The economics of natural disasters

As China and Myanmar’s (Burma’s) death tolls from the recent calamities continue to climb, Will Wilkinson of the Cato Institute offers an interesting perspective on the role that a human hand has in the extent of damage caused by natural disasters. Of course nobody can stop a cyclone or prevent an earthquake. But the high number of casualties in the aftermath of such disasters is at least to some degree man-made.

China’s death toll stands at 41,000 and Burma now has staggering 134,000 people dead or missing. Some part of those figures can obviously be attributed to the shortcomings in the government-managed rescue efforts. But longer-term governmental policies may be as much – if not more – to blame.

    The poverty that exposes people to nature’s dangers also kills. And that kind of poverty is no inevitability. It requires a human hand. Back in the early 1950’s, Burma was the wealthiest nation in Southeast Asia. But today, after a half-century of socialism and authoritarian rule, it’s one of the poorest countries in the world.

    When a regime mows down a gathering of political protestors, we sit up and take notice. But when it actively impoverishes its people with economic policies long ago proven harmful, we’re too willing to see this not as a choice to which men may be held accountable, but as a natural fact, under no one’s control. So it wasn’t fated that tens of thousands of Burmese would have so little shelter from the storm. They could have been richer, safer.

    In 1995, an earthquake rocked wealthy Kobe, Japan, ranking as the most expensive natural disaster in history. Yet only 6,400 lives were lost. Compare the Sichuan earthquake. Catastrophe modeling firm AIR estimates total damages will exceed $20 billion, only about one-tenth the economic loss of the Kobe earthquake. But the human toll is over five times greater.

Wilkinson concludes that it’s the economic growth that “creates roofs that don’t blow away, walls that don’t crumble, hospitals to tend the sick, and generators to keep to the ventilators on.” Indeed, having market-oriented policies is key to achieving sustained economic growth. But for the benefits of that growth to reach everybody, sound economic policies are not enough. The institutions of good governance ensuring transparency and accountability in the political as well as economic systems matter as much.

Published Date: May 22, 2008