“An external event strikes. Fear grips the system, which, in consequence, seizes. The resulting collateral damage is wide and deep.”
A description of the coming flu pandemic, or the events of the past 18 months in the world of finance? As the World Health Organisation on Wednesday night raised its level of alert and instructed countries around the world to “immediately activate their pandemic preparedness plans” following the spread of an aggressive flu virus from Mexico, intriguing parallels between ways to address a public health crisis and a shock to the financial system are becoming increasingly apparent to officials and policymakers.
The lessons from these could prove critical to the success of efforts to minimise the impact of H1N1. The decisions taken in coming months by international agencies, national governments, local authorities, employers and individuals alike will be the first real “stress test” of an unprecedented and still fragile structure of pandemic preparations built up in recent years.
Much of the architecture of today’s system dates from the 2003 outbreak of severe acute respiratory syndrome. This was swiftly followed by fears of a widespread outbreak of the “bird flu” H5N1 virus. Both helped mobilise a sharp rise in worldwide funding for pandemic preparations. The WHO was assigned the role of choirmaster, conducting the tracking of disease, the speedy dissemination of information and the co-ordination of the response by governments and agencies.
Yet the lack of any immediate outbreak led to “flu fatigue”. Public concern gave way to a sense that sufficient preparations were in place and alarmists were crying wolf.
Similarly, in finance, continued economic expansion generated a sense of hubris that militated against tougher regulation. “The parallels between finance and medicine or other branches of science are very thought-provoking – it is something which is being talked about seriously now,” observes one senior European central banker.
In a further link, the financial crisis itself – and efforts to rein in public expenditure even before the credit crunch began in summer 2007 – may have helped slow pandemic preparations and squeezed the ability of medical systems to respond. In the UK, Treasury scepticism over the past two years delayed the purchase of extra supplies of antiviral drugs and antibiotics, leaving the government scurrying to place fresh orders this week.
Looking to the future, the pandemic may slow down tentative signs of global economic recovery, as declining travel, falling productivity and rising healthcare costs add to the pressures on companies, consumers and markets already struggling and deeply sensitive to further psychological setbacks.
Olivier Blanchard , chief economist at the International Monetary Fund, warned on Thursday that the impact of the pandemic could be “quite drastic” in some countries.
The rise in globalisation that drove the expansion in international finance in recent years has also helped frame the conditions for the pandemic. Increased air travel, for example, has helped spread infection far and wide, illustrated in the initial outbreaks of H1N1 outside Mexico: from a honeymooning couple in Scotland to school-children returning home to New York and New Zealand.
Distinctions between the financial crisis and the flu pandemic include the fact that, with the former, there was – with no over-arching international organisation – little planning for a severe downturn, and the more alarmist warnings of a few critics were brushed aside by the majority.
In recent years, by contrast, there has been general consensus in the public health community, co-ordinated by the WHO, that a pandemic was a matter of “when, not if”, and plans – albeit of variable quality – were being put in place for an event seen as inevitable.
Now, as those plans are activated around the world for the first time, the question is how far they will prove effective, given that the responses of individuals and institutions as the threat of infection begins to affect daily life are unpredictable.
Just as the flu virus itself is constantly evolving genetically, so the financial services sector is continually inventing instruments. In health, too, there has been frenetic and complex innovation in recent years that is poorly understood by the vast majority of the population, creating a gulf between them and the tiny minority with understanding. That requires considerable trust, which can swiftly crumble and trigger panic when faith in the few collapses.
As a senior accountant says: “Most people don’t know how modern medicine works – all that stuff about DNA and what is inside pills. They have to trust their doctor. There are parallels there with finance. So much relies on trust.”
The dangers of the lag after widespread unofficial information and before any official response were starkly demonstrated by the saga of Northern Rock, the UK bank. A media leak on the BBC of its problems in mid- September 2007 caught the authorities on the hop. They presented no convincing explanation of the scale of its problems, triggering a run on deposits.
When Sir Callum McCarthy, former head of the UK’s financial regulator, tried to tell consumers any panic was “irrational”, it simply sparked greater fears. By the time the government finally stepped in four days later to guarantee deposits, customers had lost faith in almost anything it said, sparking deep cynicism about the health of other banks including many small British building societies.
The lessons include the need to recognise and respond to the fact that information travels at lightning speed around the world; and, in the internet era, vague reassurances that the authorities are in charge no longer work. “A hundred years ago, people would be reassured by a solemn statement from the Bank of England,” says a senior European regulator. “That doesn’t work now – people want evidence. Messages have to be short and clear. People want a website they can go to, hard facts.”
Embracing the explosion in information, one critical aspect of pandemic preparations that followed Sars was the adoption of the International Health Regulations. That, for the first time, gave the WHO the power to use data from non-official sources that warned of a potential infection rather than relying on its member states.
