Why did countries with a better business environment control COVID19 better?

By Eric Thomson

Hong Kong during COVID19. Photo by Elton Yung on Unsplash

Jacinda Ardern has been widely praised for her swift COVID19 response that has made New Zealand a poster child for tackling the virus. Now, New Zealand’s economy is set for a quicker rebound than most other Western countries, who continue to grapple – often unsuccessfully with the virus.

Denmark has so far had nearly the same levels of success. Prime Minister, Mette Frederiksen, implemented an earlier lockdown (although it was short of total confinement) and put Denmark’s health care system on high alert to focus on COVID19 treatment and tracing.

Despite their proximity to China, high population densities and international transit hub status, Singapore and Hong Kong were relatively untouched by the COVID19 epidemic in its early stages. Citizens there are used to wearing masks as a result of previous pandemics.

New Zealand, Denmark, Singapore and Hong Kong all shared something else in common before the current global health crisis: The World Bank has ranked them #1, #2, #3, and #4 in the World Bank Ease of Doing Business Index.

In fact, using a simple multivariate analysis that includes the UN Human Development Index as a control for GDP and the health care system, a country’s COVID fatality rate dropped by about two percent for each one percent increase in the World Bank DBI.

Regression of the log of deaths per million against the logs of the HDI, World Bank DBI and a constant. The effect is somewhat reduced when including dummies for continents and population density, although the later is not statistically significant.

Of course, this is just a correlation. A better business environment does not directly prevent the coronavirus from spreading. In fact, it runs contrary to intuition. Shouldn’t countries that are more pro-business be less likely to implement harsh restrictions to prevent the spread of COVID19? What might explain why many countries with a solid business environment also had a swift and effective response to the global pandemic?

In my opinion, the answer lies in the public policy frameworks of these countries. These countries recognize that supporting businesses and improving citizens’ well-being are not mutually exclusive but go together. They have public policy that integrates evidence and weighs costs and benefits of government action. And they recognized this long before the current global health crisis.

New Zealand has long understood that evidence-based policy that considers both businesses and well-being is central to good decision-making. New Zealand’s Prime Minister’s Office has its Policy Project that proudly states on its website that:

“Great policy advice is the foundation of effective government decision making. It underpins the performance of the economy and the well-being of all New Zealanders.  The Policy Project is about building a high performing policy system that supports and enables good government decision making.”

Denmark, like many Scandinavian countries, has an extensive system of income redistribution. But, it also understands that it can only afford to have such a progressive system if the government supports the economy with straightforward and efficient administrative procedures. Denmark is not shy about describing itself as having “a pro-business environment in a social welfare state.”

Singapore and Hong Kong benefit from citizens that trust their government to act in their best interest even when the costs are potentially high. Hong Kong in particular has a long history of a health policy that focuses on quality, efficiency, and well-being more generally.

However, an increasingly divisive political environment over the past years has pushed citizens in other countries like the U.S. into two camps: Supporting businesses or tackling social issues. Citizens either demand releasing companies of all obligations by slashing regulations or they support severe government intervention to ensure that companies tackle critical issues like climate change, even when the costs to society do not outweigh the benefits. Evidence-based policy faces strong headwinds when neither side is willing to accept that economic and social tradeoffs can be balanced or mitigated.