Starbucks, hospital beds - and lockdown

22 APRIL 2020

Amongst the many things that have originated in China and had an impact on civilization two have caught our attention:

  1. The COVID-19 which originated in Wuhan, China
  2. The butterfly effect: as per this Chinese saying, a butterfly flapping its wing in one continent can cause a storm on another continent.

The world wishes to investigate the role of a seemingly compliant WHO and allegations that insufficient or inaccurate data originating from China failed to alert the world on the intensity of the dangers from COVID-19.

But while the role of the referee and a sly boxer are being investigated, we also need to see how prepared we were for the surprise lunge for our jugular.

Sadly, we were ill prepared.

After the sacrifices that millions had made in World War I and World War II so that we could live in freedom, we spent much of the last few decades of the 1900's enjoying that freedom. By the early 2000's we had perfected it - and over the last 10 years we mastered it.

A body driven by consumption gets flabby.

A body not prepared for an attack on its system, tends to be weakened and vulnerable.

The world (and I am guilty, too) was so busy consuming imported goods, flying around on vacations, taking selfies in Venice, London and New York, and watching data, goods, money and people flow across borders that we forgot that diseases can also flow across borders.

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Just as the right to differ is the fundamental characteristic of a free society, the ability of a virus to slip past immigration officials is the tag-along right in an open-border society.

The flapping of the wings of the butterfly of globally-powered consumerism has caused a storm that threatens our way of life. While the private sector was busy feeding the itch of consumerism, policy makers and governments forgot to ask the "What if?" question. They forgot to plan safeguards for the health and safety of their citizens. There is clearly more joy and wealth in opening a new car dealership, a giant mall, an expansive airport - than an isolation bed designed for a pandemic.

Table 1: When Consumption rules - and planning fails

  2008 2019 Change
McDonalds' - global locations 31,967 38,695 +21%
Starbucks - global locations 16,68 0 31,256 +87%
Passenger miles flown in USA 583 billion 763 billion +31%
Hospital beds / 1,000 in USA 3.1 2.8 -10%
Hospital beds / 1,000 in Italy 3.8 3.6 -5%
Hospital beds / 1,000 in India 0.5 0.5 -
Isolation beds in Mumbai, for 15 mn people na 3,500 -
Source: from web sites and OECD data

A global lockdown has been emotionally draining, socially debilitating and financially disastrous. With global GDP at an estimated USD 65 trillion, the daily average GDP in the world works out to USD 178 billion per day. Assume that 50% of the economic activity of an economy has been wiped out by the act of sitting at home this works out to a loss of USD 89 billion every day.

On average the word has been locked down for 60 days and may take another 30 days to start inching toward some normalcy. This assumption of 90 days wipe out of economic activity works out to USD 8 trillion in lost revenues and/or incomes.

Now we come to the "What ifs?"

We had the lockdown in India and globally because there were not enough hospital beds, ventilators, intravenous fluids, preventive equipment, masks and other such medical equipment to treat the infected.

What if New York City had another 10,000 beds? What if the USA had another 100,000 beds?

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What if India had another 1,000,000 beds (depending how you define a bed India has about 1,000,000 beds but about 100,000 isolation beds are supposedly equipped to deal with the pandemic of COVID-19).

What if the world had 1,000,000 more pandemic-fighting, isolation-beds?

We would not have needed these harsh lockdowns as we would have had the capacity to treat more people and not worry about "flattening the curve".

What would these additional isolation beds have cost us - and would we have had to suffer the long-lasting scars of a lockdown?

Table 2: The benefits of investing in hospital beds - buying an insurance policy

Country Isolation beds, number Cost per bed Total cost Loss of GDP from
90 days of lockdown
Cost of extra beds to
GDP lost due to
90 days lockdown
USA 100,000 USD 100,000 USD  10 billion USD 2,466 billion 0.4%
India 500,000 Rs 20 lakh Rs 1 lakh crore
USD 13 billion
USD 715 billion 1.8%
Source: assumptions and web data

An isolation bed in the USA may cost USD 100,000 per bed fully equipped with ventilators, personal protection equipment and other required material in an isolation ward.

