Pearls and Irritations

A review of Steven Hamilton and Richard Holden, Australia’s Pandemic Exceptionalism: How we crushed the curve but lost the race, UNSW Press

I started reading the latest offering by economists Hamilton and Holden on Australia’s COVID-19 experience while I was nursing a deep disappointment that the Albanese Government decided not to establish a Royal Commission into our handling of the pandemic. The scale of the pandemic and its impact seemed to me overwhelming reasons to invest in the most powerful and comprehensive of reviews.

Instead, the Government established a COVID 19 Response Inquiry led by a former Commonwealth and State bureaucrat, Robyn Kruk. Its terms of reference were quite wide, but it did not have the powers of a Royal Commission to demand documentation and witnesses to answer questions, nor did its terms of reference encompass action by the States and Territories other than that done in collaboration with the Commonwealth. Nonetheless, after just over twelve months, and just as I was finalising this article, its substantial report of over 800 pages was released. I might write a piece about Kruk’s report when I have had time to read and absorb it.

In the meantime, I must now admit that a legally oriented search for wrong doing by a Royal Commission might not have given us the clarity that economists Hamilton and Holden have provided in their highly readable account of Australia’s performance. Kruk’s inquiry might cover more, but it would be hard to better this book’s analysis and punch. In just over 200 pages, H&H have provided a convincing, frank and honest account of Australia’s ‘exceptional’ response to the pandemic, giving credit where credit is due and highlighting failures that cost lives and billions of dollars.

There are lessons in particular for the Commonwealth Health Department and Australia’s health establishment: the importance of speed of action in a pandemic, of gathering much more information to monitor the situation and to learn as a pandemic spreads, and of managing risks differently than in non-pandemic circumstances.

It is to be hoped that those free market economic commentators advocating a ‘let it rip’ response, claiming a trade-off between public health and economic objectives, also take heed. The best economic advice was entirely consistent with the best health advice. The two objectives required different but complementary policy measures (the so-called ‘Tinbergen law’ that each policy objective requires its own policy instrument) which needed to be adopted simultaneously and consistently.

There are lessons also about the capacity of the administrative state that too often is undervalued: the capacity to implement the measures needed in the timeframe such an emergency demands.

The big picture story

The big picture story told by H&H is of Australia’s overall success:

• 71 deaths per million by the end of 2021 were amongst the lowest across the OECD (there were 2,202 in the US, 2,492 in the UK and 1,425 in Sweden (the ‘let-it-rip’ model)).
• Australia’s daily new confirmed cases per million were a tiny fraction of those in most other countries throughout 2020.
• Australia’s GDP fell by just 0.3% in 2020 and grew by 2.1% in 2021 and 4.3% in 2022 (US GDP fell by nearly 10%, the UK’s by over 20% and Sweden’s by about 8%).
• Our employment to population ratio dipped from just over 62% to 58% in early 2020 but returned to 62% in 2021 and has since grown to over 64% (in the US the ratio fell from around 61% to under 52% and has never fully recovered, being around 60% in 2024, a full 4 percentage points below Australia’s).

Australia’s overall performance has only been matched by a small number of countries including New Zealand and South Korea.

Economic success story

The economic success was particularly remarkable. The reasonably early (and essential) closure of our international border followed by movement restrictions kept us close to a COVID-free environment. But these measures necessitated a huge fiscal response. Treasury had learned from the 2008 GFC both what to do when faced with such a huge shock to the economy, and the need to do some things differently given the different nature of this shock. It was important to ‘go early, go big’ (to quote two of Ken Henry’s famous three GFC response priorities), but this time not to focus so much on ‘go households’ (Henry’s third priority in 2008) but to look for measures that would preserve employee/employer connections.

The aim was to achieve a V-curve recovery, compensating employers immediately for the government closures and also facilitating rapid recovery as soon as those closures could safely be lifted i.e. when the population was sufficiently vaccinated and employees could return to work.

