On May 20th 2020 Fulbright University Vietnam hosted Xihong Lin, Professor of Biostatistics at Harvard T.H. Chan School of Public Health, as she presented her recent findings and lessons learned from COVID-19 and the response in Wuhan Province, China, the epicenter of the pandemic, as well as data from the US and Europe.

This talk is part of Fulbright’s ongoing COVID-19 talk series striving to understand this virus and its implications on the future of our societies, gathering experts from around the world to examine the multi-faceted impact of COVID on areas ranging from public health, to the economy, public policy, education, and business. The talk was hosted by TMG Group CEO and Fulbright University Vietnam Governing Board member Tran Trong Kien.

Professor Lin studied COVID-19 in the city of Wuhan, looking at the transmission patterns of the disease and the response from city authorities. Her research received worldwide attention as it constituted some of the earliest and most rigorous efforts to comprehend the virus. She strived to answer the question: what can we learn from the data? What have been effective intervention strategies? What are the risk factors affecting the spread?

“It’s important to let the data speak and develop evidence-based strategies. Wuhan’s experience helps us not start from zero,” says Professor Lin.

From social distancing to centralized quarantine

Professor Lin first discussed the effectiveness of various measures, comparing among others the reproduction values or R values. R values are the average number of new infected per contagious individuals and is a way of rating a disease’s ability to spread. In Wuhan, the implementation of social distancing through citywide lockdowns, suspension of traffic, and home quarantine on January 23rd greatly reduced the spread of the virus, dropping from an R value of 3-4 to 1.

“An R value of 3-4 demonstrates a very infectious disease, and social distancing demonstrated its effectiveness by bringing this value close to 1. But to truly consider an epidemic under control, this value has to drop as close to 0 as possible. For this, social distancing is not enough,” explained the statistician.

Indeed, household members tend to fall ill together. When living with a sick household member, the risk of infection rises as high as 50%. To reduce the number of new infections, authorities needed to control the source of infection, which meant protecting family members and loved ones by isolating infected cases through centralized quarantine centers, triaging by likelihood of infection (See graph below).

Household and congregated place transmission is common and needs to be blocked.

“Social distancing helped flatten the curve by reducing between-household spread, and centralized quarantine slowed in-household infections, therefore bending the curve to finally stop the epidemic,” says Professor Lin.

 A societal effort to beat the virus – and return to normal

The statistician also urges us to pay special attention to five vulnerable groups. As shown above, family members and close contacts of infected cases are at highest risk of infection. But health workers as well as essential workers also bear the heaviest burden with disproportionate infection rates. The elderly also demonstrate a higher vulnerability to the virus. In Massachusetts, data shows the average age of infected cases is 53 years old, affecting those over 80 years old the most. Finally, low-income households also deserve special attention, suffering from typically higher density homes and poor housing conditions making social distancing difficult. Individuals in this socio-economic group also feel a stronger pressure to go back to work.

Xihong Lin outlined the 6 pillars needed to control the epidemic: mask wearing, social distancing, widespread testing, contact tracing, isolation and quarantine, and of course treating infected patients. All these elements constitute barriers to the spread of the virus at various scales, requiring the collaboration of individuals and institutions at all levels of society to study, contain, supply, and contribute to overcoming the crisis. At all stakeholder levels, from international organizations, to governments, academia, business and citizens, it is important to work together as a team to curb the spread of the virus,” says the professor.

Reopening international borders

Vaccines remain beyond the immediate horizons, and immunity has only reached up to 20% in New York, far from herd immunity levels which begin at 50 to 60%. Those herd immunity levels also represent a cost in lives of more vulnerable members of society “that most countries are not willing to pay,” says Professor Lin. Yet as the virus gradually becomes contained, countries around the world are considering the loosening of social distancing measures as well as the reopening of international borders. Wuhan province waited 2 weeks without community spreading before reopening. But in the US, some states have already reopened despite an R value still above 1. For Dr. Lin, it is to be expected that different states would make different decisions while keeping in mind both public health and the economy. The key to success, for our expert, is multi-stage, evidence-based strategies.