A bed in India would cost less, let's assume it to be Rs 20 lakh.

Since the pandemic of SARS in 2003 and the H1N1 in 2009, the US could have added 100,000 beds at a cost of maybe USD 10 billion and saved USD 2.5 trillion in lost economic output due to COVID-19.

India could have added 500,000 beds at a cost of Rs 20 lakh per bed (costs are lower in India) for a total cost of Rs 1 lakh crore (USD 13 billion) and saved USD 715 billion in lost economic output due to COVID-19.

Building hospital beds and planning against a pandemic - imported duty-free from another part of the world - is like buying insurance.

In the USA that cost of insurance was 0.4% - that being the cost of the additional hospital beds.

In India, that cost of insurance was 1.8%.

Yes, there will be maintenance costs and you need nurses and doctors to oversee the beds. But, these beds could be used for regular hospital purposes till a disaster struck. And income from such use would have probably covered the cost of maintenance each year.

In contrast, assuming that adding a Starbucks or a McDonalds' costs USD 1 million per location, these two companies have spent USD 21 billion globally to add to the consumption-fueled binge of the past decade. Airlines have spent over USD 50 billion on adding airplanes for us to fly around - and carry our memories and viruses.

Even as we live through the nightmare of this pandemic, we don't seem to learn! With a budget of Rs 30,000 crore the BMC is the richest municipality in the country. The BMC could start spending money to create the infrastructure to add more hospitals and medical capacity. We have all seen the speed with which China built 1,000 bed hospitals to treat COVID-19 patients.

For now the BMC has 3,500 beds for a city with a population of 18 million people - woefully insufficient. They plan to double that number by converting regular beds in some hospitals to isolation beds. That is taking away a bed that could be used to treat a person who is ill with some other disease to treat a patient infected by COVID-19. It is tantamount to potentially saving one person's life while endangering another - this when they have the money to build more hospital rather than building the Coastal Road.

The BMC is using the lockdown to work with its contractors - the very corporate-governance focused L&T

L&T: Should Corporates Have a Conscience?, to complete a large chunk of the southern end of the coastal road. A newspaper snippet also proclaimed that the tunneling equipment from China (minus any virus, we hope!) has arrived in Mumbai to be deployed for the tunnel to be built from the Marine Drive end of south Mumbai to the Priyadarshini Park.

We consumed blindly - and the government forgot to plan.

Think about it: our latte and our selfie in Venice in a world with fewer than required hospital beds, has now left us stranded at home.

We are locked down - and poorer - as the values of our stocks and our properties have been decimated.

For those in Mumbai, the BMC's passionate love with the coastal road will give us soon another choice: drive your car faster on the coastal road - or risk living in a city flooded from the impact of climate change? It's time to ask questions on why we build grand projects that may be potential real estate money-spinners, rather than protect the very citizens who elect governments?


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Disclaimer: The Honest Truth is authored by Ajit Dayal. Ajit is Founder of Quantum Advisors Pvt. Ltd. which is the Sponsor of Quantum Asset Management Company Pvt. Ltd – the Investment Manager of the Quantum Mutual Funds. Ajit is also the Founder of Quantum Information Services which owns Equitymaster and PersonalFN. The views mentioned herein are that of the author only and not of Quantum Advisors, Quantum AMC or Equitymaster. The information provided herein is compiled on the basis of publicly available information, internally developed data and other sources believed to be reliable by the author. The information is meant for general reading purpose only and is not meant to serve as a professional guide / investment advice for the readers. Readers are advised to seek independent professional advice and arrive at an informed investment decision before making any investment. Whilst no specific action has been suggested or offered based upon the information provided herein, due care has been taken to endeavour that the facts are correct, accurate and reasonable as on date. None of the Author, Quantum Advisors, Quantum AMC, Equitymaster, their Affiliates or Representative shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary losses or damages including lost profits arising in any way on account of any action taken basis the data / information / views provided in The Honest Truth.

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7 Responses to "Starbucks, hospital beds - and lockdown"

Manjunath

Apr 28, 2020

Kind Attn: Te Moderator

Dear Madam / Sir,

Thank you for posting my comments. Frankly, I did not expect it.

