Almost all UK firms and industries have been badly affected in the short term by the spread of Covid-19. Looking back at past pandemics – the Black Death, the Great Plague of London and the Spanish flu – provides some perspective on longer-term prospects for business.
The Covid-19 pandemic and government efforts to halt the spread of coronavirus have had serious negative consequences for small and medium-sized enterprises (SMEs), but less so for many large companies and multinational corporations (Turner and Akinremi, 2020). SMEs are more vulnerable to shocks, such as pandemics, which big businesses are often able to survive (Verbano and Venturini, 2013). Despite this, economic research has given little attention to this important difference (Turner and Akinremi, 2020).
Although the modern economy is far more connected than in earlier centuries, previous pandemics and epidemics can give us some insights about what to expect in the longer term. Analysing the three largest pandemics to strike Britain – the Black Death (1347-52), the Great Plague of London (1665-66), and the Spanish flu (1918-19) – allows us to draw some insightful parallels with modern events (Colvin, 2020).
What does evidence from economic research tell us?
Large companies are usually more able to prevent losses and adapt to new circumstances, including pandemics, than are smaller companies.
The ability of governments to prevent business collapse is significant, but policies do not always have equal benefits.
What do we know?
We require microeconomic data (data on companies and individuals) to explain how past pandemics have affected big business, but economists have tended to conduct macroeconomic (large-scale) studies (Turner and Akinremi, 2020). It is also difficult to make comparisons between different periods of history, especially as wider events alter how pandemics affect the economy (Jordà et al, 2020).
But allowing for the limited amount of data and economic research, we can still draw some conclusions from past pandemics.
The Black Death
The extreme death toll of the Black Death, and the nature of the 14th century economy, meant that its effect on big business was substantially different than other pandemics and epidemics. The Black Death killed between 40% and 60% of Europe’s population, at least 75 million people. This led to radical socio-economic changes, most importantly the redistribution of wealth among the survivors and the decline of serfdom (Herlihy, 1997).
The redistribution of wealth was particularly important for artisans and other urban residents, who gained new opportunities for commercial and social advancement. In England, the wool trade, England’s most valuable export, was damaged by export duties designed to fund the Hundred Years’ War and compensate for the decline in revenue caused by the Black Death. This, however, boosted the woollen cloth industry. Those companies that were able to make the switch – or, more often, new generations of merchants who were more suited to the changing market – could profit handsomely (Lloyd, 1977).
The impact of the Black Death on big business is more difficult to judge because of the effect of contemporaneous events. When the Black Death struck, Italian companies, Europe’s largest, had already shrunk in size after a series of bankruptcies in the 1340s (Hunt, 1994). These bankruptcies also meant that later companies were far more cautious in their operations (de Roover, 1963). There were, however, some opportunities for big companies. In the absence of Italian bankers, the de la Pole family, originally from Hull, became the Crown’s most important creditors at a time when the Black Death had increased its financial requirements (Fryde, 1988).
The economic outcome of the Black Death, therefore, was of radical change and transformation, with both disastrous and beneficial consequences for all types of businesses.
The Great Plague of London
In 1665, London and some provincial towns were struck by a particularly severe outbreak of the bubonic plague, which killed perhaps 100,000 people and temporarily halted almost all commerce, to the detriment of the city’s traders. In London, there were high death rates among the poor, who lived in crowded conditions. Those merchants without the money to flee London struggled to sell their wares and were obliged to reduce their prices (Moote and Moote, 2004).
Wealthier citizens did better. According to Daniel Defoe, some of the wealthiest trade masters continued to manufacture goods throughout the epidemic. This both kept their poor workers in employment and – so they hoped – would allow them to capitalise on the anticipated spike in demand that would follow the outbreak. But most wealthy merchants and goldsmith-bankers fled the city (Defoe,  2015).
The diarist Samuel Pepys, who was also Chief Secretary to the Admiralty, recorded that the Royal Exchange, London’s stock exchange, was empty of its usual crowd of wealthy merchants and goldsmith-bankers. Their absence meant that the Crown was unable to find creditors willing or able to fund the Second Anglo-Dutch war. When he attempted to raise a loan, Pepys was told by one banker-goldsmith that there was ‘no money got by trade, nor the persons that have it by them in the City to be come at’ (Pepys,  2018).
