Lockdowns and their impact on emerging markets

IN MARCH 2020, the World Health Organization (WHO) declared Covid-19 – an acute respiratory disease caused by the coronavirus Sars-CoV-2 – a pandemic. Governments around the world adopted policies of extreme social distancing or “lockdowns”.

These lockdowns have had an enormous impact on the global economy and society, particularly in emerging markets – with China being the prime example. Many of the emerging markets experienced a credit crunch, which made it difficult to pay back or refinance loans.

This caused problems for many large businesses including Evergrande and Country Garden Holdings in China, Bed Bath and Beyond in the US, and over 280 businesses in India. The lockdowns not only hindered economic progress, they also impeded education and hurt children’s development, in addition to innumerable other consequences that cannot yet be completely ascertained.

A number of studies were recently published examining the lockdown phenomenon. In The Great Covid Panic by Paul Frijters, Gigi Foster and Michael Baker, the authors said that the widespread support for lockdowns was surprising since much of it went against detailed pandemic guidelines previously developed by countries and the WHO itself.

They reported that the consensus in the epidemiological community was that large-scale lockdowns or quarantine were neither effective nor desirable in combating infectious diseases. Knowledge of quarantines reflected conditions prevalent over 50 years ago when much less was known about the epidemiology of infectious diseases and when there was far less international and domestic travel in a less densely populated world.

Nevertheless, it was amazing to find that four out of five countries in the Organisation for Economic Cooperation and Development (OECD) adopted similar measures within two weeks in March of 2020. But fairly early in 2020, it became clear that, in fact, lockdowns had minimal impact on Covid-19 mortality. And the total costs of lockdowns exceeded any benefits, leading some commentators to say that they were a complete policy failure.

The US Department of Education stated that 13-year-old American students are back to their lowest levels of mathematics since 1990, and the lowest levels of reading since 2004. It is likely that the impact in emerging countries has been much greater.

Key questions

Perhaps the key questions are: Why were policymakers so eager to impose lockdowns and why were citizens so willing to accept them?

Those who support lockdowns will normally argue that the lockdowns saved lives; and if there were no lockdowns, more people would have died. But studies indicate that this does not hold true. One of the problems with the death counts is that many deaths caused by a wide variety of diseases were incorrectly counted as Covid deaths. Moreover, studies have found that the countries with more stringent lockdowns reported more total deaths.

The public response to the Covid scare reminds me of the episodes reported in the classic book Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay. Like the incidents in that book, the coronavirus scare was quickly transformed into a terrible threat and the “madness of crowds” set in.

In those conditions, rational thought is thrown out of the window and a reinforcing phenomenon takes place with all embracing the same fear. The crowd, of course, included not only the general public but also government officials, members of multilateral organisations and so-called experts. Big Tech also joined in and supported the lockdowns while censoring opposing voices.

Perhaps the entire lockdown phenomenon can be traced to one event – in March 2020, England’s Imperial College published a Covid report which predicted that in the “absence of any control measures or spontaneous changed individual behaviour”, there would be 510,000 Covid deaths in Great Britain and 2.2 million in the US.

That report was carried around the world by the BBC, whose reach spans over 400 million people in 42 languages. It was then announced that the UK was going into lockdown; and soon after, other countries followed. Unfortunately once the Imperial College’s forecasts were embraced as credible, despite a number of flaws, there was no stopping the stampede.

Major flaw

In a detailed study, Prof Steve Hanke of Johns Hopkins University and Prof Kevin Dowd of Durham University Business School pointed out that the major flaw in the Imperial College’s forecast was its assumption that people would be unresponsive to the dangers that accompany a pandemic. They overlooked the fact that when people are told they are in danger of catching a potentially lethal disease, most will take action to reduce their exposure.

The authors noted that Imperial College had a history of defective modelling that made “astrology look respectable”. They mentioned the UK foot and mouth disease epidemic in 2001 when Imperial College modellers persuaded the government to adopt a policy of mass animal slaughter, when their model predicted daily case incidences would peak at about 420. But at the time, the number had already peaked at just over 50 and was falling. As a result of the missed prediction, as many as 10 million animals – which could have been vaccinated – were killed.

In 2002, the Imperial College team suggested that up to 150,000 people in the UK could die from mad cow disease. It turned out that the total number of UK deaths was 178. In 2005, the Imperial College team suggested that up to around 200 million could die from bird flu globally; but by 2021, bird flu had killed 456 people worldwide.

There seems to be a pattern of flawed modelling and hair-raising predictions of disaster that missed the mark. But unfortunately, no lessons were learnt from these missteps. The authors said that Imperial College models were ideal “fear-generating machines”. Quoting HL Mencken, “…the whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by an endless series of hobgoblins, most of them imaginary”.

In a meta-analysis published by the Institute of Economic Affairs, the authors found that in a typical flu season in England and Wales, 18,500 to 24,800 flu deaths occur; in Europe 72,000 flu deaths; and in the United States 38,000.

However, lockdowns apparently prevented 1,700 deaths in England and Wales; 6,000 deaths across Europe; and 4,000 deaths in the United States. These results pale in comparison to the Imperial College of London’s modelling exercises, which predicted that lockdowns would save over 400,000 lives in the United Kingdom and over two million lives in the US.

The authors concluded that voluntary changes in behaviour, such as social distancing, played a significant role in mitigating the pandemic. But harsher restrictions, such as stay-at-home rules and school closures, generated very high costs but produced only negligible health benefits. They said that Covid-19 lockdowns were “a global policy failure of gigantic proportions”. They found that the draconian policy failed to significantly reduce deaths while imposing substantial social, cultural and economic costs,

It is thus now important to urge government and industry officials to examine the results of their policies to ensure that they do not in the future, in the name of safety, destroy the lives and livelihoods of millions of people.

The writer is an investment professional with more than 30 years of experience, and is co-founder of Mobius Capital Partners