What economics lessons can we learn from the 1918 pandemic, and what are successful businesses doing to survive the 2020 pandemic?
The difference between businesses that are able to weather the challenges of COVID-19 and those that will be caught permanently in its economical undertow may lie in business continuity planning, which is a fancy term for resilience. While some aspects of the novel coronavirus pandemic's impact on economics are unique, business owners in other eras of unrest have also faced extreme situations, and then, much like today, the survivors were those that adapted.
Business observations from the 1918 influenza pandemic
Historical events are at the forefront of many people's minds recently, as is often the case in periods of notable difficulty. But some economists have been concerned about a pandemic-related depression for years prior to the emergence of COVID-19.
In 2007, Thomas A. Garrett, assistant vice president and economist for the Federal Reserve Bank of St. Louis, wrote a report titled "Economic Effects of the 1918 Influenza Pandemic: Implications for a Modern-day Pandemic." In it he seeks to outline the physical outcomes of the 1918 pandemic, in terms of spread of the disease and casualty numbers across different segments of society, as well as to "formulate a list of the likely economic effects of a modern-day influenza pandemic."
Garrett, and other economists like him, have extensively studied financial reporting from the era of the 1918 pandemic (as there was not reliable data at the time on income, employment, etc.), and much of what they found is reminiscent of what's happening today.
Firstly, Garrett points out that different regions responded very differently to the 1918 pandemic, and that the impacts were felt to widely varying degrees depending on location. The reason for greatly different mortality and infection rates was a matter of hot debate even at the time, with some positing that locations that were hit with the spread later (there were three waves of the pandemic, the second being the most deadly) were able to shut down schools and churches before outbreak spread extensively, thus mitigating damage.
Another notable fact is that groups of people who typically had stronger immune systems were actually likelier to die from influenza. The group with the highest mortality rate was men aged 18 to 40, which had major economic implications in the world of 1918, where men in that age bracket comprised a large percentage of the workforce and were already under higher threat of death from World War I.
Financial reporting of the 1918 pandemic
Garrett made an interesting observation before delving into the economic reports of the time: "Articles listing the number of sick or dead from the influenza appeared almost daily in these newspapers and other papers as well (St. Louis and Louisville, for example). Also appearing frequently were articles on church, school and theater closings, as well as dubious remedies and cures for the influenza. However, articles that described the influenza's effects on the local economy were far less numerous."
With that caveat, here's what a modern business owner can glean from the economic reports of the last pandemic:
- Merchants in Little Rock, Arkansas, reported a 40% to 70% decrease in business, and the retail grocery business specifically was said to be down by 33%.
- There was a reported increase in demand of beds, mattresses, and bedsprings, which journalists and business experts of the time attributed to influenza's "cure" being bed rest.
- Industrial plants suffered poor production numbers due to lack of workers. The workforce had already been depleted by World War I, and then further whittled down by influenza.
- Rail service suffered in some areas from the lack of healthy men available to keep trains running on schedule.
- Phone companies asked people to limit their calls to essential ones only, as many of their workers were ill and unable to perform their regular duties.
- Mining camps were hit especially hard (due to poor living and working conditions), and many mines went out of business.
Modern economists' take on the financial impact of the 1918 pandemic
It is vital to note that the world was a different place in 1918, that the response to the influenza outbreak was far less extreme, and that a world war was happening simultaneously. Despite these differences, some of the observable trends may be of interest to business owners today.
- States that were hit hardest by influenza also saw the most significant growth (in terms of income per capita) when the pandemic passed. Increases in worker wages were the most common in hard-hit areas, due to the small supply of healthy workers following the pandemic.
- People born during the pandemic experienced higher rates of health problems throughout their lives, as well as lower levels of academic and financial achievement, than cohorts.
- Businesses that specialized in healthcare or health-related products saw significant increases in revenue.
- Service-oriented and entertainment businesses, like theaters and restaurants, suffered the biggest losses during and directly following the pandemic.
- Densely populated urban areas were hit the hardest by influenza, in terms of mortality rates and widespread business shutdowns in attempts to stave off the disease. However, these areas also received the best healthcare services and far more support than underserved rural communities, and they rebounded faster economically.
Strange though it is to read, economists have thought through what would happen should a pandemic like influenza wreak havoc on the modern world. Reading these thoughts, especially those written before fear (and COVID-19 itself) was blasting through cities across the globe, may provide insight into how the next few months and years might unfold for business owners across the country.