After the plague, London’s trade recovered swiftly (Defoe,  2015). Perhaps surprisingly, the Great Fire of 1666 helped with the general economic recovery, as the torching of warehouses produced an even greater demand for manufacturing (Mitchell, 1994). London’s foreign export trade had a spike in demand, fuelled by continental European markets that had been deprived of English manufactures for many months (Defoe,  2015). Likewise, regional trading towns, such as Colchester, quickly recovered, whereas towns that failed to attract new immigrants, such as Ipswich, experienced recessions (Porter, 2009).
Overall, the duration of the Great Plague was short enough, and London was dynamic enough, that the long-term economic effects were short-lived. The facts suggest, however, that larger businesses weathered the Great Plague more easily than smaller firms, which were unable to keep manufacturing or to delay trading until market conditions improved. If this is true, it would echo the situation we see today, where large companies are more able to adapt their business models to sudden changes (Verbano and Venturini, 2013).
The Spanish flu
The Spanish flu killed perhaps 50 million people in three waves between 1918 and 1919 (Colvin, 2020). It overlapped with and was spread by soldiers fighting in the First World War, which also substantially altered its economic impact. In the United States, where most of the economic research has focused, the Dow Jones index was comparatively unaffected (Taylor, 2020).
The First World War also mitigated the impact of the flu by acting as a stimulus for certain economic sectors. In neutral Sweden, the war boosted agricultural exports (Karlsson et al, 2020). In the United States, the government ordered factories to stay open for the war effort (Benmelech and Frydman, 2020). Unlike large industrial and agricultural firms, many American SMEs suffered serious losses from Spanish flu (Turner and Akinremi, 2020). The differences between the two groups indicate that the fate of the stock exchange does not give a complete picture of the economic ramifications of a pandemic.
The Spanish flu and Covid-19 share a pattern in which large companies and multinational corporations weather or even benefit, often partly as a result of government support, while SMEs suffer substantial losses.
This brief summary of each historical outbreak and its economic consequences for big business demonstrates some continuous trends that we can use when analysing the present.
First, that pandemics and epidemics have serious consequences for trade and finance, but that the short- and long-term consequences may be very different from each other.
Second, that larger companies are more able to survive pandemics and other shocks than are smaller businesses.
And third, that the economic ramifications of pandemics are often closely intertwined with surrounding events.
What else do we need to know?
We know that large companies are better at surviving and adapting to pandemics and other market shocks, but we do not know all the details and the topic remains understudied (Turner and Akinremi, 2020).
In particular, we do not yet have studies that have sought to differentiate between large and small firms in the aftermath of the Great Plague of London. The consequences of the Spanish flu for SMEs are also awaiting more comprehensive research.
We also know that government mitigation efforts often help larger companies more than smaller ones. But we do not know how crucial a role this played in previous disease outbreaks, nor do we know the extent of government support.
Where can I find out more?
- What are the long-run economic consequences of pandemics?: Patrick Wallis explores how we can use historic pandemics to assess modern outcomes.
- The 1918 influenza did not kill the US economy: Efraim Benmelech and Carola Frydman discuss why the Spanish flu had a limited economic impact.
- A Journal of the Plague Year: Daniel Defoe’s 1722 collection of accounts from the 1665 plague, published in response to the outbreak of plague in Marseille.
- The longer-run economic consequences of pandemics: Oscar Jordà, Sanjay Singh and Alan Taylor summarise their research at VoxEU.
- The Diary of Samuel Pepys: Includes an eyewitness account of the Great Plague of London.
- The Spanish flu and the stock market: the pandemic of 1919: Bryan Taylor shows that the Spanish flu had little effect on the Dow Jones Index.
- The business effects of pandemics – a rapid literature review: Joanne Turner and Temitope Akinremi provide an overview of existing research on the effect of Covid-19 on businesses.