As Covid-19 continues to overwhelm the global economy, governments, businesses and ordinary citizens are scrambling for political legitimacy, stability and survival respectively. There are no easy formulas for economic recovery. Neither are there accurate speculations on the economic havoc which will follow the pandemic. There are material lessons which could and should be drawn from the Spanish flu, which lasted between 1918 and 1920. I examine them below.
The socio-economic context of the Spanish flu
There are varying records on where the virus exactly started. The fatalities associated with the Spanish flu are highly contested. The most cited source for infections and mortality data of the Spanish flu is Johnson and Mueller (2002), who estimate that roughly 500 million people (one-third of the then world’s population) became infected with the H1N1 virus and about 3% (50 Million) died. These authors caution that their estimates might be much less than the actual infection and fatality figures. If we rely on Johnson and Mueller’s account, then 10% of those infected succumbed to the disease. 25% of the United States population was infected, and 20% of India’s. Celebrities such as the globally re-known sociologist Max Weber, the artist Gustav Klimt, as well as Frederick Trump (the grandfather of the current U.S. President) died of the disease. Roughly 43% of all Spanish flu deaths were in India, the highest mortality of any country by far. South Africa followed with 3.4% of the total global mortality, then Indonesia (3%).
This year’s study by Baro, Ursua and Weng (2020) suggest that the Spanish flu infections were 150 million, with 39 million deaths – lower than Johnson and Mueller’s estimates. Robert, Jose and Joanna (2020) go on to adjust the Spanish flu infections and casualties to the current global population, concluding that the 39 million casualties would be 150 million today.
The Spanish flu pandemic broke out during the War, of which movement of troops was a favourable condition for the rapid transfer of the virus. In South Africa, soldiers who had returned from France and Belgium (considered as ground Zero of the pandemic) at the close of the War are especially associated with high transmission rate in the country. Also, the high mobility of migrant mine workers as they travelled from gold and diamond mines to rural areas was a catalyst.
The economic impact of the Spanish flu was devastating among the few countries with data at the time. South Africa’s GDP contracted with 24% (same as Canada), with Italy trailing at 22%. The united states declined with 12%. The stocks of at least 11 countries crashed as a result of the pandemic. Given that the pandemic was most prevalent among the active labor force (specifically those aged between 15 and 44), economic activity declined significantly, dealing a major blow to global economic performance at the time. Economic recovery was quick around the world, although such recovery was artificial. A devastating global depression would follow few years later.
Socio-economic comparisons between Spanish flu and Covid-19
Comparisons of the Spanish flu and Covid-19 are widespread, and easily available. There are of course several ways in which the symptoms and health risks of the two pandemics relate. The socio-economic conditions are however different, and caution needs to be exercised when making comparisons between both pandemics, much less the economic instruments employed in response. Here I focus on why in South Africa and around the world, we should not be quick to draw economic parallels.
Turning to South Africa, the 1918 census data was restricted among white South Africans only. Although there was a comprehensive census in 1921, such data was only used for government’s political interests and not necessarily for a responsive economic policy. It is likely that the infection and mortality rate in South Africa was much higher than often cited-if we include the African population. But this needs to be viewed from the fact that there was no genuine government response to contain the pandemic among the African population.
Second, Covid-19 is more prevalent among citizens who are no longer active in the labor market. The fatality cases among children is significantly low, as are fatalities among the younger more active labor force (18-35 years old). The Spanish flu was most prevalent among the highly active labor force, those aged between 15 and 40 years. This of course had serious consequences on economic activity.
Third, the nature of the two World Wars, of which most economists draw lessons for economic reconstruction, are unique contexts which do not bear semblance with ordinary conditions. During World War I and II, economic policies had to deal not just with disruption of labor productivity, but also the devastation of capital productivity. After World War I, the devastation of a global pandemic, economic malpractices and high debts related to payments of World War I reparations incubated the great depression, of which recovery measures were postulated. The post- World II European Recovery (Marshall) Plan, aimed to reconstruct cities, industries and infrastructure heavily damaged by World war II, alongside employment creation for redundant labor force. Thus, it was necessary to resuscitate both capital and labor- economic productivity and employment respectively.
Turning to some parallels, we should cautiously consider that in South Africa, the circular movement of mine workers to and from labor sending areas does point to a possible correlation between the high infection rate during the Spanish flu, and Covid-19. The lockdown regulations enacted as containment measures for Covid-19 have slowed down the inter-provincial movement of the population, therefore reasonably slowing the spread.
Soldiers returning from War is not a factor in the current pandemic, except that the global movement of people to and from South Africa does relate in some way to the 1918-1920 health risks transmitted through cross-border mobility.
Examining the sufficiency of South Africa’s economic response measures after the 2008/09 recession and during Covid-19
Given the balance between similar and dis-similar factors between Covid-19 and Spanish flu, it is important to consider economic measures which respond to the specific conditions related to Covid-19. It is equally important to be aware of the measures applied in different historic conditions with success, which are not as relevant under Covid-19 conditions. Let us then examine just how relevant our economic responses in South Africa have been (and are likely to be) to the specificities of Covid-19. But first, I would like to sketch out the economic context before and during Covid-19.
