Poor Haiti. This week’s devastating earthquake is yet another blow for a country with a tragic history. The images of death and destruction are heartbreaking. Right now, the focus is rightly on trying to get food, water and medical care to the people who need it.
But Haiti faces some special challenges in its recovery because of its size. Haiti is a country of 9 million people in an area the size of Maryland. History shows that, all other things being equal, it often is harder for small nations to recover from natural disasters like earthquakes or hurricanes than larger ones. This is a situation in which the idea of “economies of scale” applies to nations as well as to companies.
In introductory courses, economists say economies of scale exist when, for an individual company or factory, the average cost of producing some product drops as the size of the factory or company increases. High-output Chevrolet traditionally had lower per-car costs than low-output Studebaker. A 1,500-cow dairy farm may have lower per-gallon production costs than a 50-cow dairy. These are economies of scale.
Economists pay much less attention to economies of scale in government, but they can exist. The per-capita costs of running a legislature or a state revenue department usually are lower in a state with 5 million inhabitants than in one with 600,000. A basic fire truck for a town of 500 serves as well for one with 1,500 inhabitants.
A sophisticated hurricane warning system is cheaper on a per capita basis for the United States than for Jamaica. The same for a network of seismic stations or for a national emergency response agency, though size is no guarantee of effective management as Katrina demonstrated. So simple economies of scale give the edge to larger countries in some aspects of disaster recovery.
Larger nations also benefit from something resembling a diverse portfolio geographically. The 1906 San Francisco earthquake and fire devastated that city. But while a major city, San Francisco still constituted only a small fraction of the U.S. economy or population. The rest of the economy continued to produce unabated, and so there was no shortage of physical goods or funding to aid those affected or to rebuild destroyed property.
In contrast, flooding in the Netherlands in 1953, when a North Sea storm surge overtopped dikes, affected a larger proportion of that nation’s population and damaged more of its productive capacity. Recovery was relatively harder. One can find similar comparisons between earthquakes of similar magnitude in Turkey and Armenia. The larger overall size of the Turkish economy facilitated faster recovery even though the destruction in the immediate zone of the quake was similar to that in smaller and poorer Armenia. Mexico similarly has recovered better from quakes than its smaller neighbors in Central America.
One problem small nations have is that key functions of industry, government, communications and transportation tend to get clustered in one city, usually the national capital. Not only can a storm or quake there destroy lives and housing, but also most of the infrastructure needed for any response. Help must come from outside and that usually takes longer.
There are some ways in which being small helps. Many Americans think of Bangladesh and Myanmar as small, but with populations of 160 million and 49 million respectively, they are many times larger than Haiti. Any given international aid effort in similar absolute terms will go much farther among Haiti’s 9 million inhabitants than in more populous nations. And historically, international donations do not grow in proportion to the number of people affected.
It is, however, better to suffer a natural disaster now than a century ago. International disaster-relief institutions are far from perfect, but they are orders of magnitude better than before World War II when they were uncoordinated and largely dependent on private religious or nonprofit relief.
Proximity to larger or richer nations and international visibility helped. Mexican president Porfirio Diaz once mourned, “Poor Mexico, so far from God and so close to the United States,” but in disaster relief terms, it is better to be close to North America or Europe than to be far from them, just as it is better to be in or close to a large city rather than in isolated hinterlands.
In the past, major disasters have served as catalysts for political and economic change. Popular dissatisfaction with lack of preparation or inadequate response can lead to incompetent administrations being tossed out, or at least to public discontent as in China, where schools and other public buildings failed more catastrophically than privately built ones.
At the very least, the need for reconstruction can be an opportunity for reconstruction with a better infrastructure of streets, water and sewer. One can only hope that may happen in Haiti.
But disasters, whether in poor countries or rich ones, destroy wealth. They not only kill people but destroy property and public infrastructure that has been built or accumulated over many years. In many cases, they spur output as workers and resources rebuild what was destroyed, but replacing the value of lost wealth can take decades.
© 2010 Edward Lotterman
Chanarambie Consulting, Inc.