Historical precedent suggests that some of the stringent approaches being adopted to combat Covid-19 will be at the expense of so-called social capital – trust in the decision-making process – and checks on government power. Both outcomes have the capacity to impede long-term economic recovery.
The International Monetary Fund predicts negative global growth – minus 4.4 per cent – in 2020, which is far worse than the 2008-09 financial crisis. The World Bank expects the deepest global recession in eight decades with a minus 5.2 per cent contraction in GDP. This is an unprecedented socio-economic trauma.
Economic studies of past pandemics have focused on the short-term effects that arise through labour supply shocks, whether it be the reduction in GDP attributable to the H5N1 bird flu virus or, after the 1918 Spanish flu pandemic, the population’s increased reliance on the poorhouse and in capital returns.
Economics of the TseTse fly
Others have highlighted how disease dictated economic development. Rapid European domination of the Americas, for instance, has been attributed to the relentless spread of Eurasian diseases such as smallpox, measles and influenza in the indigenous population, enabling Europeans to assert control.
Conversely, it’s been noted how the mortality of European settlers, largely caused by malaria and yellow fever, shaped colonisation strategies. Specifically, the disease environment held back private credit and stock market development and, where it was harsh, meant that colonisers favoured setting up institutions to extract resources rather than settling down.
Also exerting an influence was the TseTse fly, which causes human sleeping sickness and animal trypanosomiasis. Analysis of satellite data has found that, historically, it has a negative effect on agricultural production and population density, and a study last year showed how the TseTse fly is holding back financial development and fintech adoption in Africa by eroding trust.
Discussion of the Covid-19 pandemic has largely focused on human health, the short-term market and the reactions of companies, as well as environmental and economic indicators. The impact on culture and institutions could, however, have greater significance for long-term economic recovery.
Governments around the world are undertaking a range of responses that include containment and closure policies, economic strategies and health programmes. Intrusive, drastic interventions are not necessarily more effective than less disruptive and less costly ones. There are also criticisms of some governments’ approaches, such as the promotion of unproven treatments and indiscriminate lockdowns.
Censorship and privacy
Misguided policy actions can easily foster mistrust and create a xenophobic culture, both of which are particularly harmful to long-term development. Propaganda that exaggerates the severity of the pandemic in foreign countries and media censorship that forbids free discussion about the virus is prevalent. According to the non-governmental organisation Freedom House, 91 countries experienced new or increased restrictions on their news media following the Covid-19 outbreak.
Travel restrictions on citizens can also be problematic. The United Nations has said that restricting freedom of movement is necessary to stop transmission, but has urged that this should be proportionate and non-discriminatory, given the availability of effective testing, tracing, and targeted quarantine measures.
Privacy and data protection continue to be thorny issues. In some countries, the personal information of individuals who have tested positive – and their families – is disclosed in the media. This leaves people open to discrimination. The UN and World Health Organisation have raised concerns that certain usage of personal data can lead to an infringement of the right to privacy.
In the public domain, there is disquiet about arbitrary changes to election rules and an upsurge in police violence during the pandemic. There is also unease that some borders have become less open to international trade and capital flows. Domestic agents have been quick to suppress free competition, exerting political influence that weakens institutions and developed financial markets.
Perhaps we shouldn’t be surprised. Pandemics can create hothouse conditions when it comes to developing mistrust and oppressive institutions. During the Black Death – the deadliest pandemic in history – desperate people, powerless to contain its spread, sought scapegoats. False confessions, secured by torture, inflamed suspicions and intensified antisemitism and belief in witchcraft.
As many as one million individuals in Europe were executed for the crime of witchcraft between the 13th and 19th centuries. Recent research shows belief in witchcraft remains a salient feature of life in many parts of the world today.
Fear of bewitchment – and the fear of being accused of witchcraft – has an adverse impact on trust, and the consequent depletion of trust reduces collaboration among local people and, in turn, hinders economic development.
The end of the Middle Ages brought little change in the position of Jews in Europe. They remained prey to prejudice and victims of all-too-frequent massacres. Present day research has shown that as well as its unimaginable human cost, antisemitism lowers support for the market economy and for democracy.
Findings such as these suggest that a hostile culture to development, shaped by historical pandemics, can last for hundreds of years. Governments should, therefore, weigh up the cost to social capital, and to institutions, before implementing policy responses to Covid-19. History teaches us how difficult – if not impossible – it is to restore damaged trust, or deteriorated institutions.
Wenxuan Hou is professor of corporate finance in the University of Edinburgh Business School. Covid-19 and Development: Lessons from Historical Pandemics, by Wenxuan Hou and fellow Edinburgh academics Brian Main and Xianda Liu has been published in the Journal of Chinese Economic and Business Studies.