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Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary (2004)

Chapter: 2. Political Influences on the Response to SARS and Economic Impacts of the Disease

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Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
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2
Political Influences on the Response to SARS and Economic Impacts of the Disease

OVERVIEW

As the severe acute respiratory syndrome (SARS) coronavirus spread around the globe, so too did its political, economic, and sociological repercussions. The ensuing multinational effort launched in response to SARS placed unprecedented demands on affected countries for timely, accurate case reporting; cooperation with expert teams coordinated by the World Health Organization (WHO); and the sacrifice of immediate economic interests, such as trade, tourism, and investment.

The first paper in this chapter presents an economic model of the past and projected costs of the SARS epidemic (see Lee and McKibbin). As one would expect, the model indicates that significant short-term economic losses in China resulted from a sharp decrease in foreign investment. Although the most immediate and dramatic economic effects of SARS occurred in Asia, nearly every major market was impacted directly or indirectly by the epidemic. Several agencies and experts have attempted to estimate the cost of SARS based on expenditures and near-term losses in key areas such as medical expenses, travel and related services, consumer confidence, and investment. The extent of the long-term economic consequences resulting from SARS will depend on whether—and how—the disease returns.

The chapter continues with two political analyses that reflect upon issues of both national and global governance impacted by the SARS epidemic. The first political analysis frames the issue in terms of the new rules of international engagement during the age of globalization, described by the author as the post-Westphalian era (see Fidler) in which nonstate actors such as multinational corporations and multilateral organizations have increasing influence on global governance.

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
×

The second article hypothesizes that the structure and operation of China’s central government account for most of that country’s initial resistance to international collaboration at the onset of the SARS epidemic (see Huang). The author describes considerable internal and external pressures that ultimately influenced the Chinese government to declare its “war on SARS.” He identifies both improvements in the Chinese public health infrastructure and challenges the country may face if SARS reemerges.

ESTIMATING THE GLOBAL ECONOMIC COSTS OF SARS*

Jong-Wha Lee and Warwick J. McKibbin

Korea University and The Australian National University, The Australian National University and The Brookings Institution

While the number of patients affected by the SARS coronavirus and its broader impact on the global public health community have been surveyed in considerable detail, the consequences of the disease in other areas are less well calibrated. The purpose of this paper is to provide an assessment of the global economic costs of SARS. Our empirical estimates of the economic effects of the SARS epidemic are based on a global model called the G-Cubed (Asia-Pacific) model. Most previous studies on the economic effects of epidemics focus on the economic costs deriving from disease-associated medical costs or forgone incomes as a result of the disease-related morbidity and mortality. However, the direct consequences of the SARS epidemic in terms of medical expenditures or demographic effects seem to be rather small, particularly when compared to other major epidemics such as HIV/AIDS or malaria. A few recent studies—including Chou et al. (2003), Siu and Wong (2003), and Wen (2003)—provide some estimates on the economic effects of SARS on individual Asian regions such as mainland China, Hong Kong (SAR), and Taiwan. But these studies focus mostly

*  

This paper is adapted from an article that will appear later this year in Asian Economic Papers (MIT Press). An earlier version of the paper was originally presented to the Asian Economic Panel meeting held in Tokyo, May 11–12, 2003, and the Pacific Economic Cooperation Council (PECC) finance forum, Hua Hin, Thailand, July 8–9, 2003. We have updated that original paper to include the last known case of SARS as well as adjusting the scale of some shocks given the knowledge that the SARS epidemic lasted approximately 6 months rather than the full year originally assumed. The authors particularly thank Andrew Stoeckel for interesting discussions and many participants at the conferences, particularly Ifzal Ali, Richard Dorbnick, George Von Furstenberg, Yung Chul Park, Jeffrey Sachs, Wing Thye Woo, and Zhang Wei for helpful comments. Alison Stegman provided excellent research assistance and Kang Tan provided helpful data. See also the preliminary results and links to the model documentation at http://www.economicscenarios.com. The views expressed in the paper are those of the authors and should not be interpreted as reflecting the views of the institutions with which the authors are affiliated, including the trustees, officers, or other staff of the Brookings Institution.

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
×

on assessing the damages by SARS in affected industries such as tourism and the retail service sector.

However, just calculating the number of canceled tourist trips, declines in retail trade, and similar factors is not sufficient to get a full picture of the impact of SARS because there are linkages within economies, across sectors, and across economies in both international trade and international capital flows. The economic costs from a global disease such as SARS go beyond the direct damages incurred in the affected sectors of disease-inflicted countries. This is not just because the disease spreads quickly across countries through networks related to global travel, but also because any economic shock to one country is quickly spread to other countries through the increased trade and financial linkages associated with globalization. As the world becomes more integrated, the global cost of a communicable disease like SARS can be expected to rise. Our global model is able to capture many of the important linkages across sectors as well as countries through capital flows and the trade of goods and services, thereby providing a broader assessment of disease-associated costs.

The G-Cubed model also incorporates rational expectations and forward-looking intertemporal behavior on the part of individual agents. This feature is particularly important when we are interested in distinguishing the effects of a temporary shock from those of a persistent shock. For example, when foreign investors expect that SARS or other epidemics of unknown etiology can break out in some Asian countries not just this year but persistently for the next few years, they would demand a greater risk premium from investing in affected economies. Their forward-looking behavior would have immediate global impacts.

Needless to say, our empirical assessment is preliminary and relies on our limited knowledge about the disease and constrained methodology. For instance, there is speculation that SARS could reemerge in an even deadlier form in the next influenza season. There is also no consensus yet on the likely developments of any future epidemic and the precise mechanism by which SARS affects economic activities. Although a global model is better than simple back-of-the-envelope calculations, it is a coarse representation of a complex world. Nonetheless, even simple calculations are important inputs into the model. We saw this with the Asian Crisis of 1997, when the transmission of shocks in Asia to the rest of the world and the adjustment within economies in Asia were poorly predicted when only trade flows were considered.1 Thus it is important to go beyond the rough estimates that currently permeate commentary on the economic consequences of SARS. Because we take into account the interdependencies among economies and the role of confidence, our costs are larger than many of the estimates that currently appear in the media.

1  

See McKibbin (1998) for a study of the Asia crisis that included the critical role of capital flow adjustment.

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
×

Economic Impacts of SARS

Despite the catastrophic consequences of infectious diseases such as malaria and HIV/AIDS, the impact of epidemics has been considerably under-researched in economics.2 Traditionally, studies have attempted to estimate the economic burden of an epidemic based on the private and nonprivate medical costs associated with the disease, such as expenditures on diagnosing and treating the disease. The costs are magnified by the need to maintain sterile environments, implement prevention measures, and conduct basic research. Such economic costs can be substantial for major epidemics such as HIV/AIDS. According to UNAIDS (the Joint United Nations Programme on HIV/AIDS), 42 million people globally are living with HIV/AIDS. The medical costs of various treatments of HIV patients, including highly active antiretroviral therapies (HAARTs), are estimated to be more than $2,000 per patient per year. In the Southern African regions, the total HIV-related health service costs, based on an assumed coverage rate of 10 percent, ranges from 0.3 to 4.3 percent of gross domestic product (GDP) (Haacker, 2002).

The costs of disease also include income forgone as a result of disease-related morbidity and mortality. Forgone income is normally estimated by the value of workdays lost due to the illness. In the case of mortality, forgone income is estimated by the capitalized value of future lifetime earnings lost to the disease-related death, based on projected incomes for different age groups and age-specific survival rates. This cost can be substantial for some epidemics. Malaria kills more than 1 million people a year, and HIV/AIDS is estimated to have claimed 3.1 million lives in 2002.

Previous researchers have also focused on long-term effects from the demographic consequences of epidemics. The first and foremost impact of epidemics is a negative shock to population and labor force. However, economic theory provides conflicting predictions regarding the economic effects of negative population shocks. A disease that kills mostly children and the elderly without affecting the economically active population aged 15 to 54 can lead to an initial increase in GDP per head. Even when the disease mostly attacks prime earners, its long-term economic consequences are not unambiguous. Standard neoclassical growth models predict that a negative shock to population growth can lead to a faster accumulation of capital and subsequently faster output growth (see Barro and Sala-I-Martin, 1995). Conversely, an exogenous, one-time reduction in labor force raises the capital-labor ratio and lowers the rate of return to capital, which subsequently leads to slower capital accumulation and thereby lower output growth.

Empirical studies also present conflicting results. Brainerd and Siegler (2002) show that the Spanish flu epidemic of 1918–1919, which killed at least 40 million

2  

Exceptions can be found in the Commission on Macroeconomics and Health (2002).

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
×

people worldwide and 675,000 in the United States, had a positive effect on per capita income growth across states in the United States in the 1920s. In contrast, Bloom and Mahal (1997) show no significant impact of that epidemic on acreage sown per capita in India across 13 Indian provinces.

Epidemics can have further effects on demographic structures by influencing fertility decisions of households. According to the “child-survivor hypothesis,” parents desire to have a certain number of surviving children. Under this theory, risk-averse households raise fertility by even more than expected child mortality. Evidence shows that high infant and child mortality rates in African regions of intense malaria transmission are associated with a disproportionately high fertility rate and high population growth (Sachs and Malaney, 2002). Thus, the increase in fertility has a further negative impact on long-term growth.

Aside from the direct demographic consequences of an epidemic, another important mechanism by which a disease has an adverse impact on the economy’s long-term growth is the destruction of human capital. Human capital, the stock of knowledge embodied in the population, is considered an important determinant of long-term growth (Barro and Sala-I-Martin, 1995). Furthermore, the decline in “health capital,” as measured in general by life expectancy, has negative effects on economic growth (Bloom et al., 2001). Epidemics also adversely affect labor productivity by inhibiting the movement of labor across regions within a country as well as across countries. Restricted mobility thus inhibits labor from moving to the places where it is most productive. Researchers simulating the effect of AIDS on growth in Southern African countries find that AIDS has had significant negative effects on per capita income growth mainly through the decline in human capital (Haacker, 2002).

While previous studies have emphasized the economic cost of disease associated with private and nonprivate medical costs, this doesn’t seem to be the principal issue in the case of SARS. The number of probable SARS cases is still small in comparison to other major historical epidemics. Furthermore, unlike AIDS, the duration of hospitalization of the infected patients is short, with more than 90 percent of the patients recovering in a relatively short period, thereby rendering the medical costs comparatively very low. The SARS-related demographic or human capital consequences are also currently estimated to be insignificant. The fatality rate of the SARS coronavirus is high, but, with current estimates indicating fewer than 800 deaths from SARS worldwide, the death toll is tiny compared with the 3 million who died of AIDS last year or at least 40 million people worldwide who died in the Spanish flu epidemic of 1918–1919. Therefore, forgone incomes associated with morbidity and mortality as a result of SARS appear to be insignificant. If SARS became endemic in the future, it would substantially increase private and public expenditures on health care and would have more significant impacts on demographic structure and human capital in the infected economies. However, based on information to date, this is unlikely to happen with the SARS epidemic.