For additional insights into business resilience throughout different eras of natural disasters, wars and other disruptive events, you may want to read Jack Hirshleifer's 1987 book, Economic Behaviour in Adversity, and the essay The Economic Effects of the 1918 Influenza Epidemic by Elizabeth Brainerd and Mark Siegler.
Building a business resilience strategy in 2020
Operational resilience is top of mind for business owners right now, and while obvious swaps like video conferencing in lieu of in-person meetings took place almost immediately, a comprehensive business resilience strategy requires a bit more planning and consideration. Let's start with the basics and resolve with some insightful resources for measured business continuity planning.
What does business resilience mean?
Business resilience is the level of volatility a business can weather while remaining operational and profitable. The type of volatility accounted for in business resilience extends beyond standard business challenges, like cash flow and competition, into the rarer disruptive events that can touch businesses, like natural disasters, wars and, yes, widespread disease.
What is business continuity planning?
If business resilience is your desired destination, then business continuity planning is your road map. A disaster recovery plan, or crisis management plan, is the most common type of business continuity plan. Businesses in exceptionally volatile regions – with extreme weather, for example – often have business continuity plans that outline how the business will adapt during natural disasters like hurricanes. Such plans might include the temporary or permanent layoff of staff, alternate plans for operating under extreme circumstances, and potential compensation from insurance policies.
Contingency planning, another type of continuity planning, is also common for businesses to utilize in managing potential security threats and cyberattacks, as well as supply chain issues due to any number of disruptive events worldwide. Because contingency planning has broader uses than for worldwide phenomena like COVID-19, it's feasible to create a crisis management plan within many project management systems. While the scope and specific circumstances of COVID-19 may be novel (like the disease itself), the basic philosophies for the mitigation of risk and adaptation to uncertain circumstances still stand.
What is a business impact analysis?
One way to improve business resilience is by conducting a business impact analysis, which is exactly what it sounds like: an analysis that seeks to define and enumerate on the ways (and the extent to which) an external disruptive event, like a pandemic or natural disaster, may negatively impact standard business operations. When taken together with a risk assessment, a business impact analysis goes a long way in business continuity planning. The end goal of a business impact analysis is to have a step-by-step (or at least stage-by-stage) outline of action items to help your business survive whatever disruptive events it encounters.
While some companies bring in outside consultants to conduct their continuity and disaster recovery studies, it is entirely possible to do it in-house with a little planning and knowledge of best practices. Continuity Central has an excellent guide for carrying out a business impact analysis, as does the University of Pennsylvania and Ready.gov.
Examples of business resilience during COVID-19
There are small and midsize businesses today, just like during the 1918 pandemic, that are thriving by either leaning into their essential statuses or pivoting what they do and how they do it. Telemedicine is one of the standout fields showcasing unprecedented adaptation and flexibility. Some telemedicine companies, like PlushCare, are experiencing such outstanding growth that they're actually hiring more employees right now to cope with client demand, and partnering with other telemedicine companies like Zocdoc.
Other businesses are jumping on the healthcare train by pivoting what they do from nonessential to essential. There are several examples in manufacturing of businesses transitioning to making personal protective equipment and hand sanitizer for hospitals and other frontline workers, like Adafruit, iPromo, Christian Siriano and the alcohol industry. Smaller companies, especially those with access to manufacturing tools like 3D printers, may be uniquely adept at pivoting; it's easier to pivot the operations of a 90-person company than it is to alter the production and operations of a 10,000-person company.
Organizational resilience isn't limited to healthcare services and manufacturing. A surprising number of restaurants, including chains, have jumped from entertainment to essential by providing basic goods to their customers. In addition to regular menu items, many restaurants are selling rice, eggs and even toilet paper, with some also delivering it.
On the other side of the hospitality supply chain equation, some food and beverage purveyors that used to sell to restaurants and hotels are offering direct-to-consumer options, so individual customers can get the same fresh ingredients (meat, dairy and produce) that previously went to restaurants and event venues.
Other industries are experiencing an outright boom, like many SaaS providers, especially those that focus on communication (Zoom, for example), productivity or education (some parents are using tools like Trello for educational purposes), as well as food distributors and grocers. Sites like eCondolence and Shiva.com are experiencing unprecedented traffic, and this is surely only the beginning of both the disruption COVID-19 has created and the innovation it will birth – perhaps even entirely new industries. Old industries may see a resurgence too, as is happening right now with pop-up drive-in movie theaters and grocery delivery.
Only time will tell how lasting COVID-19's impact on the American small business will be, but if the past is any indicator of the present, we should all expect more disruptions for a good long while. Now is the time to create or dig into your disaster recovery plan, reach out to other business owners, and pivot toward antifragility.