Why are We Emulating Italy Instead of South Korea?

1. Dmitry Krass, Sydney Cooper Professor of Business Technology, Professor of Operations Management and Analytics, Rotman School of Management, University of Toronto; krass@rotman.utoronto.ca
March 20, 2020

What is the message? This article contributes to the debate on what forms of social distancing policies will be most effective in addressing the health and economic impacts of the coronavirus pandemic. Strict social distancing measures, such as those being used in Italy, much of Europe, and North America, may lead to unfortunate trade offs in health and economic well-being, with excessive economic stresses leading the even larger damages to health. By contrast, milder social distancing policies, if combined with strong policies of testing, quarantine, adopting face masks, protecting high-risk groups, safety in public places, and economic recovery, may be more effective in supporting both health and economic welfare.

What is the evidence? Basic cost-benefit analyses, using assumptions based on the recent trends of the coronavirus pandemic. Timeline: Submitted: March 26, 2020 Cite as: Dmitry Krass, 2020. Why are We Emulating Italy Instead of South Korea? HealthManagement, Policy, and Innovation (HMPI.org), volume 5, Issue 1, special issue on COVID19, March 2020.

1 Accepted for publication in Health Management and Policy Innovation High-Risk Response

The response by most governments and public health authorities in the West to the coronavirus pandemic has been guided by the gospel of “social distancing”: essentially freeze all social interactions to “stop the virus in its tracks”. Whole industries (airline, tourism, food service, nonfood retail), as well as most educational institutions (schools, universities) have been shut down indefinitely, until evidence that growth curve has been “flattened” is at hand.

One should distinguish between different types of social distancing measures, for lack of better term I will refer to them as “mild” and “strict”. Mild measures are largely voluntary for the general population, while including far stricter policies for known and suspected infection carriers, as well as high risk individuals. They also include low-cost transmission reduction measures such as wide adoption of face masks, surface cleaning, disposable gloves, as well as cancellation of large-scale events where close personal contact is likely. The vast majority of economic activity is allowed to continue functioning under this model.

Strict measures are very different. They include major infringement of the most basic individual rights (freedom of movement, freedom of assembly, freedom to earn a living) applied to all of the country’s population1. The goal is to stop most social interaction, with the accompanying shutdown of large portion of the economy. This has become the new norm of response to the COVID-19 pandemic in North America and Western Europe. Multiple Things Are Striking About The Social Distancing Responses The policies are largely untested. While there is some empirical evidence in the literature indicating that social distancing measures can reduce the number of cases and/or delay the occurrence of the peak of infections (“flattening the curve”), nothing even approaching the scale of economic shutdowns seen today in US, Canada, and most West European countries has been tried before.

The closest case is China’s actions in shutting down the city of Wuhan and imposing various restrictions in Hubei province during January-March, but even these pale in comparison: only one region of the country was affected by the most severe restrictions, and much of the economic
activity continued in the rest of the country. The documented instances of social distancing in the literature (dating back to 1918 and 1950’s) were far more limited in scope, including only school closures and event cancelations. Nothing approaching nation-wide shutdowns of major
industries, wide-scale travel restrictions or stay in shelter orders have been tried. The fact that large-scale social distancing is unprecedented flies in the face of the narrative one hears from the media, where such policies are presented as the only reasonable approach, based on scientific truths and accepted practice. The truth is closer to something like this: We have an idea for a medicine that works well2
in our theoretical models, and something similar to this medicine saw limited usage some time ago; let us now make it absolutely mandatory for everyone to take. In any other context, this would be irresponsible – so how is it responsible to roll out “shelter in place” and “no non-essential businesses operating’’ policies, that have never been tested before, both with respect to their benefits or harm, across the Wester nations?

One is struck by the dichotomy: on the one hand we have several promising vaccines for
COVID-19; the early results are promising and human trials have started, but, of course, the
vaccine cannot be approved by the FDA until large-scale trials are completed: after all, it may be
administered to millions of people and it would be irresponsible to approve it before possibly
dangerous side effects are known. On the other hand, when it comes to untested ever-escalating
draconian measures with open-ended economic consequences, no such prudence prevails: it is
regarded as irresponsible not to implement them.

It appears that costs massively outweigh the benefits – likely by orders of magnitude. To the
best of my knowledge, no attempt at cost-benefit analysis – which should be the starting point of
any large-scale economic intervention, has been done. The positive impact of the social
distancing measures is very uncertain. As pointed out by Prof. John Ioannidis, a prominent
epidemiologist from Stanford,3 we do not have nearly enough data to estimate the potential
benefits.