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
×

Although the medical expenditures and demographic consequences associated with SARS are insignificant, SARS apparently has already caused substantial economic effects by other important channels. We summarize three mechanisms by which SARS influences the global economy.

First, fear of SARS infection leads to a substantial decline in consumer demand, especially for travel and retail sales service. The fast speed of contagion makes people avoid social interactions in affected regions. The adverse demand shock becomes more substantial in regions that have much larger service-related activities and higher population densities, such as Hong Kong or Beijing, China. The psychological shock also ripples around the world, not just to the countries of local transmission of SARS, because the world is so closely linked by international travel.

Second, the uncertain features of the disease reduce confidence in the future of the affected economies. This effect seems to be potentially very important, particularly as the shock reverberates through China, which has been a key center of foreign investment. The response by the Chinese government to the epidemic was fragmented and nontransparent. The greater exposure to an unknown disease and the less effective government responses to the disease outbreaks must have elevated concerns about China’s institutional quality and future growth potential. Although it is difficult to measure directly the effects of diseases on decision making by foreign investors, the loss of foreign investors’ confidence would have potentially tremendous impacts on foreign investment flows, which would in turn have significant impacts on China’s economic growth. This effect is also transmitted to other countries competing with China for foreign direct investment (FDI).

Third, SARS undoubtedly increases the costs of disease prevention, especially in the most affected industries such as the travel and retail sales service industries. This cost may not be substantial, at least in global terms, as long as the disease is transmitted only by close human contact. However, the global cost could become enormous if the disease is found to be transmitted by other channels such as through international cargo.

Simulations Using the G-Cubed (Asia Pacific) Model

Given the important linkages among affected countries in the region through capital flows and the trade of goods and services, any analysis of the implications of SARS on the global economy needs to be undertaken with a model that adequately captures these interrelationships. The G-Cubed (Asia Pacific) model, based on the theoretical structure of the G-Cubed model outlined in McKibbin and Wilcoxen (1998), is ideal for such analysis, having both a detailed country coverage of the region and rich links between countries through goods and asset markets.3 A number of studies—summarized in McKibbin and Vines (2000)—

3  

Full details of the model, including a list of equations and parameters, can be found online at http://www.gcubed.com.

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
×

show that the G-Cubed model has been useful in assessing a range of issues across a number of countries since the mid-1980s.4 A summary of the principal characteristics of the G-Cubed model is presented as an annex at the end of this paper.

We make two alternative assumptions in generating a range of possible scenarios under this model. In an earlier analysis, we assumed in the first scenario that the shock lasted for a year. To capture the fact that the shock lasted 6 months, in reality we now scale down the shocks by 50 percent to capture the shorter duration. This is called a temporary shock. The second assumption is that the shocks are the same magnitude in the first year as the temporary shock, but are more persistent in that they fade out equiproportionately over a 10-year period. This illustrates the impact of expectations of the future evolution of the disease on the estimated costs in 2003. It also gives some insight into what might happen to the region if the SARS virus is considered the beginning of a series of annual epidemics emerging from China.

Initial Shock to China and Hong Kong

We first calculate the shocks to the economies of mainland China and Hong Kong (SAR), which were hit most heavily by the disease, and then work out some indexes summarizing how these shocks are likely to occur in other economies. There are three main shocks, based on observations of financial market analysts about the existing data emerging from China and Hong Kong:5

  • A 200 basis-point increase in country risk premium.6

  • A sector-specific demand shock to the retail sales sector, amounting to a 15 percent drop in demand for the exposed industries in the service sector.

  • An increase in costs in the exposed activities in the service sector of 5 percent.

These shocks are then scaled to last only 6 months rather than 1 year.

We could also consider several other shocks, such as the impact on health expenditures and fiscal deficits. It is not clear how large this shock should be for the persistent shock, nor even whether the schock should have a positive or negative sign. Because SARS kills a higher proportion of vulnerable people in a very short period, it may be that the large expenditure for these people will be reduced

4  

These issues include Reaganomics in the 1980s, German unification in the early 1990s, fiscal consolidation in Europe in the mid-1990s, the formation of NAFTA, the Asian crisis, and the productivity boom in the United States.

5  

These are also consistent with other papers on particular countries presented at the Asian Economic Panel in May 2003.

6  

In the May version of this paper we assumed a 300 basis-point shock. We follow the updated research of Australian Treasury (2003) in adjusting this shock to 200 basis points.

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
×

as a result of SARS. There might also be a reaction by medical authorities to substantially increase investments in public health. Given the current state of information, we would be forced to speculate concerning all of these potential effects on health expenditures. We therefore explicitly ignore such fiscal impacts of SARS in this version of the paper.

Shocks to Other Countries

The transmission of SARS, as distinct from the transmission of economic impacts through global markets, depends on a number of factors. We refer to this as the global exposure to SARS. The speed of spread is likely to depend on (i) tourist flows, (ii) geographical distance to China, (iii) health expenditures and sanitary conditions, (iv) government response, (v) climate, (vi) per capita income, (vii) population density, and so on. Table 2-1 presents indicators on health expenditures, tourist arrivals, and sanitary conditions for selected countries. There are more than 33 million annual visitors to mainland China. Hong Kong (SAR) has annual tourist arrivals that are more than 200 percent of the local population. Overall health expenditure as a ratio to GDP is not small in Asian countries, but health expenditure per capita is only $45 in China.

With more data we could do some econometric estimation to capture these influences. Lacking that data, for the purposes of this paper we construct a rough

TABLE 2-1 Health Expenditures, Tourist Arrivals, and Sanitation Indicators for Selected Countries

 

Health Expenditure Total (% of GDP)

Health Expenditure, per Capita (current US$)

Tourist Arrivals (million)

Tourist Arrivals Arrivals/Population (%)

Improved Sanitation Facilities (% of population

China

5.3

45

33.2

3

29

Hong Kong

4.4

950

13.7

203

100

India

4.9

23

2.5

0

16

Indonesia

2.7

19

5.2

2

47

North Korea

2.1

18

n.a.

n.a.

99

South Korea

6.0

584

5.1

14

63

Malaysia

2.5

101

12.8

53

n.a.

Philippines

3.4

33

1.8

4

74

Singapore

3.5

814

6.7

163

100

Thailand

3.7

71

10.1

16

79

Vietnam

5.2

21

1.4

2

29

United States

13.0

4,499

n.a.

n.a.

100

Japan

n.a.

n.a.

4.8

4

n.a.

High-income OECD

10.2

2,771

377.6

n.a.

n.a.

World

9.3

482

696.5

n.a.

55

 

SOURCE: CEIC, World Development Indicators. Recited from Hanna and Huang (2003).

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
×

measure of the intensity of exposures to SARS, based on the above information and the cumulative number of cases of SARS for each country. This index of “global exposure to SARS” is contained in Figure 2-1. This will be used to scale down the country risk shocks calculated for all other countries. For example, if a country has an index of 0.5, the country risk premium shock will be the Chinese shock of 2 percent adjusted by the “global exposure to SARS” index, which gives a shock of 1 percent.

For the shocks to the service industries, before applying the global exposure index to each country, we need to adjust the sector-specific shocks. Because we only have an aggregate service sector in the model, we need to take account for structural differences within the service sectors of each country. We do this by creating an “index of sectoral exposure to SARS.” This index is assumed to be proportional to the share of industries affected by SARS within the service sector. Industries such as tourism, retail trade, and airline travel have been impacted severely. We use the GTAP5 database to calculate the share of exposed sectors to total services for each country.7 We define the exposed sectors based on GTAP definitions as wholesale and retail trade (TRD, including hotels and restaurants), land transport (OTP), and air transport (ATP). The “index of sectoral exposure to SARS” is shown in Figure 2-2. This index is applied to the sector-specific shocks we developed for the Chinese economy. We then apply the “global exposure to SARS” to the resulting shocks.

The direct impact on any economy will be a function of a number of factors. An important aspect of the impact will be the size of the service sector in the economy as well as the relative indexes of exposure. Figure 2-3 shows the size of the service sector relative to total output in each economy in the model.

Simulation Results

We apply the shocks outlined in the previous section to the global economy. We begin the simulation in 2003, assuming in 2003 that the SARS outbreak was completely unanticipated. Both the temporary and persistent shocks are assumed to be understood by the forward-looking agents in the model. Clearly this is problematic when it comes to a new disease like SARS, when there is likely to be a period of learning about the nature of the shock. In this case, rational expectations might not be a good way to model expectations. Yet an alternative approach is not clear. In our defense, it is worth pointing out that only 30 percent of agents have rational expectations and 70 percent of agents are using a rule of thumb in adjusting to contemporaneous information about the economy. Table 2-2 contains results for the percentage change in GDP in 2003 as a result of the temporary and permanent

7  

For more information on this database, see the website of the Global Trade Analysis Project at http://www.gtap.agecon.purdue.edu/.

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
×

FIGURE 2-1 Global exposure to SARS.

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
×

FIGURE 2-2 Sectoral exposure to SARS: share of retail sale and travel industry in service sector.

FIGURE 2-3 Share of service sector in total output.

SARS shocks as well as the contribution of each component (i.e., demand decline for services, cost increase for services, and country risk premium).

The full dynamics of adjustment will be outlined shortly. Focusing on the GDP results, it is clear that there are interesting differences among the various components of the overall shock as well as between the temporary and permanent shocks. The temporary shock has its largest impact on China and Hong Kong

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
×

TABLE 2–2 Percentage Change in GDP in 2003 Due to SARS

 

Temporary Shock

Persistent Shock over 10 years

 

Total Effects

Demand Shift

Cost Rise

Country Risk

Total Effects

Demand Shift

Cost Rise

Country Risk

United States

–0.07

–0.01

–0.06

0.00

–0.07

–0.01

–0.06

0.00

Japan

–0.07

–0.01

–0.06

0.00

–0.06

–0.01

–0.06

0.01

Australia

–0.07

0.00

–0.06

0.00

–0.06

0.00

–0.06

0.01

New Zealand

–0.08

0.01

–0.08

0.00

–0.08

0.00

–0.08

0.00

Indonesia

–0.08

0.01

–0.09

0.00

–0.07

0.01

–0.08

0.00

Malaysia

–0.15

0.01

–0.16

0.00

–0.17

0.01

–0.15

–0.02

Philippines

–0.10

0.04

–0.14

0.00

–0.11

0.03

–0.13

–0.02

Singapore

–0.47

–0.02

–0.45

0.00

–0.51

–0.01

–0.44

–0.05

Thailand

–0.15

0.00

–0.15

0.00

–0.15

0.00

–0.15

0.00

China

–1.05

–0.37

–0.34

–0.33

–2.34

–0.53

–0.33

–1.48

India

–0.04

0.00

–0.04

0.00

–0.04

0.00

–0.04

0.00

Taiwan

–0.49

–0.07

–0.41

–0.01

–0.53

–0.07

–0.39

–0.07

Korea

–0.10

–0.02

–0.08

0.00

–0.08

–0.01

–0.08

0.00

Hong Kong

–2.63

–0.06

–2.37

–0.20

–3.21

–0.12

–2.37

–0.71

ROECD

–0.05

0.00

–0.05

0.00

–0.05

0.00

–0.05

0.00

Non-oil developing countries

–0.05

–0.01

–0.04

0.00

–0.05

0.00

–0.04

0.00

Eastern Europe and Russia

–0.06

–0.01

–0.05

0.00

–0.05

–0.01

–0.05

0.00

OPEC

–0.07

–0.01

–0.05

0.00

–0.09

–0.01

–0.06

–0.02

SOURCE: G–Cubed (Asia Pacific) Model version 50n.

