A fundamental principle of finance is the concept of sunk costs, which is a fancy way of saying don’t cry over spilt milk. Or, in other words, if a decision you made in the past turned out badly, but you can no longer influence what has already happened, don’t let that influence your future decision making.
An example of a sunk cost is a mergers and acquisitions deal that has gone wrong (and statistically most do). The easy decision is to keep spending money on the losing acquisition in the hope that it may one day turns around. That’s rarely the smart decision though. In almost all cases, strong executives will realise the error they made, own it and minimise the ongoing damage by closing and writing down the value of the failing business. (This incidentally is almost always what happens as soon as a CEO is replaced because the new executive has no emotional or reputational attachment to the poorly performing asset).
The attitude of almost every Australian politician, from both major parties, in maintaining a devotion to COVID-zero (or eliminating COVID), is a classic example of a failure to understand sunk costs — being a misunderstanding that the situation has now changed.
Even the once lockdown-averse Gladys Berejiklian continues to impose increasingly harsh sanctions on New South Wales residents, with the entire state now subject to stay-at-home orders (in some cases, enforced by the Australian military). Daniel Andrews, who embodies snap lockdowns to avoid longer lockdowns, has essentially locked down Melbourne for the best part of three months to avoid a ‘long’ lockdown. Meanwhile, Mark McGowan would seemingly rather secede from the rest of the country rather than risk a single asymptomatic infection of a virus which has so far failed to kill 99.95% of humans.
Australian leaders continue to cling to the success of 2020 while making decisions regarding 2021. The problem is 2021 is very different to 2020 for two big reasons.
First, the fast-incubating Delta strain makes contact tracing incredibly difficult and according to the head of the Oxford Vaccine Group, Delta has also meant that herd immunity from COVID is no longer “a possibility”.
Second, in 2021, we now have vaccines which reduce the risk of dying from COVID by more than 90%. Even with Australia’s frustratingly delayed rollout, more than half of the at-risk 70+ age group have now been fully vaccinated.
The failure to understand the difference between this year and last year was exemplified by Victoria’s Chief Medical Officer, Brett Sutton, who last week justified the possibility of continuing interventions after 80% of adults had been vaccinated, on the ground that he didn’t want Victoria “to move to a place where we have 130,000 people who have died like the UK.”
What Sutton didn’t say was that 127,000 of those 130,000 British deaths occurred before the UK reached Australia’s current vaccination level. Nor did Sutton add that the UK has eleven times the population of Victoria. Had Sutton said that compared to the UK, Victoria was at risk of 500 deaths if it opened now and an even smaller number at 80% vaccination levels, it is unlikely many Victorians would have been concerned.
Like a desperate CEO clinging to hope that last year’s strategy might miraculously come good, Scott Morrison and the state premiers refuse to acknowledge that COVID-zero is dead while the costs of maintaining lockdowns continue to mount.
Canada, the UK, Middle East and virtually all of Europe have opened their societies with less than 50% of people vaccinated. Denmark, which last year has maintained one of the strictest COVID regimes, yesterday announced that people would no longer be required to wear masks anywhere other than on planes (64% of people have now been vaccinated there).
The UK, which opened a month ago at roughly our Phase C target (70% of adults vaccinated) is largely living normally with 30,000 reported daily infections. Most importantly, hospitalisations and deaths remain at less than 10% of January levels.
Than there is Sweden, much maligned in 2020 for not conducting mass-government interventions (popularised by China), where liberal democratic Sweden suffered 13,000 deaths in the first year of the pandemic. The Swedes appear to have had the last laugh though, with its COVID fatality rate slumping to 39th in the world. Relatively far less people died in Sweden than in UK, Belgium, Italy, Spain, Portugal, France, Poland and Argentina — all countries that forced their populations into extended forced closures. In the past month a total of 12 people have died in Sweden from COVID, compared to 36 in locked-down, militarised Australia.
Sweden showed that even before vaccinations the benefits of attempting to eliminate COVID are likely illusory. But that argument was so 2020. Not only has Australia already vaccinated a significant proportion of its at-risk population, anyone who is unvaccinated in the high-risk cohort either won’t ever take vaccine (and choose to bear their own risks) or demand their specific choice of vaccine brand.
Meanwhile, we’re seeing “a generation of children broken” with schools continually closes, depression and suicide reaching record levels, thousands of small businesses lying on the brink of collapse and domestic violence rates skyrocketing.
All because Australian leaders remain fixated on the notion that COVID-zero is a vote winning strategy. Someone forgot to tell them that it’s not 2020 anymore.
Adam Schwab is a SmartCompany and Crikey contributor, company founder, angel investor and author.
Adam is the co-founder of The Lux Group and author of Pigs at the Trough: Lessons from Australia’s decade of corporate greed. He is also a member of the SmartCompany Brains Trust, a former Private Media board member and former corporate lawyer.
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