COVID hermit economies like Australia are heading for catastrophe

By Matthew Lynn August 19, 2021 â€" 10.30am

The mountains and valleys may not be quite as dramatic. The swirling fog might need a little more CGI to achieve maximum impact. And the extras may not be quite as well built. Even so, all things considered, Amazon has decided that the latest season of its epic Lord of the Rings series, one of the most expensive pieces of television ever made, will now be shot in the UK rather than in New Zealand.

That is a bonus for the already booming British production industry, of course, especially in the aftermath of our departure from the EU, but it is something more important as well. It is an early sign the “zero-COVID” countries are turning into “hermit economies”.

Farewell, Middle-Earth: Amazon has moved the filming of The Lord of the Rings out of New Zealand.Credit:Pierre Vinet

Of course, controlling COVID through lockdowns and closed borders was a triumph to start with. As the pandemic has dragged on, and borders remain sealed for years without end, it is going to take a huge economic toll. Australia is heading back into recession even as the rest of the world recovers. New Zealand is seeing investment flee.

In truth, in an increasingly globalised, networked world countries cannot exist in semi-lockdown forever and borders cannot remain permanently closed without doing huge economic damage. They can turn themselves into hermits if they want to - but the price will be a very high one.

It should have been a flagship for New Zealand. Amazon Prime’s Lord of the Rings prequel, set to start airing next year, is one of the biggest TV productions of all time. The first season cost $US460 million ($635 million) and three more seasons are planned. Allowing for some inflation, completing the saga is likely to cost another $US1.5 billion (which by itself is almost 1 per cent of New Zealand’s GDP).

Instead of completing it in that country, Amazon announced last week that the rest of the series would be made in Britain. The reason? According to the company, it wants to consolidate its productions in the UK. Well, perhaps. It sounds a little odd, to put it mildly. In every other respect, Amazon spreads itself across as much of the world as possible.

In truth, in an increasingly globalised, networked world countries cannot exist in semi-lockdown forever and borders cannot remain permanently closed without doing huge economic damage.

It is not hard to work out the real reason. Actors, designers, and technicians don’t want to have to fly into and out of a country where they might constantly have to quarantine. Nor does the company want to risk delays for local lockdowns.

The UK may not have the same epic natural scenery, although North Wales and much of Scotland will work almost as well. It is turning into a far easier place to run an international business.

It is not just New Zealand. The far larger Australian economy is starting to suffer just as much. After a record 30-year run without a single recession, the economy shrank last year, and it is now expected to contract again over the next couple of quarters.

Huge swaths of the population are back in lockdown as COVID infections rise and output is inevitably starting to fall. As the rest of the world recovers, and growth accelerates in the US, Britain and, even if slightly more sluggishly, across most of mainland Europe, both countries are illustrating the cost of “zero-COVID” strategies.

True, it worked initially and, measured by overall infections and deaths both Australia and New Zealand have done far better than most other countries. They kept the virus under control locally, and strict travel rules prevented infections coming in.

New Zealand’s prime minister, Jacinda Ardern, much praised for her early handling of the disease, has doubled down on her eradication strategy. Australia is equally determined. And yet the economic consequences are just becoming clear.

First, both countries will have to keep lockdowns in place, potentially for years to come. The virus is mutating all the time and, with no form of natural immunity, governments are left with no choice but to keep quarantine in place for anyone travelling into the country, and to go back into snap lockdowns as soon as a few cases emerge. As the virus gets more and more infectious, that will only worsen.

Next, vaccine campaigns have been painfully slow. In Australia and New Zealand, less than a fifth of the population is fully vaccinated (compared to 75 per cent in the UK), with millions of Oxford Astra-Zeneca doses unused, and vaccine hesitancy rampant. Even worse, they remain at the back of the queue for supplies; after all, why send doses to Australia when the death rate is so low?

Finally, foreign investment is starting to dry up. The Amazon decision is an early sign of that, but it is impossible to believe that there won’t be many more examples very soon.

After all, how can you launch a new product, build a factory, open a shop or create a distribution network, if you can’t get into or out of a country without weeks of quarantine? Australia and New Zealand were probably more plugged into the world when you needed a sailing ship to get there than they are right now.

Health experts, and some economists, have spent much of the past 18 months lecturing us that there was no trade-off between containing the virus and economic growth. Plenty more are still pushing for a “zero-COVID” strategy, where the virus is completely eliminated before we can get back to normal.

For a time, some of those arguments might even have sounded convincing, but as the pandemic has dragged on the costs of that strategy have started to become painfully apparent.

Countries can cut themselves off from the world if they want to. They can remain in permanent lockdown, and prioritise public health over every other form of endeavour. In effect they are creating hermit economies, isolated from the rest of the world - and they are condemning themselves to eventual poverty.

The Daily Telegraph, London

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