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
×

(SAR), as expected. The loss to Hong Kong of 2.63 percent of GDP, however, is much larger than that of 1.05 percent for the remainder of mainland China. This primarily reflects the larger role of the service sector in Hong Kong, the larger share of impacted industries within the service sector in Hong Kong, and the greater reliance on trade within the Hong Kong region. Taiwan is the next most affected area, losing 0.49 percent of GDP in 2003, followed closely by Singapore, with a loss of 0.47 percent of GDP.

For Hong Kong, the increase in costs in the service sector is by far the largest contributing factor to the loss of GDP. In the rest of mainland China it is evenly spread across the three factors. The temporary increase in the country risk premium of 200 basis points is estimated to lower GDP by 0.33 percent for China and by 0.20 percent for Hong Kong. Interestingly, the risk premium shock has very negligible impacts, of less than 0.01 percent of GDP, on Taiwan and Singapore, which adopt floating exchange rate regimes, although they are also subject to a substantial rise in the country risk premium by 150 and 100 basis points, respectively. The difference comes from the fact that exchange rate depreciation helps Taiwan and Singapore to avoid a rise in real interest rate and subsequent output decline.

The calculations when expressed as a percent of each country’s GDP may appear to be small. However, when translated into an absolute dollar amount, these figures imply that the global economic loss from SARS was close to $US 40 billion in 2003. This is a figure much greater than any calculation of the medical costs of treating SARS patients.

The persistent SARS shock is also much more serious for China and Hong Kong. The primary impact is from the persistence in the rise of the country risk premium. Although the same in 2003 as for the temporary shock, the persistence of the country risk premium causes much larger capital outflow from China and Hong Kong. This impacts on short-run aggregate demand through a sharp contraction in investment, as well as a persistent loss in production capacity through a resulting decline in the growth of the capital stock, which reduces the desirability of investment. The extent of capital outflow will be discussed below.

Interestingly, the difference in GDP loss in 2003 when SARS is expected to be more persistent distinguishes between two regions. China, Hong Kong (SAR), Malaysia, the Philippines, Singapore, and Taiwan experience a larger loss in 2003, whereas the OECD economies and others experience a lower GDP loss. This reflects the greater capital outflow from the most affected countries into the least affected countries, which tends to lower the GDP of those countries losing capital and raise the GDP of those countries receiving capital. The countries in the first group that are less affected by SARS are nonetheless worse off with a more persistent disease because of their trade links with China, Hong Kong, and Singapore. The expectation of a more persistent problem with SARS leads to a total GDP loss of roughly $US 54 billion in 2003 alone (this ignores any future years’ losses).

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
×

The results for GDP illustrate how the costs of SARS can be very different in 2003, depending on expectations of how the disease will unfold. It is also interesting to examine the change in economic impacts over time.

We present two sets of figures containing six charts within each figure. These results are all expressed as deviation from the underlying baseline of the model projections (which is described in more detail in the annex at the end of this paper). They show how key variables change relative to what would have been the case without SARS. Figures 2-4 and 2-5 describe simulation outcomes for the temporary SARS shock in the three panels on the left and simulation outcomes for the more persistent SARS shock in the three panels on the right. This enables a comparison between the two for the impacts on the real economy and trade flows.

Figure 2-4 contains results for real GDP, investment, and exports for both the temporary and persistent SARS shock. The loss in GDP from the temporary shock is largely confined to 2003. The persistent shock not only has a larger impact on GDP in 2003—because of expectations about future developments—but has a persistent impact on real GDP for a number of years afterward. Investment falls more sharply in 2003, which is the source of the larger GDP loss.

The results for exports are also interesting. In the case of the temporary shock, exports from Hong Kong fall sharply. Yet, in the more persistent case, exports from Hong Kong rise in 2003. The reason for this difference is that the more persistent the shock, the larger the capital outflow from affected economies. A capital outflow will be reflected in a current account surplus and a trade balance surplus. For this to occur, either exports must rise or imports must fall or both. This can be seen clearly in Figure 2-5.

In the case of the temporary SARS shock, the net capital outflow from China and Hong Kong (relative to base) is around 0.3 percent of GDP. However, when the shock is more persistent, this capital outflow rises sharply (top right panel of Figure 2-5), to 1.4 percent of GDP for Hong Kong and 0.8 percent of GDP for China. This capital outflow is reflected in the trade balance surplus in both. This shift in the trade balance is achieved by the capital outflow depreciating the real exchange rate of both China and Hong Kong substantially.

All of these linkages have many dimensions, but a global model is able to help untangle some of the more important factors. Under this model, the SARS outbreak is predicted to have widespread economic impacts beyond the regions immediately infected with the disease and beyond the decline in the most affected service industries.

Conclusion

The impact of SARS is estimated to be large on the affected economies of China and Hong Kong (SAR). This impact is due not to the consequence of the disease itself for the affected people, but to the impact of the disease on the be-

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
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FIGURE 2-4 Real impacts of temporary versus persistent SARS shock.

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
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FIGURE 2-5 Trade and captial flow impacts of temporary versus persistent SARS shock.

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
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havior of many people within these economies. It also depends on the disease-associated adjustment of expectations reflected in integrated real and financial markets. The more persistent SARS is expected to be, the larger the negative economic impacts in 2003 in affected economies, but the smaller the impact in countries outside the core countries. The calculations above suggest that the cost in 2003 of SARS for the world economy as a whole are close to $US 40 billion in the case where SARS is expected to be a single event, versus costs of close to $US 54 billion in 2003 if SARS is expected to recur (this does not include the actual costs of later years if in fact SARS did recur). The higher costs from a persistent shock relate to the loss of investment and the impact on confidence and therefore spending in 2003.

These results illustrate that the true cost of disease is far greater than the cost to a health budget of treatment of the cases involved. The more persistent shock in this paper can be thought of as SARS lasting longer than anyone hopes, but it can also be interpreted as a recurring series of annual epidemics emerging from China and infecting the world through increased globalization. This is not a new phenomenon, since influenza viruses have been emanating from China since at least the 1918–1919 Spanish flu. Fortunately, most have been less devastating than the well-known major outbreaks. A key point of this paper is an attempt to evaluate the true underlying global cost of these diseases. If the threat of recurring SARS or SARS-like diseases from China is real, then the estimated risk to economic activity in this region and the world, as calculated in this paper, might be very large. The estimates in this paper suggest that there is a strong economic case for direct intervention in improving public health in China and other developing countries where there are inadequate expenditures on public health and insufficient investments in research into disease prevention.

As we observed from the Asian financial flu in 1997 and SARS in 2003, there is an important role for global monitoring and coordination mechanisms in containing both economic and microbial epidemics.

Annex 2-1—Characteristics of the G-Cubed (Asia Pacific) Model

Some of the principal features of the G-Cubed (Asia Pacific) model are as follows:

  • The model is based on explicit intertemporal optimization by the agents (consumers and firms) in each economy.8 In contrast to static computable general equilibrium (CGE) models, time and dynamics are of fundamental importance in the G-Cubed model.

  • In order to track the macro time series, however, the behavior of agents is modified to allow for short-run deviations from optimal behavior either due to

8  

See Blanchard and Fischer (1989) and Obstfeld and Rogoff (1996).

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
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myopia or to restrictions on the ability of households and firms to borrow at the risk-free bond rate on government debt. For both households and firms, deviations from intertemporal optimizing behavior take the form of rules of thumb, which are consistent with an optimizing agent that does not update predictions based on new information about future events. These rules of thumb are chosen to generate the same steady-state behavior as optimizing agents, so that in the long run there is only a single intertemporal optimizing equilibrium of the model. In the short run, actual behavior is assumed to be a weighted average of the optimizing and the rule-of-thumb assumptions. Thus aggregate consumption is a weighted average of consumption based on wealth (current asset valuation and expected future after-tax labor income) and consumption based on current disposable income. Similarly, aggregate investment is a weighted average of investment based on Tobin’s q (a market valuation of the expected future change in the marginal product of capital relative to the cost) and investment based on a backward-looking version of Q.

  • There is an explicit treatment of the holding of financial assets, including money. Money is introduced into the model through a restriction that households require money to purchase goods.

  • The model also allows for short-run nominal wage rigidity (by different degrees in different countries) and therefore allows for significant periods of unemployment depending on the labor market institutions in each country. This assumption, when taken together with the explicit role for money, is what gives the model its “macroeconomic” characteristics. (Here again, the model’s assumptions differ from the standard market-clearing assumption in most CGE models.)

  • The model distinguishes between the stickiness of physical capital within sectors and within countries and the flexibility of financial capital, which immediately flows to where expected returns are highest. This important distinction leads to a critical difference between the quantity of physical capital that is available at any time to produce goods and services, and the valuation of that capital as a result of decisions about the allocation of financial capital.

As a result of this structure, the G-Cubed model contains rich dynamic behavior, driven on the one hand by asset accumulation, and on the other by wage adjustment to a neoclassical steady state. It embodies a wide range of assumptions about individual behavior and empirical regularities in a general equilibrium framework. The interdependencies are solved out using a computer algorithm that solves for the rational expectations equilibrium of the global economy. It is important to stress that the term “general equilibrium” is used to signify that as many interactions as possible are captured, not that all economies are in a full market-clearing equilibrium at each point in time. Although it is assumed that market forces eventually drive the world economy to a neoclassical steady state

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
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growth equilibrium, unemployment does emerge for long periods due to wage stickiness, to an extent that differs between countries on account of differences in labor market institutions.

Baseline Business-as-Usual Projections for G-Cubed Model Simulations

To solve the model, we first normalize all quantity variables by each economy’s endowment of effective labor units. This means that in the steady state, all real variables are constant in these units, although the actual levels of the variables will be growing at the underlying rate of growth of population plus productivity. Next, we must make base-case assumptions about the future path of the model’s exogenous variables in each region. In all regions we assume that the long-run real interest rate is 5 percent, tax rates are held at their 1999 levels, and fiscal spending is allocated according to 1999 shares. Population growth rates vary across regions as per the 2000 World Bank population projections.

A crucial group of exogenous variables are productivity growth rates by sector and country. The baseline assumption in G-Cubed (Asia Pacific) is that the pattern of technical change at the sector level is similar to the historical record for the United States (where data are available). In regions other than the United States, however, the sector-level rates of technical change are scaled up or down in order to match the region’s observed average rate of aggregate productivity growth over the past 5 years. This approach attempts to capture the fact that the rate of technical change varies considerably across industries while reconciling it with regional differences in overall growth. This is clearly a rough approximation; if appropriate data were available, it would be better to estimate productivity growth for each sector in each region.

