Governments in different countries have specific industries considered critical in realization of developmental goals in the economy. The industrial policy supports the allocation of resources to sectors thought to be most essential by a certain administration. The opportunity cost concepts in economics can clearly explain the shift of resources from one industry or sector to another through changes in output prices, input costs, and other regulatory treatments.
Opportunity cost attempts to explain the efficient allocation of scarce resources displaying the basic relationship between scarcity and choice. The concept of opportunity cost can be employed in the implementation of policies that involve giving up an alternative policy and its benefits for another policy option. Opportunity cost is not limited to financial costs but could extend to lost time, cost of lost production, and lost pleasure, among others (Olivera 2). The COVID-19 pandemic presents one of the best real-life events that led to the implementation of opportunity cost in industry policy to handle the health problems brought by the pandemic.
Many countries have successfully implemented the industrial policy attaining varying degrees of success. Though the industrial policy was seen to fall out in the US in the 1980s, its impact has been felt in the last few years. Before the COVID-19 pandemic, America was confronting a series of challenges including climate change, the rise of China, and global supply chain instability (Siripurapu & Berman, para 1). After the pandemic hit different parts of the world in 2019, Industrial Policy made a huge comeback in America (Siripurapu & Berman para 2). With the severity of COVID-19 on the country’s population, the government had to direct its resources toward the health sector to save the situation.
The COVID-19 pandemic resulted in a substantial increase in demand for medical care especially the hospital beds in the intensive care units. This demand placed severe pressure on healthcare systems and the government (Olivera 2). In preparation to cope with this growing demand for healthcare, the health systems in the country took into account the opportunity cost notion to promote efficient use of scarce resources. The health system in the US and other countries diverted its resources and staff from their other health activities to test and provide treatment for COVID-19 cases (Cook et al., 1287). The healthcare department had to forego the health benefits obtained from other activities to provide proactive measures to mitigate the spread and effect of the pandemic.
Federal spending on healthcare experienced substantial growth in response to the COVID-19 pandemic. The federal public health spent 114.9 billion dollars on vaccine development, health facility preparedness, and COVID testing (Centers for Medicare & Medicaid Services, para 3). As a result, the federal healthcare expenditure in 2020 grew by 36.0%. As the share of Gross Domestic Product (GDP)devoted to health increased sharply due to the pandemic, there were huge expenditure cuts in other sectors.
The COVID-19 pandemic caused a shift of priorities among Americans. A survey conducted by Sharpe & Spencer showed that there were significant trade-offs between health and other social activities (para 6). Americans were more concerned with living a healthier lifestyle and would spend much of their time watching out for mental health, exercising, and eating right than they would spend engaging in other pleasurable activities. During the survey, some respondents cited their shift in appreciation of quality time with family and friends to attending large events with strangers (Sharpe & Spencer, para 7). This demonstrates an opportunity cost of time spent in large event attendance for family and friend’s time.
During the pandemic, the American government engaged in several policy interventions that focused on economic stimulus. For instance, there were debates on the need for state reopening policies to encourage spending and promote economic recovery (Brown School of Public Health 3). However, there was a concern that reopening decisions would accelerate community-level transmissions of COVID-19 and consequently result in minimal economic gains. Therefore, based on the trade-off between losses from premature re-openings and continued virus spread there was a need to adopt strategies that would suppress the virus and promote sustained recovery.
The American federal government opted to invest in resources and coordination necessary to build a healthcare infrastructure to effectively surveil its population for new outbreaks. Interventions such as lockdown led to the economy losing 450 billion dollars in the second quarter of the pandemic (Brown School of Public Health 5). The government spent a significant percentage of the GDP to deliver a suppression strategy that would revive the economy. The huge social costs of unemployment among other losses acted as an opportunity cost for the health benefits that Americans attained from the COVID-19 measures and policies.
The opportunity cost concept applies to the analysis of the shift of resources from sectors such as mining and climate change to the health sector during COVID-19. The healthcare sector became the most essential during the pandemic. The government together with Americans diverged their resources and energy towards dealing with the crisis. Policies and measures adopted to deal with the pandemic resulted in significant benefits to several sectors of the economy while some other industries experienced great losses. There were also substantial trade-offs at the individual level as Americans had to forego some activities to protect their health and wellbeing.
Works Cited
Brown School of Public Health. “The Economic Case for Robust Public Health Intervention to Stop COVID”. Edmond J. Safra Center for Ethics, 2020.
Centers for Medicare & Medicaid Services. “National Health Spending in 2020 Increases due to the Impact of Covid-19 Pandemic”. Office of the Actuary, 2021.
Cook, Joseph, et al. “Americans’ Health Priorities during the COVID-19 Pandemic.” Value in Health, vol. 25, no. 8, 2022, pp. 1281-1289.
Olivera, Mario J. “Opportunity Cost and COVID-19: A Perspective from Health Economics.” Medical Journal of the Islamic Republic Of Iran, vol. 34, no. 1, 2020, pp. 1-3.
Sharpe, Maddie , and Alison Spencer. “Many Americans Say they have shifted their Priorities around Health and Social Activities during COVId-19”. Pew Research Center, 18 August. 2022.
Siripurapu, Anshu and Noah Berman. “Is Industrial Policy Making a Comeback?” Council on Foreign Relations, 17 April. 2022.