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On Sept. 7, a World Health Organization official warned that a pandemic of the dreaded avian flu -- a potentially fatal virus that can jump from birds to people -- could be around the corner. But at BMO Nesbitt Burns, a Toronto subsidiary of Chicago-based Harris Bank, economists had already been thinking about that nightmare scenario. In August, they released a report called "An Investor's Guide to Avian Flu."
Despite the somewhat morbid title, the bank's main mission was not to suggest that opportunists should try to profit from the virus, but rather to bring light to the potentially devastating impact such a pandemic could have on the global economy. Sherry Cooper, BMO Nesbitt Burns global economic strategist, and Donald Coxe, global portfolio strategist, recently spoke about their report with BusinessWeek Science Editor Arlene Weintraub. Following are edited excerpts from their conversation:
In predicting the impact of an avian-flu outbreak, you used the SARS outbreak of 2003 to guide you. What would be some of the key differences between that virus and avian flu?
Cooper: There were 252 cases of SARS in Toronto, and 15,000 people ended up in quarantine. But SARS is nowhere nears a communicable as avian flu is. With avian flu, there will be far more cases and far more people who are exposed. The quarantine numbers could be tremendous.
Despite the relatively small SARS outbreak, GDP growth in Canada fell from 3% in the first quarter of '03 to -1.2% in the second quarter. In the report, you don't venture so far as to put exact dollar figures on the losses. But can you say in general terms what SARS portends for, say, an avian-flu outbreak in a city like Chicago?
Cooper: This trivial example [of SARS] had a lasting impact. You see the multiples you can get. Just magnify that. It would be horrific.
What might be some unexpected secondary effects of an outbreak in Chicago?
Coxe: The value of what's traded in commodities futures [in Chicago] is so far above anything else in the markets that if the exchanges there don't function effectively, the world would have a lot of difficulties. There are so many financial instruments where Chicago is the locus of trading.
In terms of how much of that is done electronically, it's better now than it was a year ago. But [with a quarantine in place,] they wouldn't get enough people to jostle around on the trading floor there.
What about hospital preparedness?
Coxe: What we do know is that right now, emergency rooms in Chicago are taxed to their limits on most days.
Cooper: A big concern with a quarantine is the health-care workers. Many won't want to show up for work -- like the policeman in New Orleans.
Explain the risks of just-in-time inventory control, and how that might be disrupted if airports are shut down and borders closed.
Cooper: What it means is that businesses keep very little in the way of stockpiles -- either of what they use to make their products or of the finished products themselves. They also have very little [backup] labor. Many products are made with materials from all over the world. Even surgical face masks.
If borders were shut down, you wouldn't have goods and services going back and forth. That would lead to shortages.
How would that affect health care in particular?
Cooper: Right now, certain chemotherapy products for children are in short supply. This would put a strain on an already stressed system.
What can be done to improve preparedness for an outbreak?
Coxe: We need to learn from the slow response to Hurricane Katrina. For one, there needs to be a dedicated public-health agency that creates a response plan. I know the World Health Organization is working on it. But the problem with WHO is just like the problem with FEMA. WHO can't come into [an outbreak area] without an invitation. They don't have the authority. Someone needs to be given that authority.
Cooper: We need better systems for detecting the virus, isolating patients, and protecting the public. And world governments need to reward farmers for culling [infected] poultry. Without financial incentives, plenty of farmers will drag their heels.
What can be done to ensure the public, and public officials, seriously address the risk of a pandemic before it's too late?
Coxe: Frankly, we need to tell people how serious the risk is. We call this a "known unknown." We know the probability of an outbreak is very high. We just don't know when it will come. People need to think about the unthinkable.
Cooper: We believe that whether it's avian flu or not, the risk of a pandemic in the next five years is very high. Everyone knew [the hurricane] was a predictable risk. Yet balls were dropped at every level of government. It's not that avian flu will wipe out the world's population. In fact, some say only 5% of those infected would die. It's just that it would do an enormous amount of economic damage. It could spin into a spectacular downtrend.