Critical to the success was not just the quality of the economic advice provided but also the acceptance of that advice by a Conservative Government, setting aside any ideological unease (despite urging from some external advisers). H&H are particularly fulsome in their praise of Treasurer Josh Frydenberg and the informal support he received from former Prime Minister John Howard.

A third critical factor was the quality of some of our administrators, particularly in the ATO and ABS, and the capacity of the administrative state they had nurtured (as the ‘stewards’ of that state capacity, to use the sometimes-vacuous term in a meaningful way). H&H refer to the ‘hero’ of our economic response, not a person but the ‘single touch payroll’ system developed by the ATO over the previous decade to make tax collection much easier for both the ATO and businesses by plugging directly into businesses’ systems. It was this system that allowed the ATO to advise the Government confidently of its capacity to implement – very quickly – the ‘Jobkeeper’ program which Treasury saw as the most effective stimulus measure to use in a pandemic – paying businesses to pay their employees even when the employees could no longer work.

The ABS also drew on its recent investments into utilising business administrative data to develop new statistical collections that could inform Treasury and Government ministers far more quickly than it could have in the past about the impact of closures and other developments in response to the pandemic.

H&H are careful to avoid relying on hindsight. They mention some commentators’ criticism of the scale of the economic response and the failure to require repayment where the assistance proved unnecessary. In rejecting such criticism, H&H highlight the importance of speed at the time and of gaining widespread business support for the Jobkeeper initiative in particular. Some overspend was far more acceptable than the risk of long-term scarring as is now evident in the US.

Health failures

The economic successes would have been even more impressive but for inexplicable failures by the Commonwealth Health Department and the health establishment later in 2020 and 2021. H&H are scathing about the apparent disconnect between the economic advice and this later public health advice. The economic advice was all about doing whatever it takes to avoid a recession, providing all the fiscal protection needed as quickly as possible and in a way that would facilitate rapid recovery as soon as the population was safe i.e. as soon as sufficient vaccination cover was reached. Health’s job was not just to ‘crush the curve’ to limit spread of the disease, but to do all it could, as quickly as it could, to achieve adequate vaccination coverage. That did not happen.

Australia’s vaccination rate was only 6% in mid-2021 when the average across the OECD was 32%. For two months, Australia’s performance was dead last amongst the OECD. It took until October 2021 for Australia to catch up to the then average of around 60%.

Instead of an insurance approach, spreading bets across all possible vaccine solutions in 2020, the Health Department invested in just two, one of which proved unsuccessful and the other of limited success. Was it narrowminded nationalism (to bet on the Queensland possibility or CSL’s manufacturing opportunity), or a penny-pinching mindset? Either way, the attention was not on the central objective of achieving sufficient coverage from an effective vaccine as soon as possible. Despite assurances from the Chief Medical Officer (and later departmental secretary) – repeated by the Health Minister and the Prime Minister – that it was ‘not a race’, it was and always had been.

The failure to spread bets and to pre-order large quantities of yet-to-be-developed vaccines was then exacerbated by TGA’s tardiness in approving the vaccines that had been developed even after approval had been given by overseas authorities. It is true that local authority approval of therapeutic goods is important in normal circumstances as local conditions (e.g. diets, climate) may affect safety and efficacy. In this situation, however, delay had a very large public health risk that should have been an overwhelming consideration. ATAGI, the Commonwealth-State chief medical officers’ group advising National Cabinet, similarly failed to take this big picture into account, also highlighting the small risks of blood clotting amongst young people, seemingly ignoring the much greater risks in the community from inadequate vaccination coverage. The Queensland CMO’s ‘profoundly misguided’ remark at the time about the risks to young people could only have added to community resistance to vaccination.

Further delays in achieving high rates of vaccination were caused by the Commonwealth’s initial insistence on using GPs to administer the vaccines. Perhaps, as the former Health Department head, Stephen Duckett suggests, this reflected the Commonwealth’s lack of experience in direct service delivery. It also again reflected incapacity to adjust to the pandemic situation, sticking to the otherwise good practice of utilising the primary care service people are familiar with and which offers continuity of care, when the big picture demanded urgent and mass vaccination.