Updated analysis from Wuhan statistics until March 8

Start small, and slowly open more. Each phase of reopening has to go hand in hand with developing strategies relevant to each of the six pillars. Before the development of a vaccine, those previously mentioned prevention measures remain critical,” says Dr. Lin. Countries will have to consider options that work best for them. Xihong Lin emphasized the case of Korea, where individuals coming into the country have to be tested and quarantined before entering the country, and are required to install a contact tracing app to control community spread and limit international risks of contagion. But other strategies can be explored. For example, data suggests Vietnam might have the testing capacity to see systematic testing as a viable option, opening international travel while limiting risks.

“There is a chance to see a surge in cases when the global economy and travel normalizes. At the same time, public awareness of the right behaviors is growing, plans and resources dedicated to monitor and contain the virus increase, which will be strong factors in preventing or limiting new surges of the virus,” Dr. Lin concludes.

Antoine Touch

During her talk at Fulbright University Vietnam, former Assistant Secretary of the Treasury for Economic Policy and Chief Economist of the United States Department of the Treasury, Harvard Professor Karen Dynan forecasted that countries which took swift actions to control the spread of Covid-19 early such as Vietnam could emerge out of this financial crisis as winners.

Dr. Vu Thanh Tu Anh, Dean of the Fulbright School of Public Policy and Management (FSPPM), also shared the same viewpoint. In the talk, Dr. Tu Anh emphasized that “the way countries responded to the current crisis would determine how they could recover in the medium-term.” If the Covid-19 pandemic prolonged until a much-anticipated vaccine is found, “countries, which got off [the pandemic] relatively safe, would have a more promising start to protect the businesses and households, and resume business activities as normal,” stressed the Dean of FSPPM.

Two top economists from Harvard University and Fulbright University Vietnam had an interesting discussion on the prospects of the world economy. Through the talk, the experts pointed out some suggestions which countries could follow to efficiently respond to such an unprecedented crisis.

Professor Karen Dynan

How can we escape from this “large hole” of a financial crisis?

According to Professor Dynan, when addressing the issue of world economy, everyone can easily answer the question of how large of a “hole” the world is sinking into. It’s fairly obvious to see that while shutdowns and other social distancing measures are effective for containing the spread of the virus, they are causing grave challenges for the economies of the world. The data of Q1 shows this downward trend quite clearly. The GDP of the world’s largest economy plunged 4% in Q1. That was the biggest decline since the financial crisis in 2008. For the first quarter, consumer spending in the U.S. fell sharply in March, especially in categories that involves getting close to other people. After 10 years of strong economic growth, America is facing a drastic rise in unemployment rate with 38.6 million people filed for unemployment as of May 22, 2020.

However, the more challenging issues are how long it will take for the world to get out of this “large hole” and how it can successfully recover. In other words, will the world economy face a V-shaped recession, which we go into it and get out of it quickly; a U-shaped recession, which takes us longer to recover; or an L-shaped recession, which we may not get out of at all? Our two experts admitted that there are too many uncertainties to accurately forecast how the world economy can recover post Covid-19 pandemic. To recover, each country has to succeed on both fronts: control the spread of the disease and overcome the economic aftermaths.

Professor Dynan emphasized that the structural damage a country faces throughout this current crisis would determine how quickly such country can recover afterwards. When an economy shuts down, it will have to face a “structural damage,” meaning all business activities become disrupted, or fractured. For example, restaurants have to close because they cannot afford their rents, and after a while, cannot reopen their business; or a family loses their home because without a job, they cannot pay their mortgage. “The idea is to prevent widescale bankruptcies among households and businesses because that is the type of structural damage that could really hold back the economic recovery,” Professor Dynan suggested. She also recommended governments to directly offer financial support to businesses to help them pay their employees, as well as to households to help them pay for the necessities.

Prof. Dynan and her husband, Prof. Doug Elmendolf during their visit to Fulbright University Vietnam, January 2020.

Even though the world economy looks rather grim, Professor Dynan still held a more positive outlook for the future. First, the world economy at the start of the year 2020 was rather healthy. This stands as stark contrast to the financial crisis in 2008-2009, which happened because of the structural imbalances of the economies. Thus, if we can contain both the spread of the virus and the deadliness of SARS-COV2, the economy can quickly return to normal because there will be fewer structural imbalances to correct.