South Africa’s economy has been on a freefall for a decade. In 2008/09, the economy went into recession for the first time in 19 years. Since then, growth has been fragile, with the economy going into recession twice (2017 and 2019), and narrowly missing recession in 2015. The economy has always had structural defects, as a brutal legacy of apartheid. While the eternal debate in economics has been whether markets or the state should manage a national economy, John Maynard Keynes, a British Economist whose economic ideas guided economic recovery from the great depression contended that it was necessary for the state to intervene in times of crisis to stimulate demand. Keynes of course took for granted that the state had reasonable efficiency to do. On this very basis, the South African State has been a necessary adjudicator of economic growth and redistribution since 1994, operating from the philosophical position that markets are incapable of correcting economic disparities created by the state. But whether Keynes assumption of an efficient state is true for South Africa is highly contestable. The capability for the state to stimulate growth through implementing its own proposals has been lacking.
Let us consider, for example, the various economic propositions put forward to stimulate growth and development since the 2008 global recession. To date there are at least four authoritative documents, all of which expect the state to facilitate growth. These are briefly considered below.
Recognising the need to build a capable state, the National Development Plan(NDP) which takes two-decades perspective on economic development, set out to achieve the following six broad objectives.
Uniting all South Africans around a common programme to achieve prosperity and equity.
Promoting active citizenry to strengthen development, democracy and accountability.
Bringing about faster economic growth, higher investment and greater labour absorption.
Focusing on key capabilities of people and the state.
Building a capable and developmental state.
Encouraging strong leadership throughout society to work together to solve problems.
A decade on, South Africans are yet to see a capable and developmental state. It follows that the expected economic effects of a capable state are yet to be realised.
The New Growth Path advocated for public-private partnership on five key areas, namely; Green economy, Agriculture, Mining, Manufacturing and Tourism. The green economy pillar would require major infrastructure roll out while the re-industrialization programme under manufacturing would require a regulatory instrument along with a state with negotiating capability for favourable terms of trade for the private sector. Agriculture would require acceleration of land transfers and tourism would include infrastructure development and regulatory conditions for operating tourism businesses. The kleptocratic state which established itself over a decade had decayed from within that it was incapable of correcting market (and state) failures. The noble intentions of the New Growth Path therefore, remain a pipedream, given that in all the stated goals, none has been achieved to date.
After a decade of policy silence, in 2019, the minister of Finance Mr Tito Mboweni released a reform focused Economic Policy Paper (EPP), which sought to reform the economy through building a transformed, inclusive and competitive economy. The paper identified the following five growth areas:
Modernization of network industries
Market led small businesses growth
Prioritizing labor intensive sectors -mainly agriculture, services and tourism
Implementing flexible industrial policy
Promoting export competitiveness.
The paper generated heated debate within the governing alliance, from within the ANC and from the labor unions. There was limited debate on the content, and a more engaging conversation about the process followed to develop (and release) the EPP. The paper was then shelved, never to be heard from again.
On July 8th, in the middle of the Covid-19 economic storm, the ANC’s Economic Transformation Committee released a recovery plan titled Reconstruction, Growth and Transformation: Building a New inclusive Economy (RGT). The RGT premises from historically distorted economy and Covid-19. On the latter, the RGT mentions Covid-19 forty-five times. The plan makes efforts to balance between stabilising labor market as well capital markets. Although it does not make any reference to Mr Mboweni’s policy paper, the RGT borrows several proposals from the EPP including infrastructure programmes, promotion of trade and industry and, fiscal and monetary stability.
The RGT abandons the idea of market led small businesses growth, and proposes a redistributive framework in support of small enterprises. By the same token, it includes Black Economic Empowerment (BEE), seeks to take advantage of the yet-to be implemented continental Free Trade Area and advocates for the need to build “a state that is developmental in orientation and capable in operation – to lead, guide and mobilise all social partners in the realisation of the plan”. The RGT then advocates for a technocratic state, reasonably shielded from political party currents.
Are the subsequent policies -the NDP, the NGP, the EPP and the RGT well equipped to address South Africa’s economic tragedy related to Covid-19? The NDP, and NGP have been overtaken by events -recessions, government breakdown and a pandemic and are therefore ill equipped to address existing economic challenges. The EPP lacked sufficient consultation to include competing interests, which are necessary to account for in a national economic recovery plan.
As for the RGT, it lacks innovation on redistribution, and is therefore unlikely to achieve economic equality. On growth however, within reason, it does possess the potential to deliver post Covid-19 recovery. It seeks to balance between largescale employment and infrastructure development. In so doing, it argues for the need to invest in labor and capital respectively. It also includes government and market reforms, and casts itself as capable of balancing between market led growth and government led redistribution. But that is in theory.
Dr Jason Musyoka is a Senior Researcher at the University of Pretoria’s Department of Political Science. He writes in his own capacity.
List of References
Baro J,Ursua, J. F. and Weng, J (2020). The coronavirus and the Great Influenza epidemic: Lessons from the “Spanish Flu” for the coronavirus’ potential effects on mortality and economic activity. AEI Economics Working Paper 2020-02. March 2020
Johnson, N.P. and Mueller, J. (2002) – Updating the accounts: global mortality of the 1918-1920 “Spanish” influenza pandemic. In Bulletin of the History of Medicine, 76(1), pp.105-115