The short-sighted approach to purchasing the vaccines and, later, to approving vaccines and delivering vaccinations, was repeated by the health authorities in their delayed and limited use of COVID testing before the vaccines became available. Testing large numbers of people was one of the most important public health tools then available. It would allow for better targeted stay-at-home orders as opposed to requiring everyone to isolate; and it would give the community much greater confidence that they were unlikely to come into contact with a COVID-positive person.

But Australia did not pursue mass testing for way too long. It focused the testing on ‘hotspots’, and responded only to symptomatic cases rather than asymptomatic cases as well. Simple mathematics should have told the authorities that this would not assist in curbing the spread of the disease. Then the authorities focused on the ‘gold standard’ PCR testing that took days to yield results, delaying approval of the far faster (and cheaper) RATs a full six months after the FDA gave approval in the US, taking many more months before large numbers of RATs were purchased and distributed. The cost of these delays was in terms of excessively wide and lengthy lockdowns including children’s long absence from schooling.

As H&H make clear, these criticisms are not just from hindsight. Indeed, the two authors were frequent public commentators at the time, raising concerns then about each of these failures. They now estimate the cost of the failures as at least $30 billion (and probably over $50 billion) plus loss of life, lost education of a cohort of children and the mental health impact and misery for many suffering lockdowns that might have been avoided.

Lessons for the health establishment

H&H struggle to explain why the Commonwealth Department of Health and the health establishment got things so wrong in the later stages of the pandemic. Two former secretaries, Jane Halton and Stephen Duckett, are quoted and they too are perplexed. Both raised concerns about the vaccination failures at the time. Duckett intimates that there was too cosy a relationship within the establishment including with CSL and amongst the research community; and that the Commonwealth lacked direct service delivery experience which might have contributed to a hands-off approach and over-reliance on paying others to deliver.

H&H refer to the absence of economic thinking amongst the health community and call for a radical overhaul of health regulatory arrangements. But Treasury and Health officials were working side-by-side from the beginning. Didn’t Treasury tell Health not to worry about the costs but to focus on speed? Or did Finance, and Health’s long experience with struggling for funds, make it too hard to throw off a penny-pinching mindset? Health has also long had a deserved reputation for drawing on economics in its assessment of cost-effectiveness of pharmaceuticals, an essential component of regulatory approval to list drugs on the PBS, so why was that not drawn upon?

As another former Secretary of the Health Department (1996-2002), I too struggle to understand. Would the department I headed have made the same mistakes? I hope not, but I am also conscious of the challenges involved in managing the health system – including its scale, complexity, and ‘strife of interests’ (to use Sid Sax’s famous term from the 1970s).

The 2014 capability review of the department heavily criticised its loss of strategic policy capacity, but the new Secretary who was addressing that (Martin Bowles) was there for less than three years. His replacement (Glenys Beachamp) did not have as strong a policy background and, when she retired, Brendan Murphy the former CMO (and not a policy wonk) took over. I was not surprised therefore when the 2023 capability review repeated the criticism of a lack of strategic policy capability in the department.

An ongoing challenge for the department is to retain the respect and confidence of the strong health establishment while also having the capacity to stand back and question its assumptions and interests. It may lack direct service delivery experience as Duckett highlights, but the States too often don’t appreciate the world of GPs and other non-government health providers. The national department has a leadership role that must draw on all parts of the health system, and at the same time also stand above it, seeing the big picture including beyond the health system itself.

I was fortunate to have a strong strategic policy division when I was the Secretary and a deputy who had transferred from the Treasury. I also had on my executive team a CMO with high standing across the medical establishment. Such a mix of health expertise and wider policy experience, including economic expertise, is essential, plus an openness across governments and beyond.

Over the pandemic years, the Department arguably gave too much weight to its connections with the health establishment. Such connections are important. But the Department now has Blair Comley as its secretary, who has a strong policy background including in Treasury, and he has recently appointed a Chief Economist, Emily Lancsar, previously at ANU. This is promising.

 

First published in the Canberra Times.