I have a request. I had written to the PMO & Finance Ministry suggesting how to raise taxes by instituting equity. Ajit-sahab has a reputation and his word is highly respected. As I am not a respected figure and neither have a reputation, perhaps Ajit-sahab can put forth the suggestion, after review of the same, and in case he finds it appropriate, with modifications he may deem appropriate.

If you may kindly provide your e-mail address, I can send the uploaded article to you for review.

Hope that you find the same in order.

Thanking you in advance for your kind co-operation and looking forward to hearing from you.

With warm regards,

Manjunath.

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Nitesh Parikh

Apr 22, 2020

Thanks for the nice read! Looks like this article was written in haste just to ensure that you and equitymaster contributes something to be consumed the readers again depicting to consumption mentality we all have. in short, you have done just the financial comparison of how if the funds were diverted or invested in no. of beds there wouldnt have been any lockdown situation and the impact on world economy would be minimal. I read somewhere that the world economy is collapsing because everyone is buying only what they exactly need and not over consuming. what you have missed out is any amount of beds wouldnt be sufficient to control this pandemic. as per the estimate if the lockdown wouldnt have happened world over at least of 70% of the world population would have been infected by this disease and the mortality rate would have surpassed any of pandemics or world wars fatality mankind has ever faced or imagined. this is not like buying an insurance, this is like preparing for a black swan event and whatever advancement world would ever make, there well always be a black swan which will take everyone by surprise. just reverse your logic and put this question in front of any of the countries- India, US, China, Italy- will they be prepared to make so many beds and spend so much money and keep themselves prepared for next such situation and review it year on year adding more investments to sustain that facility and be confident that they are ready for such thing to happen in future. Also hope that this will be it. the next such unprecedented situation will be tackled. It is very easy to do any analysis of lost match, postmortem the functioning of any government, talk about the performance of the company after the event has happened. the honest truth at this moment is just support from whatever means- by words, by deeds, by money, by efforts to be put by everyone to come out of this situation. stay safe! Cheers

Like (4)

venumadhav

Apr 22, 2020

Truth is bitter pill to swallow. I am damn sure, Policymakers and large section of Society not ready (or willing) to Swallow. #Me too one in society silently follows rest of flock with guilty feeling of following wrong direction.

Like (4)

INDRAJIT RAY

Apr 22, 2020

The answer, as per me, to the question asked at the end is that the stake is too many, the greed is too much,the corruption is too high AND we do not know where we want to go. The people are myopic, tunnel visioned and too much materialistic (not in India but worldwide), gobble up all infrastructure, whatever is provided, and want more consumption. The western education system is fallible. The Indian education system is still worse and destructive, creating lakhs of technical and financial clerks, at the cost of virtually killing the intelligence and independent thinking of every child, to serve the West. I know and understand that I am also part and product of this system, but can not help. It's the question of survival.

Like (4)

Dr.V.D.Trivedi

Apr 22, 2020

With govt.hospitals and beds in short supply the private sector has entered in with a purely commercial aim and made healthcare costs very high.It is viable due to to its good quality care compared to the public sector hospitals but the pay scales of its employees like duty doctors and nurses is very low.Unless the real care providers are better paid these institutions will lose their goodwill fast.This is s major reason for brain drain of qualified personnel.

Like (4)

Sai N

Apr 22, 2020

Per my knowledge, the butterfly effect is NOT a Chinese saying. It comes from Chaos theory wherein the sensitivity of end conditions to the beginning conditions are illustrated with an outrageous example. Please look for "butterfly effect" in Wikipedia.

Thank you

Like (1)

Murali

Apr 22, 2020

The articles makes the right point but not a word, not a thought, not a questioning towards what could have been done to improve the immunity level of the individuals and thus the society itself... and what traditional knowledge could have contributed to this (like organic produce, less urbanisation, better agricultural and rural infrastructure along the lines of a nature-friendly traditions)... So the article starts well, points out all the right issues and ends in square one again! When will we Indians stop this unsustainable Western thinking?

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