Initial indications suggest that the agency, as well as regional affiliates and national health authorities such as the US Centers for Disease Control and Prevention were relatively slow to react, picking up on warnings in the Mexican media of outbreaks some days after they were identified by specialist analytical companies.
“My big question about how things have developed is around surveillance and warning,” says a senior official co-ordinating the British pandemic response, who adds that the UK escalation was triggered by its own observations of activity by the CDC rather than any formal WHO notification. “If we had had even two more weeks’ warning, we could have had better efforts to contain the infection and more time to distribute drugs.”
Writing this week of the “striking” similarities between the 2003 Sars outbreak and the collapse of Lehman Brothers, Andrew Haldane of the Bank of England and author of the scenario sketched at the top of this article, notes that a modest “triggering event” is augmented by a media frenzy that transcends borders. Similarities between crises in public health and finance are “no coincidence” as both are “manifestations of the behaviour under stress of a complex adaptive network”.
So far, while struggling with huge media demand, the WHO has provided regular updates, although the data on its website have often appeared modest and belated.
While it is early days, the public response around the world to H1N1 appears calm, despite anecdotal reports of panic-buying of masks and efforts to obtain antiviral drugs. One risk is that such patterns escalate as the effects of the virus become widespread.
More worrying are the cracks appearing in the fragile mechanisms of solidarity between governments. Just as there was disagreement over fiscal stimuli and measures for international financial regulation following the crisis, so there are divergences about how to respond to a pandemic.
Even before the WHO posted advice this week that restricting travel was pointless, many countries were imposing a range of variants that did precisely that. Some countries, such as Egypt, have diverged even further from the science, with calls to slaughter pigs despite no evidence that they present a risk of spreading the infection.
As the pandemic advances, there will be far greater potential for clashes over different national policies towards vaccine manufacture, drug stockpiles and distribution, the provision of medical treatment and so on.
For now, the response has gone largely to plan, and appeared smoother than the response to the financial crisis. But it is only just beginning. As Angus Nicoll from the European Centre for Disease Prevention and Control puts it: “With flu, you have to plan for the worst, prepare for the worst and hope for the best.” The best laid and most rational plans for the pandemic are – as in finance – still grounded in a good deal of faith.
Additional reporting by Gillian Tett
GENETICS: THE HISTORY OF SWINE FLU – AND CLUES TO ITS FUTURE
“Unpredictable” seems to be the word used most often by experts to describe the outbreak of swine flu, writes Clive Cookson. Scientists now concede that a pandemic is almost certainly imminent but they insist that they cannot predict its timing or how serious it will be.
All this talk about uncertainty should not disguise the astonishing amount that researchers have learnt about the new H1N1 viral strain, using the latest techniques in molecular biology, since an unusual outbreak of flu in Mexico came to the attention of the world’s health authorities a couple of weeks ago.
By last weekend, when the general public was becoming aware of the pandemic threat, the US Centers for Disease Control and Prevention in Atlanta was already completing the genetic sequences of flu virus samples taken from patients in California and Texas. (Flu virus genes are composed of RNA rather than the related DNA that makes up the genome of almost all other organisms.)
Since Monday, anyone has been able to download the full RNA sequences from the public GenBank database. For the uninitiated the viral genetic code is gibberish – “atgaaggcaat” is a typical short stretch – but for experts it can tell a fascinating tale of infections that have shaped the virus.
The Mexican strain is a complex mixture of components from viruses that originated in infections of pigs, people and birds – but there is no doubt that the dominant contribution comes from pigs, says Brian Willett, a virologist at Glasgow University.
“This virus almost certainly does originate in pigs,” says Professor Willett. “Mexican pig farms are a very strong candidate for where it started.”
Hence the controversial decision by the World Health Organisation to call it swine flu – to the dismay of pig farmers, who have been hit with a global slump in pork sales and bans on meat imports from Mexico and the US in some countries as a result.
A porcine origin does not mean the current outbreak is circulating among pigs today, experts insist. Now that the virus is spreading among humans, people face an immensely greater risk of catching Mexican flu from other people than from pigs.
Scrutiny of the viral genome – and comparison with other flu viruses – is also beginning to give scientists clues about its likely behaviour and effects on people. These seem to be reassuring.
The Mexican strain currently lacks some of the molecular characteristics associated with the most virulent viruses – adding to the emerging epidemiological evidence that it causes mainly mild illness. Experts believe the apparently high mortality rate in Mexico is the result of vast under-reporting of less severe cases.
But that is now. The future is, of course, unpredictable. Flu is a notoriously fast-changing virus, and it may mutate into a much more dangerous form. Or it may turn out to be less lethal than normal seasonal flu, which kills 500,000 people in a bad year.
Get alerts on World when a new story is published