Why Natural Disasters Are More Expensive—But Less Deadly

Haiti and Chile quakes show importance of economic growth.


Slide Show: The Costliest Disasters Since 1980.

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The fewer deaths of the past 50 years go hand-in-hand with the more expensive disasters. Increased wealth means societies are less vulnerable to disasters, but when they occur, they are more expensive. "Even as disaster mitigation lowers the total percentage of capital stock that is damaged, when the capital stock itself goes up, it's possible that the total damage goes up as well," says Eric Werker, an assistant professor at Harvard Business School.

But there is a major factor that could complicate the relationship between economic development and natural disasters. In the past 30 years, the world has seen more droughts, floods, and tropical storms resulting from climate change, according to the Intergovernmental Panel on Climate Change. "Climate change is going to raise the damage caused by natural disasters," says Kahn. It's possible that even as countries get wealthier and better prepared for disasters, it won't be enough to keep up with the damage caused by more severe storms.

The good news, says Kahn, is that more economic growth can help societies prepare for that possibility. "Our best strategy to adapting to these risks is economic development," he says. He cites cars as an example. More money allows people to buy more expensive cars that are generally cleaner to operate, as opposed to cheap, used clunkers that pollute the environment. "If we all drove around with 20-year-old vehicles, there's be more pollution and we'd be less safe," Kahn says.

More money also means that people have more to donate to countries like Haiti when disasters strike. Aid to poor countries that suffer disasters can be a double-edged sword, however. Researchers such as Werker have observed that when aid pours into a country following a disaster, it can create a "bailout effect" similar to what was seen during the financial crisis. "Just as large financial institutions know that, since they are 'too big to fail,' the government will bail them out in a crisis, so, too, can individuals or even governments expect to be bailed out in the event of a natural disaster," says Werker.

Haiti's government was too poor to meet many basic obligations. One was disaster prevention. "It would be fair to say that spending government revenue on disaster prevention wouldn't have been on the top of the priority list, in part due to the expectation that this was the class of expenditures that donors would deal with after the fact," says Werker. 

This is not to say Werker believes all disaster aid to poor countries is a bad thing. Instead, he argues that countries and citizens with money to give should shift their priorities. "It's probably safe to say that as a whole, the international community is too focused on relief over prevention," he says. 

Werker suggests that donors give money to areas that will allow poor countries more of the same advantages that rich countries can afford: building codes and enforcement, dikes, levees, early-warning systems for tsunamis, and basic infrastructure like irrigation and rural road maintenance to combat droughts.

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