Given these assumptions, we solve for the model’s perfect-foresight equilibrium growth path over the period 2002–2081. This a formidable task: the endogenous variables in each of the 80 periods number over 7,000 and include, among other things: the equilibrium prices and quantities of each good in each region, intermediate demands for each commodity by each industry in each region, asset prices by region and sector, regional interest rates, bilateral exchange rates, incomes, investment rates and capital stocks by industry and region, international flows of goods and assets, labor demanded in each industry in each region, wage rates, current and capital account balances, final demands by consumers in all regions, and government deficits.9 At the solution, the budget constraints for all agents are satisfied, including both intra-temporal and intertemporal constraints.

9  

Because the model is solved for a perfect-foresight equilibrium over an 80-year period, the numerical complexity of the problem is on the order of 80 times what the single-period set of variables would suggest. We use software summarized in McKibbin and Sachs (1991), Appendix C, for solving large models with rational expectations on a personal computer.

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
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SARS: POLITICAL PATHOLOGY OF THE FIRST POST-WESTPHALIAN PATHOGEN10

David P. Fidler

Professor of Law and Ira C. Batman Faculty Fellow Indiana University School of Law—Bloomington

The World Health Organization (WHO) has asserted that severe acute respiratory syndrome (SARS) was “the first severe infectious disease to emerge in the twenty-first century” and posed “a serious threat to global health security, the livelihood of populations, the functioning of health systems, and the stability and growth of economies” (WHO, 2003a). This paper argues that SARS was also the first post-Westphalian pathogen, and it constructs a political pathology of the outbreak to advance this claim.

In some respects, the SARS outbreak was nothing new. The great cliché of international infectious disease control—germs do not recognize borders—applies to SARS as it applied to earlier outbreaks. SARS joins a long list of infectious diseases that have not recognized borders. For my purposes, what makes SARS interesting is not its germ (SCoV); rather, SARS is important because of the political context in which the germ did not recognize borders. Put another way, I am interested in the borders SARS did not recognize. SARS is the first post-Westphalian pathogen because its nonrecognition of borders transpired in a public health governance environment radically different from what previous border-hopping bugs encountered.

Westphalian and Post-Westphalian Public Health

Of Germs and Borders

Principles for public health governance between countries traditionally derived from the structure for international relations known as the “Westphalian system”: a system composed of principles guided by national sovereignty and nonintervention (Harding and Lim, 1999). “Westphalian public health” refers to public health governance structured by Westphalian principles. “Post-Westphalian public health” describes public health governance that departs from the Westphalian template and responds to increasing forces of globalization that include the interests of both multinational corporations and multilateral organizations. SARS is the first post-Westphalian pathogen because it highlights public health’s transition from a Westphalian to a post-Westphalian governance context.

10  

This document summarizes Fidler DP. 2003. SARS: Political pathology of the first post-Westphalian pathogen, Journal of Law, Medicine & Ethics. This article served as the basis for Fidler DP. 2004. SARS, Governance, and the Globalization of Disease, London: Palgrave Macmillan.

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
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The concepts that characterize post-Westphalian public health began to appear before SARS, but SARS still represents the first post-Westphalian pathogen for two reasons. First, the SARS outbreak was the first epidemic since HIV/AIDS to pose a truly global threat. Other new and not previously recognized microbes that emerged in the past 20 years had more limited capacity to threaten international public health because of inefficient human-to-human transmission or dependence on food or insects as vectors or on specific geographical conditions (WHO, 2003b). SARS posed a greater threat because of its more efficient person-to-person transmission and its fatality rate—comparable to some of history’s greatest infectious disease foes, smallpox and influenza.

Second, because of the nature of the SARS threat, the epidemic seriously challenged the emerging post-Westphalian governance system. SARS was a global public health emergency (WHO, 2003c), and the sternest measure of governance systems is their performance in times of crisis. The SARS outbreak provided the first opportunity to evaluate how the new governance approach for infectious diseases would fare under serious microbial attack on a global basis.

Westphalian Public Health

The Westphalian system is a system dominated by states (Scholte, 2001). The key principle of the Westphalian structure is sovereignty (Brownlie, 1998; Scholte, 2001). The sovereignty principle spins off corollary principles: (i) the principle of nonintervention (Jackson, 2001); and (ii) rules governing interactions among states arose from the states themselves and were not binding unless states consented to be bound (i.e., international law) (Brownlie, 1998; The SS Lotus, 1927). The combination of sovereignty, nonintervention, and consent-based international law meant that Westphalian governance was horizontal in nature, so that governance (i) involved only states; (ii) primarily addressed the mechanics of state interaction; and (iii) did not penetrate sovereignty to address how a government treated its people or ruled over its territory. The Westphalian system exhibited another characteristic—the great powers dominated Westphalian politics (Bull, 1977).

Infectious disease control became a diplomatic issue in the mid-19th century (Fidler, 1999). The regime that developed for international infectious disease control bore the imprint of all the characteristics of the Westphalian system. The International Health Regulations (IHR) (WHO, 1983), promulgated by WHO, illustrate the essence of Westphalian public health. The regulations are the only set of international legal rules binding on WHO members concerning infectious diseases (WHO, 2002), and they are are classically Westphalian in structure and content.

The IHR’s objective is to ensure maximum security against the international spread of disease with minimal interference with world traffic (WHO, 1983). The regulations seek to achieve maximum security against the international spread of

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
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disease by requiring governments to (i) notify WHO of outbreaks of diseases subject to the Regulations; and (ii) maintain certain public health capabilities at ports and airports (WHO, 1983). The regulations seek to achieve minimum interference with world traffic by regulating the trade and travel restrictions WHO members can impose against countries suffering outbreaks of diseases subject to the Regulations (WHO, 1983).

In keeping with Westphalian principles, the regulations are consent-based rules of international law binding on states. The IHR’s disease notification rules mandate that only information from governments can be used in surveillance (WHO, 1983). The regulations respect the principle of nonintervention by addressing only aspects of infectious diseases that relate to the intercourse among states. They do not address aspects of public health that touch on how a government prevents and controls infectious diseases within its sovereign territory. The IHR’s limited governance scope is also clear from the small number of diseases subject to IHR rules—currently only cholera, plague, and yellow fever (WHO, 1983).

As a regime on international infectious disease control, the IHR proved to be a failure. WHO members routinely violated the IHR (e.g., not reporting disease outbreaks and applying excessive trade- and travel-restricting measures to other countries suffering disease outbreaks) (Fidler, 1999), and the IHR was irrelevant as a matter of international law to the emergence of the worst infectious disease epidemic in the 20th century, HIV/AIDS, because HIV/AIDS was not a disease subject to the IHR (Fidler, 1999).

The IHR’s failure combined with other developments in international health policy to suggest that Westphalian public health governance was fundamentally bankrupt. After its creation, WHO began to concentrate less on horizontal public health strategies (such as those in the IHR) in order to focus more on vertical public health strategies that addressed infectious diseases at their sources inside states (e.g., disease eradication campaigns) (Arhin-Tenkorang and Conceico, 2003). Another way to sense this change in policy is to compare the IHR’s horizontal approach and WHO’s Health for All strategy announced at the end of the 1970s, which stressed universal access to primary health care (WHO, 1978). Or, compare the IHR’s state-centric focus and lack of rules regulating domestic public health systems with the emphasis on the right to health proclaimed in the WHO Constitution (WHO, 1994) and implemented through the Health for All strategy.

Post-Westphalian Public Health

The considerable challenges presented by emerging and re-emerging infectious diseases in the 1990s and early 2000s stimulated thinking on strategies different from the IHR’s Westphalian approach. Two key post-Westphalian concepts were “global health governance” (a new kind of political process) (Dodgson

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
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et al., 2002) and “global public goods for health” (a new kind of substantive policy goal) (Smith et al., 2003). Global health governance (GHG) includes nonstate actors in the governance process. One of the best examples can be found in the Global Fund to Fight AIDS, Tuberculosis, and Malaria (Global Fund, 2003). Its board of directors includes nongovernmental organization representatives as voting members.

Global public goods for health (GPGH) are goods or services, the consumption of which is nonexcludable and nonrival across national boundaries and involving countries and peoples that are in different regional groupings (e.g., North America and sub-Saharan Africa) (Smith et al., 2003). Under the GPGH concept, public health governance should not serve the interests of the great powers, but should produce globally accessible health goods and services. The explosion of so-called public–private partnerships in global public health provide the best illustration of attempts to produce GPGH (e.g., ventures to develop new antimicrobial drugs for malaria and tuberculosis) (Reich, 2002).

The post-Westphalian strategies of GHG and GPGH can be seen in WHO’s attempts to revise the IHR in the latter half of the 1990s and early 2000s. WHO proposed changes to the IHR that would create GHG and produce GPGH and that were, from the perspective of the Westphalian approach, radical. Two critical proposed changes sought to improve global infectious disease surveillance: (i) moving away from disease-specific reporting to notifications of “public health emergencies of international concern”; and (ii) allowing WHO to incorporate nongovernmental sources of information into its surveillance activities (WHO, 2002). Revising the IHR in these ways would: (i) produce GHG by including nonstate actors in the process of global infectious disease surveillance; and (ii) produce the GPGH of better infectious disease surveillance information for use by states and nonstate actors.

The development of GHG and GPGH strategies indicate that post-Westphalian public health governance had started to form in the late 1990s and early 2000s, before SARS emerged. But, prior to SARS, the post-Westphalian strategies, particularly in the context of the Global Fund and HIV/AIDS, were showing signs of severe stress, generating skepticism about the new governance approaches. The IHR revision process was not progressing well and was obscure and ignored in much of the ferment happening in global public health circles in the latter half of the 1990s and early 2000s (Fidler, 2003). If post-Westphalian public health could not handle the strain that existing diseases created, what would happen when the next infectious disease crisis broke in the world?

China, SARS, and Post-Westphalian Public Health

SARS proved to be the next crisis. Instead of failure, the global campaign against SARS achieved a victory that will go down in the annals of public health and international relations history. In SARS, the world confronted a virus never

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
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before found in humans that was transmitted from person to person, that had a relatively high fatality rate, and against which public health practitioners had neither adequate diagnostic technologies nor effective treatments or vaccines. The last time the world confronted a virus with this disturbing profile was when HIV emerged in the early 1980s, and HIV triggered one of the worst disease epidemics in human history that is still raging globally. SARS was a crisis of the first order for global public health. Yet, unlike with HIV/AIDS, victory was achieved. How?

China Confronts Public Health’s “New World Order”

We answer this question by focusing on what happened with China’s response to the SARS outbreak. China was the epicenter of the SARS outbreak; thus, it was the governance epicenter. What happened to China during its response to SARS illustrated the power of the GHG and GPGH strategies of post-Westphalian public health. China’s initial responses to SARS followed the Westphalian template because China was under no international legal obligation to report SARS cases to any state or international organization, nor did it have an express duty to cooperate with WHO on the outbreak. China made the mistake, however, of acting Westphalian in a post-Westphalian world. In its confrontation with public health’s “new world order,” China miscalculated and lost.

