and this is particularly the case in America. Less tangible but probably more important is the added edge the SARS panic gives to the mood of caution in business. Business commitments and investment decisions, which businesses have avoided in recent years, are likely to be postponed yet again as a result of worry about SARS.

But it is Asia – the only area of the world economy that is enjoying reasonably strong economic growth – that is suffering the most serious losses from the SARS panic.

Much of the discussion about the impact of SARS in Asia has focused on Hong Kong, which accounts for many SARS casualties, and other tourist destinations such as Thailand, Malaysia and Singapore. Commentators have noted the impact on these countries’ entertainment, tourism and retail sectors – as people are travelling less in the region, restaurants are often empty and many consumers are avoiding shops.

But potentially the most significant economic damage could be done within mainland China. It is particularly unfortunate that the SARS virus started in Guangdong – the southern province of China that is next to Hong Kong and at the heart of the Chinese manufacturing miracle of the past two decades.

While the world economy has grown slowly in recent years the Chinese economy has surged. As a result, China now produces, among other things, over half of the world’s cameras, 30 percent of air conditioners and televisions, 25 percent of washing machines and nearly 20 percent of fridges (3). This surge in production enabled China to overtake Britain in 2002 as the world’s sixth largest trading nation (4).

This growth is not only providing the world with a huge amount of cheap manufactured goods; it is also enabling China to develop. A nation of about 1.3billion people has the possibility of being lifted out of poverty by concerted economic growth. China’s growth is also helping to bolster the East Asian region, with other countries either exporting to China or investing in the mainland.

The externally oriented character of China’s growth surge makes it particularly vulnerable to an over-anxious reaction by its overseas business partners. A combination of strong investment from abroad and exports of cheap manufactured goods to the rest of the world has created an economic boom. China has taken over from America as the largest recipient of foreign direct investment, with over $50billion in inflows in 2002. And the investment bank Morgan Stanley estimates that over three-quarters of China’s GDP growth in 2002 was the result of exports (5).

The SARS panic threatens to undermine this growth. Foreign investors are nervous about visiting China to invest more money. And the postponement or cancellation of trade fairs has hit Chinese manufacturers, particularly medium and smaller sized exporters, which depend on fairs to sell their goods. Direct sales visits, which are also important to Chinese exporters, have suffered too. If the panic gets worse there is a danger of factory shutdowns and worker absenteeism.

As a result of SARS, the economic growth which could potentially lift many hundreds of millions of people out of poverty is under threat. But it is the SARS panic, much more than the disease, that threatens to blight so many lives of the poor in Asia.

Daniel Ben-Ami is the author of Cowardly Capitalism: The Myth of the Global Financial Casino, John Wiley and Sons, 2001 (buy this book from Amazon (UK) or Amazon (USA)). He is also a contributor to Cultural Difference, Media Memories: Anglo-American Images of Japan, Continuum International Publishing Group, 1997 (buy this book from Amazon (UK) or Amazon (USA)).

Read on:

Apocalypse from now on, by Dr Michael Fitzpatrick

Viral scares, by Stuart Derbyshire

spiked-issue: Economy

(1) Cumulative number of reported probable cases of Severe Acute Respiratory Syndrome (SARS), World Health Organisation, 6 May 2003

(2) ‘SAMS – Severe Acute Media Syndrome?’, David Baltimore, Wall Street Journal, 28 April 2003

(3) Far Eastern Economic Review, 17 October 2002

(4) ‘China overtakes UK in league of trading nations’, The Times 24 April 2003

(5) China – externally or internally driven?, Morgan Stanley Global Economic Forum, 2 April 2003