With Hurricane Sandy having just blown through my NJ neighborhood, our streets are covered with wires, leaves, branches and several huge trees. During the storm, Consolidated Edison darkened large swaths of NYC and the New York Stock Exchange suspended trading for 2 days. With schools, offices, bridges, tunnels and malls closed, I’ve been reading about the economics of natural disasters.
After its 2010 earthquake, Haiti suffered more than 200,000 fatalities and economic devastation. Chile was hit by a more intense earthquake in a densely populated area but had many fewer deaths and much less of a GDP impact. Had the quake struck a deserted island, it would have been a non-event.
The difference from Haiti to Chile to that uninhibited island was vulnerability–a vulnerability that related directly to each country’s economy. Nobel laureate Amartya Sen expressed that economic vulnerability to natural disasters when he said,”Starvation is the characteristic of some people not having enough food to eat. It is not the characteristic of there being not enough food to eat.” (from Sen, 1981, in his economic history of famines)
The Inter-American Development Bank (IDB) 2010 paper that quoted Dr. Sen and started me thinking about disaster economics and vulnerability presented conclusions from other disaster studies that I wanted to share with you:
- More unequal societies tend to have less allocated to disaster prevention.
- In nations with stronger property rights, the impact of natural disasters tends to be weaker.
- In India, more newspaper distribution meant less natural disaster impact. (Perhaps because the media exert political pressure.)
- US politicians benefit more from disaster aid than prevention.
- Autocratic regimes tend to have deadlier famines than democracies.
Where does this leave us? The economics of natural disasters are about more than prevention and response.
And finally…Thinking about a natural disaster, economics and vulnerability, I recommend seeing “Beasts of the Southern Wild.”
Sources and Resources: My facts and the graph below are primarily from an IDB Working Paper-124, “The Economics of Natural Disasters,” and a Nature article from 1/10/12.
From: Inter-American Development Bank, WP-124
Through 2 stories, I learned how the design of a road can convey information about the people who live nearby.
Here are the stories…
- Greenmount Avenue in East Baltimore separates Waverly whose median income is $40,000 from Guilford, a much more affluent community. On the Waverly side, a right-angled grid of numbered streets continues and it is easy to make a turn to enter the community. Inside, you can park along the street. Meanwhile, accessing Guilford is much more challenging. Walking along more than a mile of Greenmount, you would find only 2 crosswalks. Driving, it is almost impossible to turn into the community from Greenmount because most of the streets are one-way, in the wrong direction. And once you did discover an entry point, you would soon be on narrow, winding roads that snaked unpredictably. To park, a permit is required.
- With fewer mosquitos and cooler breezes, up the hill from Port-au-Prince is where affluent Haitians live. Their roads, though, are terrible. Not really roads, they are just mud and gravel and ruts and rocks that only a 4-wheel drive can navigate. Economists Daron Acemoglu (M.I.T.) and James Robinson (Harvard) explain that residents do not want good roads. They know that they could pressure government to build a road or pay for one themselves. However, their government is unable to guarantee law and order. Bad roads obscure their affluence and make a criminal’s fast get-away somewhat daunting.
You can see the connection. In Baltimore and Haiti, by shaping access, roads reflect income and status.
Our bottom line: Inequality has been in the news. A recent report from the Organization for Economic Cooperation and Development (OECD) tells us that the gap between the rich and poor has widened. Even in Germany, Sweden and Denmark, traditionally egalitarian, the income gap has moved from 5 to 1 during the 1980s to 6 to 1 now. For Italy, Japan, Korea and the UK, the multiple is 10 to 1 while for the US, Israel and Turkey, it is 14 to 1. The biggest spread? Chile and Mexico at 25 to 1.
My Sources: The story about Haiti is from a blog by the authors of Why Nations Fail. You can listen to the Baltimore road story in this 99 % Invisible podcast and the Guilford real estate description is here. This is the OECD report on inequality.
This story is about a canal and a plastic milk crate. It takes place on a mango farm in Haiti. The farmer has 2 mango trees. The trees produce her entire crop and her income of approximately $2 a day. As described by NPR’s This American Life, to double production, this farmer just needs water from a nearby river that a short canal would deliver. For Americans to buy more of her crop, she just needs a crate to minimize bruising. To get the crate, she needs aid from an NGO. For the NGO to provide the crate, she has to participate in a farmers’ cooperative. For the cooperative to get the crate, they need property on which to store crates. To get the property, the farmers have to be willing to give it to the coop.
I think you see where this is going. It is complicated. And, to make matters worse, Haiti is listed by the World Bank as one of the toughest places in Latin America to do business. Ranking close to last (#32) in such categories as “ease of starting a business” and “construction permits,” Haiti’s bureaucracy presents formidable business obstacles.
The Economic Lesson
Countless economic issues relate to Haiti’s canal and crates story. Technology (a canal), tools (crates), and transport (roads) are only several challenges facing a mango farmer who wants to double her production. Add huge transaction costs (“red tape”) to the tale and you wind up, so far, with a sad ending. You also have a production possibilities curve that will not increase.
To hear a surprising solution, you might want to listen to the econtalk podcast on charter cities from Stanford’s Paul Romer.
Listening to recent podcasts on Haiti from NPR’s Planet Money, I started thinking about the large impact that something very little can have.
The first story involved a small loan through which a Haitian woman had created a “consignment” business. With $5000 Haitian dollars ($600 US) of micro credit, she purchased items at the Dominican Republic border. Then, transporting the goods by bus, she brought them to Haitian shopkeepers. Fifteen days later, the shopkeepers paid her. Until the earthquake destroyed her customers’ inventory, her business was successful.
The second story was about the difference a small plastic crate could make. If Haiti produced more mangoes, the U.S. would buy them. Haiti’s mango growers are small farmers, each with three or four trees. If a farmer piles mangoes outdoors and it rains, the fruit gets damaged. If the ride from the farm is too bumpy, more damage. Because of damage, forty percent of Haiti’s mango crop is unusable. Not as simple as it sounds, the solution is to put the mangoes in crates.
The Economic Life
Muhammad Yunus and the bank he founded won the Nobel Peace Prize in 2006. An economics professor and a Bangladeshi banker, Dr. Yunus developed the concept of microcredit.