GHG mechanisms—especially WHO’s access to nongovernmental sources of information for surveillance purposes—trumped Chinese attempts to exercise its sovereignty through control of epidemiological information about SARS. China’s initial handling of SARS demonstrated that it had not grasped the new context for public health governance—epidemiological information about disease does not recognize borders. At the outset of the SARS epidemic, China played the sovereignty card, only to retreat when its sovereignty was seen as a deliberate attempt to hide an outbreak—one that was already indicating serious consequences for the rest of the world.

The need for producing GPGH for the SARS battle—especially accurate surveillance data on the outbreak in China—swept aside China’s narrow construction of its national interest vis-à-vis the outbreak. China behaved as if its national interest in preserving flows of trade and investment into China and the image of the Communist Party could simply ignore the legitimate concerns of other states and nonstate actors, such as multinational corporations. China’s conception of its national interest broke apart in the post-Westphalian public health atmosphere of SARS.

In the SARS outbreak, the world did not witness China enjoying the Westphalian privileges normally accorded powerful countries, but rather saw post-Westphalian public health governance humble a rising great power in the international system for disease control.

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
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Beyond China: SARS and Post-Westphalian Public Health

The SARS outbreak contains other interesting features that support the emergence of post-Westphalian public health governance. The most amazing involved WHO’s issuance of geographically specific travel advisories that recommended that people not travel to locations experiencing local chains of SARS transmission (e.g., Guangdong Province, Beijing, Toronto). These travel advisories were revolutionary developments in international policy on infectious diseases because, in issuing the alerts, WHO exercised independent power over its member states without express authority in international law to do so. The approval by WHO member states at the May 2003 World Health Assembly meeting of these radical acts (WHO, 2003a,d) confirms the existence of an entirely new governance context for infectious disease control.

Other aspects of the outbreak’s handling also illustrated the power and promise of GPGH, including the unprecedented nature of the global collaborative efforts to create, analyze, and disseminate information on (1) the SARS virus; (2) clinical management of SARS cases; and (3) public health strategies for breaking the chain of transmission. The SARS outbreak was also post-Westphalian in how it elevated public health as a matter of national political priority in many countries (National Intelligence Council, 2003) and reinforced the linkage between infectious disease control and international human rights through the widespread use of quarantine and isolation (McNeil, 2003).

SARS and the Vulnerabilities of Post-Westphalian Public Health

The political pathology of SARS also reveals vulnerabilities that post-Westphalian public health governance faces in light of the SARS outbreak. SARS was a victory for post-Westphalian public health, but serious problems continue to exist, including the presence of public health infrastructures in China and many other countries that remain inadequately prepared for severe infectious disease threats. Repeated warnings that SARS may return in the winter months of 2003–2004 stress the necessity of sustaining the kind of national and international commitment witnessed during the SARS outbreak, but whether sufficient political, financial, and public health commitment will be forthcoming remains unclear.

Conclusion

The political pathology of SARS constructed in the paper suggests that governance innovations used to move public health into a post-Westphalian context contributed to the successful global response to a severe infectious disease threat. The global containment of SARS represents a historic triumph that will enter the annals of history as one of the most significant achievements in global infectious disease control since the eradication of smallpox.

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
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Commenting on SARS, WHO’s executive director for communicable diseases, Dr. David Heymann, argued that “[i]n the 21st century there is a new way of working”(Heymann, 2003). Against the global health emergency of SARS, the “new way of working” proved effective, which constitutes a victory for the emerging framework of post-Westphalian public health.

Although victory should be savored, everyone should remember that germs do not recognize victories or defeats. The challenge for post-Westphalian public health is to create the conditions necessary for the governance innovations successfully deployed in the SARS outbreak to be refined, improved, expanded, and sustained to meet the ongoing threat that pathogenic microbes present. The germs will keep coming. The great task for the global community that answered the initial challenge from SARS is to ensure that the “new way of working” continues to work far into the 21st century.

THE SARS EPIDEMIC AND ITS AFTERMATH IN CHINA: A POLITICAL PERSPECTIVE

Yanzhong Huang*

John C. Whitehead School of Diplomacy and International Relations, Seton Hall University

In November 2002, a form of atypical pneumonia called severe acute respiratory syndrome (SARS) began spreading rapidly around the world, prompting the World Health Organization (WHO) to declare the ailment “a worldwide health threat.” At the epicenter of the outbreak was China, where the outbreak of SARS infected more than 5,300 people and killed 349 nationwide (Ministry of Health, 2003). History is full of ironies: the epidemic caught China, at first, unprepared to defeat the disease 45 years after Mao Zedong bade “Farewell to the God of Plagues.”

The SARS epidemic was not simply a public health problem. Indeed, it caused the most severe socio-political crisis for the Chinese leadership since the 1989 Tiananmen crackdown. Outbreak of the disease fueled fears among economists that China’s economy was headed for a serious downturn. A fatal period of hesitation regarding information-sharing and action spawned anxiety, panic, and rumor-mongering across the country and undermined the government’s efforts to create a milder image of itself in the international arena. As Premier Wen Jiabao pointed out in a cabinet meeting on the epidemic, “the health and security of the people, overall state of reform, development, and stability, and China’s national

*  

This paper is adapted from The Politics of China’s SARS Crisis. Harvard Asia Quarterly (Autumn 2003). An earlier version of the article appeared in “Dangerous Secrets: SARS and China’s Healthcare System,” Roundtable before the Congressional-Executive Commission on China, May 12, 2003, www.cecc.gov.

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
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interest and international image are at stake (Zhongguo xinwen wang, 2003a).” In the weeks that followed, the Chinese government launched a crusade against SARS, effectively bringing the disease under control in late June and eliminating all known cases by mid-August.

While clearly a test for the public health infrastructure of China, the course of the epidemic also raised crucial questions about the capacity and dynamics of the Chinese political structure and its ability to address future outbreaks. What accounted for the initial government decisions to withhold information from the public and take little action against the disease, and then the subsequent dramatic shift in government policy toward SARS? Why was the government able to contain the spread of SARS in a relatively short period? What lessons has the government drawn from the crisis? A political analysis of the crisis not only demonstrates crucial linkages between China’s political system and its pattern of crisis management but also sheds light on the government’s ability to handle the next disease outbreak. While problems in the formal institutional structure and bureaucratic capacity accounted for the initial official denial and inaction, the institutional forces unleashed from the terrain of state-society relations led to dramatic changes in the form and content of government policy toward SARS. Through mass mobilization, the government successfully brought the disease under control. While these developments are encouraging, China’s capacity to effectively prevent and contain future infectious disease outbreaks remains uncertain. Prevention and control programs are still troubled by problems in agenda-setting, policy making, and implementation which, in turn, can be attributed to its political system. A healthier China therefore demands some fundamental changes in the political system.

The Making of a Crisis

With hindsight, China’s health system seemed initially to respond relatively well to the emergence of the illness. The earliest case of SARS is thought to have occurred in Foshan, a city southwest of Guangzhou in Guangdong province, in mid-November 2002. It was later also found in Heyuan and Zhongshan in Guangdong. This “strange disease” alerted Chinese health personnel as early as mid-December. On January 2, a team of health experts was sent to Heyuan and diagnosed the disease as an infection caused by a certain virus (Hai and Hua, 2003). A Chinese physician, who was in charge of treating a patient from Heyuan in a hospital in Guangzhou, quickly reported the disease to a local anti-epidemic station (Renmin ribao, 2003a). We have reason to believe that the local anti-epidemic station alerted the provincial health bureau about the disease, with the bureau in turn reporting to the provincial government and the Ministry of Health shortly afterwards, since the first team of experts sent by the Ministry arrived at Guangzhou on January 20, and the new provincial government (who took over on January 20) ordered an investigation of the disease almost at the same time

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
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(Renmin wang, 2003a). A combined team of health experts from the Ministry and the province was dispatched to Zhongshan and completed an investigation report on the unknown disease. On January 27, the report was sent to the provincial health bureau and, presumably, to the Ministry of Health in Beijing. The report was marked “top secret,” which meant that only top provincial health officials could open it.

Further government reaction to the emerging disease, however, was delayed by the problems of information flow within the Chinese hierarchy. For 3 days, there were no authorized provincial health officials available to open the document. After the document was finally read, the provincial bureau distributed a bulletin to hospitals across the province. However, few health workers were alerted by the bulletin because most were on vacation for the Chinese New Year (Pomfret, 2003a). In the meantime, the public was kept uninformed about the disease. According to the Implementing Regulations on the State Secrets Law regarding the handling of public health–related information, any occurrence of infectious diseases should be classified as a state secret before they are “announced by the Ministry of Health or organs authorized by the Ministry.” In other words, until such time as the Ministry chose to make information about the disease public, any physician or journalist who reported on the disease would risk being persecuted for leaking state secrets (Li et al., 1999). A virtual news blackout about SARS thus continued well into February.

The initial failure to inform the public heightened anxieties, fear, and widespread speculation. On February 8, reports about a “deadly flu” began to be sent via short messages on mobile phones in Guangzhou. In the evening, words like bird flu and anthrax started to appear on some local Internet sites (South China Morning Post, 2003). On February 10, a circular appeared in the local media that acknowledged the presence of the disease and listed some preventive measures, including improving ventilation, using vinegar fumes to disinfect the air, and washing hands frequently. Responding to the advice, residents in Guangzhou and other cities cleared pharmacy shelves of antibiotics and flu medication. In some cities, even the vinegar was sold out. The panic spread quickly in Guangdong, and was felt even in other provinces.

On February 11, Guangdong health officials finally broke the silence by holding press conferences about the disease. The provincial health officials reported a total of 305 atypical pneumonia cases in the province. The officials also admitted that there were no effective drugs to treat the disease and that the outbreak was only tentatively contained (Nanfang zhoumu, 2003). From then on, information about the disease was reported to the public through the news media. Yet in the meantime, the government played down the risk of the illness. Guangzhou city government on February 11 went so far as to announce the illness was “comprehensively” under effective control (Renmin wang, 2003b). As a result, while the panic was temporarily allayed, the public also lost vigilance about the disease. When some reports began to question the government’s handling of the outbreak,

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
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the provincial propaganda bureau again halted reporting on the disease on February 23. This news blackout continued during the run-up to the National People’s Congress in March, and government authorities shared little information with the World Health Organization until early April.

