Throughout
history, pandemics have had profound economic effects / The ravages of time
Long-run economic effects are not always dreadful
From Economist – March 12th 2020 edition
Pandemics are the inevitable attendants of
economic progress. Interconnected trade networks and teeming cities have made
societies both richer and more vulnerable, from the empires of antiquity to the
integrated global economy of the present. The effects of covid-19 will be very
different from those of past pathogens, which struck populations far poorer
than people today, and with less knowledge of things like viruses and bacteria.
The toll should be on a different scale than that exacted by the Black Death or
Spanish flu. Even so, the ravages of the past offer some guide as to how the
global economy may change as a result of the coronavirus.
Though the human
costs of pandemics are dreadful, the long-run economic effects are not always so.
The Black Death carried off an astounding one-third to two-thirds of the
population of Europe, leaving lasting scars. But in the wake of the plague
there was far more arable acreage than workers to farm it. The sudden scarcity
of workers raised labourers’ bargaining power relative to landlords and
contributed to the breakdown of the feudal economy.
It seems also to have ushered
parts of north-west Europe onto a more promising growth path. Real incomes of
European workers rose sharply following the pandemic, which struck the
continent from 1347 to 1351.
In pre-industrial times, higher incomes usually enabled
faster population growth, which eventually squeezed incomes back to subsistence
levels (as observed by Thomas Malthus). But in parts of Europe, Malthusian
rules did not reassert themselves after the pandemic receded. Research at the University of California, Los Angeles, and the
University of Zurich, argue that the high incomes induced by plague led to more
spending on manufactured goods produced in cities, and thus to higher rates of
urbanisation. The plague effectively shoved parts of Europe from a low-wage,
less urbanised equilibrium on a path more congenial to the development of a
commercial, and then an industrial, economy.
Something similar occurred in
the aftermath of the Spanish flu, which killed between 20m and 100m people from
1918 to 1920. The industrial economies of the early 20th century were no longer
bound by Malthusian constraints. Even so, American
states harder hit by the disease grew faster in its aftermath. After
controlling for a range of economic and demographic factors, they find that one
additional death per thousand people was associated with an increase in average
annual growth of real income per person over the next decade of at least 0.15
percentage points. Though the toll of covid-19 is likely to be too low to boost
real wages, it may force firms to embrace new technologies in order to operate
while warehouses and offices are empty, with lasting effects on growth and
productivity.
More often, though, a
pandemic’s economic consequences are unambiguously negative. Trade links which
spread a pathogen can themselves be undone by its effects. During the Roman
Empire, a high degree of specialisation and trade lifted incomes to levels that
would not be reached again for more than a millennium. Alas, the same links
facilitated the spread of disease. The Roman economy was dealt a blow in the
late second century a.d., when an outbreak of what is
thought to have been smallpox ravaged the empire. A century later, the Plague
of Cyprian, which may have been a haemorrhagic fever, emptied many Roman cities
and coincided with a sharp and permanent decline in economic activity, as
measured by numbers of shipwrecks (a proxy for trade volumes) and levels of
lead pollution (generated by mining activity). Reduced trade fed a cycle of
falling incomes and weakened state capacity from which the western empire never
recovered.
More recently, trade
may well have tumbled as a result of Spanish flu, had the first world war not
already brought a curtain down on the industrialised world’s first great era of
globalisation. Covid-19 also strikes at what may be the tail end of a long
period of rapid global integration, which is likewise threatened by great-power
competition. The circumstances are not identical, and trade is unlikely to
suffer as badly as it did in the 1910s. Still, it would not be surprising if
historians identify the pandemic as one of several consequences of
globalisation that eventually precipitated a new era in global trade.
Just as pandemics have a way of demarcating historical eras, they can also pinpoint shifts in the fortunes of some places relative to others. The Black Death lifted real incomes across Europe. But the fortunes of Europeans subsequently diverged, and disease again played a role. Plague returned to the continent in the 17th century in several deadly waves. The effects of these outbreaks varied greatly across Europe, argues Guido Alfani, of Bocconi University in Milan. Though at most a tenth of the population of England and Wales was lost to plague, for example, more than 40% of Italians may have died from the disease over the course of the century. While Italy’s population stagnated and rates of urbanisation tumbled, north-west Europe continued to benefit from growth and urbanisation despite the pandemic. The fiscal capacity of Italian states suffered badly, as did the textile industries of northern Italy, and northern and southern Europe embarked on quite different economic trajectories.
Disease is
not destiny
In the battle against covid-19, countries’ fates are in their own hands to a far greater degree than in the pre-industrial past. Governments know much more about how epidemics can be managed. Different experiences with the disease are as much an indicator of underlying state capacity as a cause of future economic divergence. Still, history reveals how pandemics nudge societies listing in one direction or another in a decisive and consequential direction. We cannot know what long-run effects covid-19 may have, but we can feel reasonably sure there will be some.
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