Moreover, unlike the 2008 financial crisis, this time, there is still ample room for central banks to apply appropriate fiscal policies and monetary policies to lessen the damage, and help governments better manage the crisis. Professor Dynan commented that since the start of the pandemic, central banks have been promulgating such efficient monetary policy. For example, in America, central banks swiftly acted as the lenders of last resorts, providing liquidity to struggling companies at a low interest rate. This action not only helps companies from going bankrupt but also prevents the economy from a more damaging financial crisis.

Who to save first: Big corporations or hardest-hit ones?

According to Professor Dynan, there is also ample room for governments to use fiscal policies to avoid a worse financial crisis. During the 2008 crisis, standard fiscal policies were also applied to cut tax, raise public spending, and in turn, raise production an employment. However, during this Covid-19 crisis, governments are using a different type of fiscal stimulus to prevent the aforementioned structural damage. For example, the American government targeted an aid of $600/week to people who had lost their job due to Covid-19. The French government offered direct aid to companies to keep people employed. Vietnamese government also provided direct support to those whose jobs had been affected by the virus, even though the level of support was still modest compared to their actual earnings.

Some Vietnamese economists suggested that with limited resources, governments should focus on saving big corporations. Professor Dynan, however, believed that “governments should continue supporting businesses or individuals who are on the verge of bankruptcy.”  Such fiscal stimulus will help prevent structural damages, keep countries in a better position to economically recover, and mitigate the impoverishment risk in the lower class.

Also shared this viewpoint, Dr. Vu Thanh Tu Anh believed that “while fiscal policies and monetary policies focus on the imminent crisis, we should not overlook the structural imbalances which are crucial to the economic growth in the future.”

According to both experts, one of the structural imbalances that most countries, Vietnam included, is facing is the growing inequality between the rich and the poor. Unfortunately, the Covid-19 pandemic actually worsened inequality. In America, most of the 38.6 million unemployed people are service workers, earning minimum wage. In Vietnam, according to Dr. Vu Thanh Tu Anh, approximately 5 million business households, which comprise of 20 million affected individuals, are taking the hardest hit and have no capability to get back on their feet. Therefore, to avoid social unrest, fiscal stimulus must be directed to this vulnerable group, not because it is an economic issue, but because it is also a social security issue.

Deciding who will receive aid and under which requirements can shape or distort the economy in many years to come,” Dr. Vu Thanh Tu Anh warned. He added that policies should be designed to minimize exploitation. For example, governments need to ensure that aid must be delivered to small businesses and households that need it, not to big corporations with abundant resource.

Dr. Vu Thanh Tu Anh

When the pandemic is behind us, governments have to find the solution for the growing inequality gap. Else, it will foster the rise of populism and support for populist policies. Those are the challenges we have to solve in the near future,” Professor Dynan reiterated.

We should not worry about public debt yet

In just the past few weeks, the world witnessed a spike in government spending to respond to Covid-19. This stokes concern over an uncontrolled public debt. However, Professor Dynan shared that “now is not yet the time for us to worry about high public debt, at least for America, even though America’s ratio of federal debt to GDP is expected to exceed 100%, the highest since World War II.” The reason, she explained, is that the American government can still borrow at very low rates, below 1%. This shows that there is a great willingness among investors to finance the government’s spending.

“The moment we need to worry about public debt is when interest rate starts to soar,” Professor Dynan added.

However, the experienced economist admitted that this scenario is not true for all emerging market and developing economies. These low-income countries may have to face worsened outbreaks because of weak healthcare systems. They may not even have the choice to apply appropriate measures to prevent a long-term recession. With limited resource, they may have to borrow at a higher interest rate, which will set them up for a future sovereign debt crisis. Professor Dynan emphasized that rich countries must play their role in this global crisis. Organizations like the IMF and the G20 should have a more serious conversation about the right response, which involves debt standstills and eventually debt forgiveness for countries that cannot get out of this crisis without proper support.

Truong Minh