Because the world is so full of death and horror, I try again and again to console my heart and pick the flowers that grow in the midst of hell.” ― Herman Hesse, Narcissus and Goldmund

In a globalized world, diseases can spread like never before, and their economic impact ripples out to every corner of the planet. Yet the biggest economic impact of modern epidemics may come not from the diseases themselves but from our responses.

Early Epidemics – The Black Death

The Black Death was such a traumatic event that it’s still talked about as the plague, and its memory is reflected across European culture and beyond. It also had a complex impact on the economy of 14thcentury Europe.

Devastating losses led to greater demand for the labor of the survivors and so pushed up wealth per person. But this reduced population used less of the land and created lower demand for goods, meaning that the overall economy shrank.

Spanish Flu – A Global Epidemic

The Spanish flu was the first great epidemic to be spread by a modern, interconnected world of global travel. When the disease reached the Western Front of the First World War in 1917, it spread rapidly through a population of millions of soldiers, who then carried it back around the world following the armistice the following year.

As with the Black Death, the effects were mixed. Deaths and sickness caused drops in overall GDP, but also led to rises in income per worker due to labor shortages in some regions, such as the United States. While the entertainment industry suffered, the health sector profited.

Epidemics in a Global Economy

In the modern, fast-moving global economy, other economic effects of epidemics are becoming apparent. Short-term trends can have significant impacts.

The 2003 SARS outbreak provides a clear example. The airline industry alone suffered a $7 billion loss in earnings during the outbreak, as global travel took a dive. Businesses reliant on tourists and business travels were badly affected. Overall, SARS did an estimated $50 billion of damage to the global economy.

Financial losses from epidemics take many forms. Somalia suffered $435 million in lost livestock exports due to an RVF outbreak in 1998-2002. Malaysia lost $105 million in tax revenue to Nipah in 1998-9. The Ebola outbreak of 2013 cost Ghana, Liberia, and Sierra Leone $600 million in lost investor confidence.

Perception Over Reality?

In these modern epidemics, the economic impact seems out of proportion to the damage done by the disease. SARS caused only 800 deaths around the world but did $50 billion in economic harm. The MERS outbreak in South Korea in 2015 killed only 38 people but led to record low interest rates as the Bank of Korea countered changing consumer behavior.

Does this mean that the economic impact of diseases is more about perception than reality? That it’s panic, spread at lightning speed by social media, that’s driven up the economic cost of modern epidemics?

It plays a part. But more importantly, we’re paying the economic cost of saving lives. As governments and businesses get better at identifying and managing diseases, they can adapt to stop their spread. China has shut down factories to stop the spread of coronavirus. The cure is having a greater economic cost than the disease, but only because it’s stopping the disease from spreading. We don’t know what human and economic devastation these diseases would cause if they weren’t stopped by consumer behavior and government action.

The cost of fighting epidemics is high, but for the lives saved and the long-term disruption avoided, surely that’s a price worth paying?