The continuing news blackout not only restricted the flow of information to the public but contributed to the government’s failure to take further actions to address the looming catastrophe. Here it is worth noting that the Law on Prevention and Treatment of Infectious Diseases (enacted in September 1989) contains a number of significant loopholes. First, provincial governments are obliged to publicize epidemics in a timely and accurate manner only after being authorized by the Ministry of Health (Article 23). Second, atypical pneumonia was not listed in the law as an infectious disease under surveillance, and thus local government officials legally were not accountable for reporting the disease. While the law allows for the addition of new items to the list, it does not specify the procedures through which new diseases can be added. Both of these factors provided disincentives for the government to effectively respond to the crisis. In fact, the Chinese Center for Disease Control and Prevention did not issue a nationwide bulletin to hospitals on how to prevent the ailment from spreading until April 3, and it was not until mid-April that the government formally listed SARS as a disease to be closely monitored and reported on a daily basis under the Law of Prevention and Treatment of Infectious Diseases.

Evidence also indicates that the provincial government, in deciding whether to publicize the event, considered not only the public health implications of the outbreak, but also the effect such information might have on local economic development (Garrett, 2003; Pomfret, 2003a). In part, this correlates with a significant shift in China’s national agenda, which makes economic growth the key to solving the nation’s problems and makes social stability the prerequisite to development (Development, 2000). In the words of the late paramount leader Deng Xiaoping, “the overwhelmingly important issue for China is stability, without which nothing can be achieved (Renmin Rabao, 2001).” Such concerns were only complicated by the fact that during some of the most crucial period of the disease outbreak, party elites were busy preparing for the National People’s Congress (NPC) in March, which would mark the beginning of a new government (following the selection of new leaders to the Politburo Standing Committee in November). To publicly acknowledge the outbreak at this critical juncture might have risked not only causing socioeconomic instability but sullying the party’s image among the people.

In fairness here, it should be noted that officials in any nation or region of the world would likely face a similar dilemma in attempting to consider its obligations to protect the public’s health while at the same time considering how to maintain equally important aspects of social stability and economic development. In addition, the media blackout and the government’s slow response were not the sole factors leading to the crisis. With little knowledge about the true cause of the

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
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disease and its rate and modes of transmission, the top-secret document submitted to the provincial health bureau did not even mention that the disease showed signs of being considerably contagious. Neither did it call for rigorous preventive measures, which may explain why by the end of February, nearly half of Guangzhou’s 900 cases were health care workers (Pomfret, 2003a). Indeed, even countries like Canada were having difficulty controlling SARS. In this sense, SARS is a natural disaster, not a humanmade one.

Nevertheless, there is no doubt that government inaction paralleled by the absence of an effective response to the initial outbreak resulted in a crisis. To begin with, the security designation for the top-secret document meant that Guangdong health authorities could not discuss the situation with other provincial health departments in China. Consequently, hospitals and medical personnel in most localities were completely unprepared for the outbreak. When the first SARS case in northern China was admitted to the PLA 301 Hospital in Beijing on March 2, doctors in charge of the treatment had little information about the disease (Zhongguo qingnian bao, 2003). Even as the traffic through emergency rooms began to escalate, major hospitals in Beijing took few measures to reduce the chances of cross-infection. Likewise, Inner Mongolia’s first SARS patient, who sought treatment in the Hohhot Hospital around March 20, was not correctly diagnosed until early April (Kahn and Rosenthal, 2003). The security designation of the Guangdong report also prevented health authorities in neighboring Hong Kong from receiving information about the disease, and consequently they were denied the knowledge they needed to prepare (Pomfret, 2003a). Soon after, the illness developed into an epidemic in Hong Kong, which proved to be a major international transit route for SARS.

Beyond Guangdong: The Ministry of Health and Beijing

The Ministry of Health learned about SARS in January and informed WHO and provincial health bureaus about the outbreak in Guangdong around February 7, and yet no further action was taken. It is safe to assume that Zhang Wenkang, the health minister, brought the disease to the attention of Wang Zhongyu (secretary general of the State Council) and Li Lanqing (the vice premier in charge of public health and education). We do not know what happened during this period of time, but it is likely that the leaders were so preoccupied preparing for the National People’s Congress that no explicit directive was issued from the top until April 2. By March 1, the epidemic was raging in Beijing. For fear of disturbance during the NPC meeting, however, city authorities kept information about its scope not only from the public but also from the Party Center. According to Dr. Jiang Yanyong, medical staff in Beijing’s military hospitals were briefed about the dangers of SARS in early March, but were told not to publicize what they had learned lest it interfere with the NPC meeting (Jakes, 2003). Similar communication obstacles hampered cooperation between China and the World

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
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Health Organization. WHO experts were invited to China by the Ministry of Health but were not allowed to have access to Guangdong until April 2, 8 days after their arrival. It was not until April 9 that they were allowed to inspect military hospitals in Beijing.

Such obstructions to information flow and the lack of interdepartmental cooperation during the crisis provide a reference point for the “fragmented authoritarianism” model of the Chinese political system, which posits that authority below the very peak of the Chinese system is fragmented and disjointed, leading to a bogged-down policy process which is characterized by extensive bargaining (Lampton, 1987; Lieberthal and Lampton, 1992). While this model offers only a static description of how the core state apparatus works (Oksenberg, 2001), it correctly points out the coordination problems in China’s policy process. Medical personnel in the city of Guangzhou blamed poor communication between the province’s health bureau and the city’s health authorities for the failure to control the spread of the disease (Pomfret, 2003a). In addition to the tensions among different levels of health authorities, coordination problems existed between functional departments and territorial governments, as well as between civilian and military institutions. As one senior health official admitted, before anything could be done, the Ministry of Health had to negotiate with other ministries and government departments (Pomfret, 2003b). In the public health domain, territorial governments like Beijing and Guangdong maintain primary leadership over the provincial health bureau, with the former determining the size, personnel, and funding of the latter. This constitutes a major problem for the Ministry of Health, which is bureaucratically weak, not to mention that its minister is just an ordinary member of the Chinese Communist Party (CCP) Central Committee and not represented in the powerful Politburo. A major policy initiative from the Ministry of Health, even issued in the form of a central document, is mainly a guidance document (zhidao xin wenjian) that has less binding power than one that is issued by territorial governments. Whether it will be honored hinges on the “acquiescence” (liangjie) of the territorial governments. This helps explain the continuous lack of effective response by Beijing city authorities until April 17 (when an anti-SARS joint team was established).

At one level, Beijing’s municipal government apparently believed that it could handle the situation by itself and thus refused assistance from the Ministry of Health. At another, the Ministry did not have control over all available health facilities. Of Beijing’s 175 hospitals, 16 are under the control of the army, which maintains a relatively independent health system. Having admitted a large number of SARS patients, military hospitals in Beijing withheld SARS statistics from the Ministry until mid-April. Organizational barriers also delayed the process of correctly identifying the cause of the disease. According to government regulations, only the Chinese CDC is the legal holder of virus samples. As a result, researchers affiliated with other government organizations had been to Guangdong many times in search of virus samples and returned empty handed

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
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(Chinese Scientists, 2003). In addition, even the Chinese CDC in Beijing had to negotiate with local disease-control centers to obtain the samples (Garrett, 2003). After an examination of just two available samples, its chief virologist rushed to announce chlamydia as the etiological agent of SARS on February 18 (Huailing, 2003).

The presence of such a fragmented and disjointed bureaucracy within an authoritarian political structure means that policy immobility can only be overcome with the intervention of an upper-level government that has the authority to aggregate conflicting interests. However, this tends to encourage lower-level governments to shift their policy overload to the upper levels in order to avoid assuming responsibilities. As a consequence, a large number of agenda items compete for the upper level government’s attention. In addition, the drive toward economic growth in the post-Mao era has marginalized public health issues (Ruan, 1992). Compared to economic issues, a public health problem often needs an attention-focusing event (e.g., a large-scale outbreak of a contagious disease) to be finally recognized, defined, and formally addressed (Kingdon, 1995). Not surprisingly, SARS did not raise the eyebrows of top decision makers until it had developed into a nationwide epidemic.

By early April, it was evident that SARS was being taken very seriously at the top level. Yet the government’s ability to formulate a sound policy against SARS was hampered as lower-level government officials intercepted and distorted the upward information flow. For fear that any mishap reported in their jurisdiction might be used as an excuse to pass them over for promotion, government officials at all levels tended to distort the information they pass up to their political masters in order to place themselves in a good light. While this is not unique to China, the problem is alleviated in democracies through “decentralized oversight,” which enables citizen interest groups to check up on administrative actions. Because the general public in China is not enfranchised to oversee the activities of government agencies, however, lower-level officials can fool higher authorities more easily than their counterparts in liberal democracies (Shirk, 1993). This exacerbates the information asymmetry problems inherent in a hierarchical structure. Beijing municipal authorities, for example, kept hiding the actual SARS situation in the city from the Party Center until April. Initial deception by lower-level officials in turn led the central leaders to misjudge the situation. On April 2, Premier Wen Jiabao chaired an executive meeting of the State Council to discuss SARS prevention and control. Based on the briefing given by the Ministry of Health, the meeting declared that SARS had “already been brought under effective control.”

The growing dispersal of political power at the highest level in the post-Mao era further reduced the autonomy of the top leaders in responding to the crisis in a timely manner. Instead of having a personalized leadership unconstrained by laws and procedures, the post-Mao regime features collective leadership, with the Party general secretary acting as the first among equals. Political power at the

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
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national level has been further diluted since the 16th Party Congress, which expanded the membership of the Politburo Standing Committee and allowed former president Jiang Zemin (who is not a member of the CCP Central Committee) to retain the position of Chairman of the Central Military Commission. Because China’s decision making emphasizes consensus, the involvement of more actors with equal status in decision making only increases the time and effort needed for policy coordination and compromise.

The Government Crusade Against SARS

As the virus continued to spread, China’s political leadership came under growing domestic and international pressures (Pomfret, 2003d). Despite the prohibition against public discussion of the epidemic, 40.9 percent of the urban residents had already heard about the disease through unofficial means (Haiyan, 2003). As mentioned above, news of the disease reached residents in Guangzhou through mobile-phone text messages in early February, forcing the provincial government to hold a news conference admitting to the outbreak. Starting on February 11, the Western news media began to aggressively report on SARS in China and the government’s cover-up of the outbreak. On March 15, the WHO issued its first global warning about SARS. While China’s government-controlled media was prohibited from reporting on the warning, the news circulated via mobile phones, e-mail, and the Internet. On March 25, 3 days after the arrival of a team of WHO experts, the government for the first time acknowledged the spread of SARS outside of Guangdong. The State Council held its first meeting to discuss the SARS problem 2 days after the Wall Street Journal published an editorial calling for other countries to suspend all travel links with China until it implemented a transparent public health campaign. The same day, the WHO issued the first travel advisory in its 55-year history advising people not to visit Hong Kong and Guangdong, prompting Beijing to hold a news conference in which the health minister promised that China was safe and SARS was under control. Enraged by the minister’s false account, Dr. Jiang Yanyong, a retired surgeon at Beijing’s 301 military hospital, sent an e-mail to two TV stations, accusing the minister of lying. While neither station followed up on the e-mail, Time magazine picked up the story and posted it on its website on April 9, which triggered a political earthquake in Beijing.