On the other hand, the scale of the economic damage they are wreaking is open-ended: estimates
range from 10% reduction4 in GDP to possible shutdown of whole industries; an airline that is
not flying or a hotel that is not operating are is hard to keep afloat, even with government help.
Note that the 2008 financial crisis resulted in 3% GDP loss, but did not involve shutdown of
whole swaths of the economy.

Many people have already lost their jobs – and we are just days into the strictest measures in
North America. Massive additional job losses are expected. The sectors of the economy hardest
hit (food service, retail and tourism) also employ disproportionate number of lower-income
workers; even a short-term interruption in income is likely to push many people below the
poverty line. And all ills of poverty, including serious diseases and shorter lifespans – are sure to
follow.

Thus, even ignoring the financial aspect and focusing purely on life-years saved, there is a clear
trade-off between the benefits of “social distancing” measures and the economic devastation they
will cause. One should add to the health costs the increasing mental stress and anxiety social
isolation will cause, with lower-income earners living in cramped accommodations hit hardest.
These effects should not be dismissed – solitary confinement in prisons is regarded as a harsh
form of punishment, reserved for worst offenders; we are inflicting this on the whole society.
Will the benefits outweigh the costs? The answer is likely “no”: as pointed out by Ioannidis, the
current best estimates of the infection fatality rate5 are very uncertain, ranging from those not
much higher than for seasonal flu, to those five times that amount. Surely, when one is inflicting
a massive economic burden on millions of people, such analysis is in order?

Yet, not only has no such evaluation appears to have been performed, even suggesting it seems
to be regarded as callous and unpatriotic. In a rejoinder entitled “We know enough now to act
decisively against COVID-19. Social distancing is a good place to start”6
to Ioannidis, Prof M.

Lipsitch, a no less eminent epidemiologist from Harvard, does not dispute any uncertainties, but
merely states that the current course of action is the only choice. One cannot help but wonder if
shutting down the economy is a “good place to start”, what is the intended finish?

Even very rough financial estimates show that the current measures are massively ineffective –
by orders of magnitude. Take Italy as an example. Between February 24 and March 8, in a series
of rapidly escalating steps, some of the most stringent social distancing measures, ever were
adopted. The whole country was placed under strict travel quarantine; all schools, universities,
public venues and most stores were closed; police began patrolling railway stations and
threatening to arrest anyone attempting to travel without a permit, etc. Sadly, these measures are
no longer unique: since March 8 many countries have followed suit, and the measures that
seemed straight out of some horror movie at the time now look quite commonplace.

As of this writing (March 25), Italy has recorded just over 7500 COVID-19 deaths, with the
number of new cases and the number of deaths appear to have peaked around March 20. The
median age of death is around 80 years old. Let’s assume there will be further 7,500 deaths, for a
total of 15,000 (an incredible number – this would be 250 deaths per 1M population, vs 2 in
China, 2 in South Korea and 0.5 in Japan – all of which appear to be at the tail end of the
epidemic).

Let’s generously assume that without strict social distancing measures the number of deaths
would be double – a very optimistic assumption as there is little actual evidence that the disease
trajectory or the death rate was substantially reduced at all since these measures came into effect.
Note that we are not comparing strict social distancing with the “do nothing” scenario – no
responsible government would contemplate the latter. Rather, we should be measuring the
marginal effect of the economically costly strict social distancing measures vs their “mild”
counterparts, described in more detail below).

Using the standard actuarial tables, someone who survived to age 80 has a remaining life
expectancy of around 8.5 (males) – 9.5 (females) years. To keep math simple, I will round it up
to a 10 (another generous assumption, as most of those dying also have other underlying health
conditions). While it seems callous to value a life, policymakers have to do it all the time; a
common range of $7-$9M appears to be (e.g., US Environmental Protection Agency uses $8M).
With the average lifespan of 90 years (again, rounded up), this works out to $100K per life-year
(a likely overestimate). Thus, strict social distancing may have saved a maximum of 10*$100K*15,000 = $15B.

Now let’s look at the cost side. Italy’s per capita GDP in 2019 was $33,156 and the population of
60.5M. Assuming 10% GDP loss7 , this works out to $2,008B – a figure roughly 135 times higher
than savings. Put it another way, social distancing would have to prevent over 2M deaths to
make costs roughly match the benefits. Applying the same simple calculations to other countries
– US, Canada, etc., – leads to numbers that are even more outlandish. The costs exceed the
benefits by astronomical amounts8.

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