The Economics of Disaster

WASHINGTON, DC – Despite all of the gloomy economic news nowadays, if we thought that things couldn’t get much worse, we had a grim reminder this month that that no country is immune to the forces of nature and the havoc they wreak. Two years ago, on January 12, 2010, Haiti was struck by a devastating earthquake that killed more than 220,000 people and shattered the country’s prospects.

As strange as it may sound, traditional Chinese medicine has much to teach us about dealing with disasters – in particular, to pay more attention to prevention than to therapy. In the same way, it is best to focus on reducing natural-disaster risks through prevention.

According to a recent report released by the World Bank and the United Nations, Natural Hazards, UnNatural Disasters: The Economics of Effective Prevention, an ounce of prevention in planning for disasters is worth a pound of cure. So prevention pays, if done right. And that means getting incentives right.

Incentives at every level – international, government, and individual – can play an important role in helping to prevent natural hazards from turning into disasters. A report by Tearfund, a leading relief and development charity, provides an instructive example from Mozambique. In 2000, Mozambique requested $3-4 million from donor countries to help it to prepare for impending floods. It received only about half that amount. But, after the floods struck, donors gave Mozambique more than $100 million in relief alone, and pledged more than $450 million for recovery and reconstruction.