The aforementioned events are revealing examples of how evolving state-society relations can significantly influence the trajectory of public policy development in post-Mao China. Economic reform and globalization provide more Chinese with the information, connections, resources and incentives to act on their own for their personal security and personal fulfillment. In the words of Thomas Friedman, these empowered, even superpowered individuals become more demanding of the government and will get angry when their leaders fail to meet their aspirations (Friedman, 2000). The torrent of messages sent through

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
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cell phones or the Internet and Dr. Jiang Yanyong’s exposure of the cover-up thus challenged the state’s monopoly on information. Furthermore, while party leaders are not formally accountable to their people, they may have to take into account mass reactions of the population when they make policies, or otherwise risk a lack of cooperation with their programs from below. As a result of the strategic interaction between the state with increasing legitimacy concerns and social forces with more political and economic resources, the state may have more incentives to take seriously the people’s interests and demands (Huang, forthcoming).

The growing epidemic, combined with pressures from inside and outside the country, ultimately engendered a strong and effective action by the government to contain the disease and end the crisis. On April 2, the State Council held a meeting to discuss the SARS problem, the first of three meetings held within the space of a month. This was followed by an urgent meeting of the Standing Committee of the CCP Politburo on April 17. Meanwhile, the government also showed a new level of candor. Premier Wen Jiabao on April 13 said that although progress had been made, “the overall situation remains grave” (Business Week, 2003). In hindsight, one of the strengths of party-state dualism in China is the Party’s ability to push the government by signaling its priorities loudly and clearly. This helps explain why the April 2 meeting held by the State Council did not generate any serious response from the lower level, whereas the system was fully mobilized after April 17, when the Politburo’s Standing Committee explicitly warned against covering up SARS cases and demanded accurate and timely reporting of the disease. After the April 17 meeting, government media began to publicize the number of SARS cases in each province, updating on a daily basis. An order from the Ministry of Health formally listed SARS as a disease to be monitored under the Law of Prevention and Treatment of Infectious Diseases and made it clear that every provincial unit should report the number of SARS cases on a given day by 12 noon on the following date. The party and government leaders around the country were now to be held accountable for the overall SARS situation in their jurisdictions.

On April 20, Health Minister Zhang Wenkang and Beijing mayor Meng Xuenong were ousted for their mismanagement of the crisis. While they were not the first ministerial-level officials since 1949 to be dismissed mid-crisis on a policy matter, the case was a signal of political innovation from China’s new leadership. As an article in The Economist remarked, the unfolding of the event—minister presides over policy bungle; bungle is exposed and there is public outcry; minister resigns to take the rap—“almost looks like the way that politics works in a democratic, accountable country” (China’s Chernobyl, 2003). The crisis also led the government to take measures to strengthen fundamental authority links within the system. As part of a nationwide mobilization campaign, the State Council sent out inspection teams to 26 provinces to scour government records for unreported cases and to fire officials for lax prevention efforts. According to the official media, by May 8 China had fired or penalized more than 120 officials for their “slack” response to the SARS epidemic (Tak-ho, 2003). It was estimated that by the end of

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
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May, nearly 1,000 government officials had been disciplined for the same reason (Lianhe zaobao, 2003). These actions shook the complacency of local government officials, who then abandoned their initial hesitation and jumped onto the anti-SARS bandwagon. Driven by political zeal, they sealed off villages, apartment complexes, and university campuses, quarantined tens of thousands of people, and set up checkpoints to take temperatures. By May 7, 18,000 people had been quarantined in Beijing. The Maoist “Patriotic Hygiene Campaign” was revitalized. In Guangdong, 80 million people were mobilized to clean houses and streets (Renmin ribao, 2003b). In the countryside, virtually every village was on SARS alert, with roadside booths installed to examine all those who entered or left.

The crisis also improved interdepartmental and interagency coordination and speeded up the process of institutionalizing China’s emergency response system to be able to handle public health contingencies. On April 17, an anti-SARS joint team was created for the city of Beijing, which included leading members from the Ministry of Health and the military (Xinhua News, 2003a). On April 23, a task force known as the SARS Control and Prevention Headquarters of the State Council was established to coordinate national efforts to combat the disease. Vice Premier Wu Yi was appointed as commander-in-chief of the task force, and similar arrangements were made at the provincial, city, and county levels. On May 12, China issued a set of Regulations on Public Health Emergencies. According to these regulations, the State Council shall set up an emergency headquarters to deal with any public health emergencies, which are referred to as serious epidemics, widespread unidentified diseases, mass food and industrial poisoning, and other serious public health threats (Xinhua News, 2003b).

Direct involvement of the political leadership also increased program resources and mobilized resources from other systems. On April 23, a national fund of 2 billion yuan ($US 250 million) was created for SARS prevention and control. The fund was to be used to upgrade county-level hospitals, to finance the treatment of farmers and poor urban residents infected with SARS, and to purchase SARS-related medical facilities in central and western China. This central government funding was complemented by an additional 7 billion yuan ($US 875 million) from local governments (Renmin wang, 2003c). Free treatment was offered to SARS sufferers anywhere in the country.

These momentous measures appeared to have worked. The epidemic started to lose its momentum in late May, and on June 24, the World Health Organization lifted its advisory against travel to Beijing. On August 16, with the last two SARS patients discharged from the Beijing Ditan Hospital, China for the time being was free from SARS.

Improvements Resulting from the SARS Crisis

The weaknesses and strengths demonstrated by the government during the crisis raised questions regarding its capacity to respond to other disease outbreaks.

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
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With the SARS outbreak wreaking havoc and shaving an estimated seven-tenths of a percentage point off China’s gross domestic product for 2003, the government appears to have drawn some important lessons from the crisis, including the need for coordinated development. When interviewed by the executive editor of the Washington Post, Premier Wen Jiabao said that “one important inspirational lesson” the new Chinese leadership learned from the SARS crisis was that “uneven development between the urban and rural areas, and imbalance between economic development and social progress” were “bound to stumble and fall (Renmin ribao, 2003d).” On various occasions since the crisis, central leaders have emphasized the importance of public health, especially rural health care (Renmin ribao, 2003e,f,g; Ministry of Health, 2003). The government has also provided more funding to public health. It earmarked billions of dollars to SARS prevention and control, and recently it invested 6.8 billion yuan ($US 850 million) for the construction of a three-tiered network of disease control and prevention (Guangming ribao, 2003). While a nationwide SARS training program is underway, the government has initiated an Internet-based disease reporting system which allows local hospitals to directly report suspected SARS cases to the Chinese CDC and the Ministry of Health (Zhongguo xinwen wang, 2003b).

Moreover, as China emerges from the shadow of SARS, Chinese leaders appear to be showing a new, more proactive attitude toward AIDS. Since summer 2003, the government has started offering free treatment for poor people with HIV/AIDS, and it plans to expand the program next year until free treatment is available for all poor HIV carriers and AIDS patients (Chang, 2003; Yardley, 2003). The government has also allocated 11.4 billion yuan ($US 1.42 billion) for strengthening the AIDS medical assistance system and training more health personnel for AIDS prevention and treatment (Jiankang bao, 2003). On December 1, Premier Wen Jiabao appeared on state television shaking hands with AIDS patients and called on the nation to treat them with “care and love.” This event was significant because until then, no senior Chinese leader had even discussed the disease in public.

These measures reflected the increased efforts of the Party to cultivate a new image for its leadership. It wants citizens to see the leaders as being in touch with the people and committed to their best interests. More attention has thus been paid to the basic needs of China’s farmers and workers. On August 17, the government promulgated Regulations on the Management of Village Doctors, promising more professional training for rural health personnel (Xinhua news, 2003c). In September, Premier Wen indicated that a majority of the increased health funding will be used to support rural public health. He also reaffirmed his commitment to a new medical insurance scheme in the countryside (Renmin ribao, 2003h). Given that rural areas were viewed as the weakest link in containing the spread of SARS, such measures are expected to strengthen the ability of the public health system to respond to a future disease outbreak.

Equally important, the government seems to have learned that in an era of the Internet and cell phones, a complete information blackout is not only impossible

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
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but also counterproductive. There are signs suggesting that the crisis is forcing the government to take steps to establish an image of a more open and transparent government. For example, an April 28 Politburo meeting obviously made the decision to publicize a submarine accident that same month that cost 70 lives. News of the tragedy was reported by the official Xinhua news agency on May 2. This marks a significant departure from the traditionally secretive approach taken to the nation’s military disasters. If this new openness continues in the post-SARS era, it will not only create conditions for a government that is more accountable to its people but might also provide considerable incentives for sharing knowledge of an outbreak with the international community as early as possible.

As evidenced by the government campaign against SARS, an infectious disease can potentially trigger the party-state to organize a political campaign to reach deep into the hinterlands and snap people into action. This government capacity to mobilize against a disease outbreak is enhanced by a more institutionalized crisis management system. The Regulations on Public Health Emergencies issued by the State Council in mid-May, for example, require setting up an emergency headquarters right after a public health emergency is identified. It has also been reported that the government plans to set up an Emergency Response Bureau, which would draw on the example of the U.S. Federal Emergency Management Administration to tackle future health crises and natural disasters (Wiest, 2003).

Problems and Concerns

These changes are worth applauding, but will they suffice to effectively contain future epidemics? Here, one of the major problems is a public health system in China that has been compromised by a lack of sufficient state funding. The portion of total health spending financed by the government has fallen from 34 percent in 1978 to less than 20 percent now (Huang, 2003), and a lack of adequate facilities and medical staff shortages compromised early government efforts to contain SARS. For example, hospitals in Guangdong reportedly faced shortages in hospital beds and ambulances, and even among the 66,000 health care workers in Beijing, less than 3,000 (or 4.3 percent) were familiar with respiratory diseases (Renmin ribao, 2003c). Apart from imposing severe constraints on the government’s ability to respond to a public health crisis, the shortage of affordable health care also impacted the ability and willingness of patients to seek out treatment. The Washington Post reported a SARS patient who fled quarantine in Beijing because he did not believe that the government would treat his disease free of charge, and some hospitals are reported to have refused to accept patients who had affordability problems (Washington Post, 2003). More broadly, according to a recent report by the Chinese Consumer’s Association, about 50 percent of people who are sick do not see a doctor because of the extremely high out-of-pocket payments (Zhongguo jingji shibao, 2003). All of these factors sow the seeds for a larger and more catastrophic disease attack.

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
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We should also keep in mind that SARS is not the sole microbial threat confronting China. The country faces challenges from other major infectious diseases such as the plague, cholera, HIV/AIDS, other sexually transmitted diseases, tuberculosis, viral hepatitis, and endemic schistosomiasis (Renmin ribao, 2003i). These multiple public health challenges require China to build on the anti-SARS momentum and integrate a comprehensive epidemic control plan into the national socioeconomic development agenda. While the health sector is now receiving increased attention at high levels, the government so far has placed top priority only on preventing the return of SARS. The top leaders have been generally silent on other major infectious diseases. Despite official recognition of the seriousness of HIV/AIDS, China does not have a comprehensive national program for disease prevention and control to help stop the epidemic. In rural areas hard-hit by AIDS, local governments continue to harass public health activists, devote few resources to educating people about the disease, and sometimes even meet the demands of the villagers with violence (Pan, 2003). Furthermore, there has been no fundamental change in the government’s development agenda. The central government still equates development with economic growth and uses that as a yardstick in measuring local government performance.

In addition, it is worth noting that the apparent policy transparency has not been accompanied by significant state relaxation of media control. On May 12, the very same day that Premier Wen Jiabao released the new regulations to promote openness, the Beijing Morning News carried an article on how people who spread “rumors” about SARS could be jailed for up to 5 years. While the newly promulgated Regulations on Public Health Emergencies stipulate that government officials make timely and truthful reports about any such emergencies, they do not enshrine the public’s right to be informed in the same manner. Indeed, a recent speech by Vice Premier Wu Yi reiterated state control over the media in order to “strictly prohibit the spread of rumors and other harmful information (Wu Yi, 2003).”

While feedback from the public may matter more for the government than it used to, government officials ultimately remain responsible not to the public but to the higher authorities. Hence, the government will always be more sensitive to pressure that comes top down, rather than bottom up. Ironically, the likelihood of deception has increased as a result of the spread of some government measures in fighting SARS, such as the practice of holding bureaucratic officials personally accountable for local SARS cases through a “responsibility pledge” (junling zhuang) without giving due consideration of actual local conditions (e.g., the public health infrastructure). If indeed an outbreak is imminent, a local government official concerned about his post may well choose to lie. Manipulation of SARS-related data remained a serious problem even after April 17—among other things, a pattern could be easily identified in the government war against SARS in which when upper-level leaders demanded a reduction of SARS cases, their orders would be reflected in statistics afterwards (Wong, 2003).

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
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To the extent that upward accountability and performance-based legitimacy will cause problems in agenda setting and policy making, the lack of effective civil society participation reduces government effectiveness in policy enforcement. In initiating many anti-SARS projects during the crisis, the government did nothing to consult or inform the local people. Chinese non-governmental organizations (NGOs), if anything, were absent in the war against SARS (21st Century Economic Herald, 2003). Instead, the government relied on the extensive array of mobilization vehicles installed in the Mao era—village party branches, street sub-district offices, former barefoot doctors—to take temperatures, quarantine people, trace infections and round up laggards. To be sure, party leaders undertaking the anti-SARS measures differed from their predecessors by emphasizing “science” and “rule by law.” Yet the absence of genuinely engaged civil society groups as a source of oversight and information, coupled with the increasing pressure from higher authorities, easily created a results-oriented implementation structure that made nonscientific, heavy-handed measures more appealing to local government officials. They found it safer to be overzealous than to be seen as “soft.” Until June 2, for example, Shanghai was quarantining people from the regions hard hit by SARS (such as Beijing) for 10 days even if they had no symptoms (Pomfret, 2003c).

The government’s heavy reliance on quarantine during the epidemic also raises a question about the impact of future disease control measures and the worsening of the human rights situation in China. This question, of course, is not unique to China—even countries like the United States are debating whether it is necessary to apply mandatory approaches to confront health risks more effectively. The Model Emergency Health Powers pushed by the Bush administration would permit state governors in a health crisis to impose quarantines, limit people’s movements and ration medicine, and seize anything from dead bodies to private hospitals (Kristof, 2003). While China’s Law on Prevention and Treatment of Infectious Disease did not until recently explicate that quarantines apply to the SARS epidemic, Articles 24 and 25 authorize local governments to take emergency measures that may compromise personal freedom. The problem is that unlike democracies, China in applying these measures excludes the input of civil associations. Official reports suggested that innocent people were dubbed rumor spreaders and arrested simply because they relayed some SARS-related information to their friends or colleagues (Xinhua News, 2003d). According to the Ministry of Public Security, public security departments have investigated 107 cases in which people used Internet and cell phones to spread SARS-related “rumors (Renmin wang, 2003d).” Some Chinese legal scholars have already expressed concerns that the government, in order to block information about epidemics, may turn to more human rights violations (ChineseNewsNet, 2003).

The lack of engagement by civil society in the policy process could deplete the social capital that would be so important for future government outbreak control efforts. In the case of SARS, the government’s failure to publicize the out-

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
×

break in a timely and accurate manner and the ensuing rapid policy turnaround eroded the public’s trust and contributed to the spread of rumors even after the government adopted a more open stance toward information on the epidemic. In late April, thousands of residents of a rural town of Tianjin ransacked a building, believing it would be used to house ill patients with confirmed or suspected SARS, even though officials insisted that it would be used only as a medical observation facility to accommodate people who had close contacts with SARS patients and for travelers returning from SARS hot spots. Opposition to official efforts to contain SARS was also found in a coastal Zhejiang province, where several thousand people took part in a violent protest against six people being quarantined after returning from Beijing (Kuhn, 2003). Here again, the lack of active civilian participation exacerbated existing problems of trust. In initiating the project in Tianjin, the government had done nothing to consult or inform the local people (Eckholm, 2003).

Finally, the mobilization model for confronting public health crises also suffers from a problem of sustainability in the post-Mao era. By placing great political pressure on local cadres in policy implementation, mobilization is a convenient bureaucratic tool for overriding fiscal constraints and bureaucratic inertia while promoting grassroots cadres to behave in ways that reflect the priorities of their superiors. Direct involvement of the local political leadership increases program resources, helps ensure they are used for program purposes, and mobilizes resources from other systems, including free manpower transferred to program tasks. Yet in doing so, a bias against routine administration is built into its implementation structure. While personal rewards of private life (e.g., medals, higher pay, extra credits for medical workers’ children attending the college entrance exam) were provided for activism in the anti-SARS campaign, decades of reforms have eroded state control and increased the opportunity cost of participation. While the government demonstrated in this case a continued ability to spur people to action in even the most remote villages, in a post-totalitarian context it is generally difficult to sustain a state of high alert across the country for an extended period.

Conclusions

The pattern of the Chinese government’s response to SARS was shaped by the institutional dynamics of the country’s political system. A deeply ingrained authoritarian impulse to maintain secrecy, in conjunction with a performance-based legitimacy and an obsession with development and stability during political succession, contributed to China’s initial failure to publicize the outbreak. Meanwhile, an upwardly directed system of accountability, a fragmented bureaucracy, and an oligarchic political structure hampered any effective government response to the outbreak. In spite of these problems, interactions between the state and society unleashed dynamics that prompted the central party-state to

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
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intervene on society’s behalf. The direct involvement of the Party strengthened authority links, increased program resources, and maximized the potential for interdepartmental and intergovernmental cooperation. In this manner, the party-state remains capable of implementing its will throughout the system without serious institutional constraints. The government’s capacity for crisis management has been further enhanced by a series of measures taken in the post-SARS era. However, this does not mean that the government is ready for the next disease outbreak. In the absence of fundamental changes in the political system and a comprehensive epidemic control plan, not only is the same pattern of cover-up and inaction likely to be repeated, but the government will find it increasingly difficult to control the multiple public health challenges it is now facing.

The above analysis clearly points to a need for the Chinese government to significantly enhance its capacity to combat future outbreaks of SARS and other infectious diseases. Given that a public health crisis reduces state capacity just when ever-increasing capacity is needed to tackle the challenges, purely endogenous solutions to build capacity are unlikely to be successful, and capacity will have to be imported from exogenous sources such as massive foreign aid (Price-Smith, 2002). In this sense, building state capability also means building more effective partnerships and institutions internationally. International actors can play an important role in creating a more responsible and responsive government in China (Huang, 2003). First, aid from international organizations opens an alternative source of financing for health care, increasing the government’s financial capacity in the health sector. Second, international aid can strengthen bureaucratic capacity through technical assistance, policy counseling, and personnel training. Third, while international organizations and foreign governments provide additional health resources in policy implementation, the government increasingly has to subject its agenda-setting regime to the donors’ organizational goals, which can make the government more responsive to its people. The agenda shift for SARS to a large extent was caused by strong international pressures exerted by the international media, international organizations, and foreign governments. There are also indications that the Internet is increasingly used by the new leadership to solicit policy feedback, collect public opinions, and mobilize political support. Starting February 11, Western news media were aggressively reporting about SARS and about government cover-ups of the number of cases in China. It is very likely that Hu Jintao and Wen Jiabao, both Internet users, made use of international information in making decisions concerning the epidemic. In other words, external pressures can be very influential because Chinese governmental leaders are aware of weaknesses in the existing system for effectively responding to a crisis and therefore have incentives to seek political resources exogenous to the system.

From the perspective of international actors, helping China to fight future epidemics also helps themselves. Against the background of a global economy, diseases originating in China can be spread and transported globally through trade,

Suggested Citation:"2. Political Influences on the Response to SARS and Economic Impacts of the Disease." Institute of Medicine. 2004. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington, DC: The National Academies Press. doi: 10.17226/10915.
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travel, and population movements. Moreover, an unsustainable economy or state collapse spawned by poor health will deal a serious blow to the global economy. As foreign companies shift manufacturing to China, the country is becoming a workshop to the world. A world economy that is so dependent on China as an industrial lifeline can become increasingly vulnerable to a major supply disruption caused by disease epidemics. Perhaps equally important, if future epidemics in China result in truly global health crises, the unwanted social and political changes will be felt by even the most powerful nations. As every immigrant or visitor from China or Asia is viewed as a potential Typhoid Mary, minorities and immigration could become a sensitive domestic political issue in countries such as the United States and Canada. An incident in New Jersey during the SARS outbreak, in which artists of Chinese background were denied access to a middle school, suggests that when SARS becomes part of a national lexicon, fear, rumor, suspicion, and misinformation can jeopardize racial harmony in any country (Newman and Zhao, 2003).

Given the international implications of China’s public health, it is in the interest of the United States and other industrialized nations to expand cooperation with China in the areas of information exchange, research, personnel training, and improvement of public health facilities. Meanwhile, these countries could send clear signals to the Chinese leadership that reform-minded leaders in the forefront of fighting epidemic diseases and supporting public health will be supported. The world’s interests will be well served by continuing to support a Chinese government that is increasingly more open and interested in international engagement. It should also not miss this unique opportunity to help create a healthier China.

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The emergence of severe acute respiratory syndrome (SARS) in late 2002 and 2003 challenged the global public health community to confront a novel epidemic that spread rapidly from its origins in southern China until it had reached more than 25 other countries within a matter of months. In addition to the number of patients infected with the SARS virus, the disease had profound economic and political repercussions in many of the affected regions. Recent reports of isolated new SARS cases and a fear that the disease could reemerge and spread have put public health officials on high alert for any indications of possible new outbreaks. This report examines the response to SARS by public health systems in individual countries, the biology of the SARS coronavirus and related coronaviruses in animals, the economic and political fallout of the SARS epidemic, quarantine law and other public health measures that apply to combating infectious diseases, and the role of international organizations and scientific cooperation in halting the spread of SARS. The report provides an illuminating survey of findings from the epidemic, along with an assessment of what might be needed in order to contain any future outbreaks of SARS or other emerging infections.

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