Category Archives: Economic Impact

Global Risk Report for 2012 and Global Think Tank List

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The Global Risks Report 2012

Image by World Economic Forum via Flickr

Once again I am straying from the main theme of this blog, but I do want to share an unusual report that provides some very compelling information and context for those of us interested in emergency management and homeland security.

From the World Economic Forum, the report on Global Risks 2012.  I think this is an amazing piece of work from some significant players in the risk world; the 64 page report was issued Jan. 2012.  I think you will share my perception that risk and emergency managers will be busy for the foreseeable!

Note that this research product was done by corporate and university sponsors.

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Another major report came out this week, this one as assessment of Think Tank List  The full text is included here.

Some Indirect Effects of Recent Japan Disasters

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Plate tectonic movements measured by GPS devices.

Image via Wikipedia

NOTE: This article is getting a lot of hits in 2015 and I am wondering who is reading it and why. Would someone let me know, please. Just put a note in the Comments section at the end of the article.
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This is an interesting discussion of some indirect effects of the recent Japanese disasters, aspects that I have never seen noted before.  It is an important reminder that  intellectual property matters deserve serious consideration. In the U.S. we too have advanced research being conducted in place that are known to have seismic risks,  such as Silicon Valley CA and Boston MA have known seismic risks.

The article Brain Drain and Need for New Infrastructure Loom as Challenges to Post-Quake Japan appeared in Genetic Engineering and Biotechnology News, August 9, 2011.

The numbers stagger the imagination: 15,683 people lost their lives in the March 11 earthquake and tsunami in Japan, while another 4,830 people remain missing…   Japan’s life science community did not escape unscathed from the twin natural disasters. The earthquake and tsunami brought to a halt research at Japan’s academic and independent institutions and companies. In nearly all cases, though, by now, some five months after the disasters, the institutions involved have either resumed or are close to resuming near-normal operation.

The disasters have forced the government to delay releasing an updated Science and Technology Basic Policy Report for the five years ending in 2016. This would be Japan’s fourth effort at a five-year plan for growing these industries.

Some of the Lessons to be Learned include:

If there’s anything good that could come from the disaster, it is the focus placed by institutions across Japan on drawing lessons that could help future generations avoid the worst effects of another disaster. One of Dr. Miyata’s lessons include distinguishing between valuable intellectual assets that cannot be obtained elsewhere and preserving these first rather than lab equipment, which can be re-purchased.

Another lesson calls for institutions to maintain their own sources of electricity, at least for preserving intellectual assets. Still other lessons include organizing food and living necessities for emergencies, developing leadership and governance policies with the cooperation of faculty and staff, forwarding accurate information quickly to staffers, and agreeing to implement emergency plans quickly as need arises.

As Japan’s life science community continues to return to close-to-normal operations, two of the numerous challenges resulting from the disasters will require urgent attention: repatriating researchers who left immediately following the worst, and rebuilding the nation’s infrastructure with greater resistance to as well as forewarning of earthquakes and tsunamis. If these are not covered by the five-year science and technology plan to come out later this month, they should be addressed as soon after as possible.

Japan Disasters – estimated cost of damages reaches $306B

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Japan 5 yen coin

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The estimated cost of damages in Japan is huge, equal to more than 4 times that of H. Katrina. See explanation at: Japan Forecasts Earthquake Damage May Swell to $309 Billion, Business Week, March 23.

Japan’s government estimated the damage from this month’s record earthquake and tsunami at as much as 25 trillion yen ($309 billion), an amount almost four times the hit imposed by Hurricane Katrina on the U.S.

The destruction will push down gross domestic product by as much as 2.75 trillion yen for the year starting April 1….The figure, about 0.5 percent of the 530 trillion yen economy, reflects a decline in production from supply disruptions and damage to corporate facilities without taking into account the effects of possible power outages.

The figures are the first gauge of the scale of rebuilding Prime Minister Naoto Kan’s government will face after the quake killed more than 9,000 people. Japan may set up a reconstruction agency to oversee the rebuilding effort and the central bank has injected record cash to stabilize financial markets.

Damages will probably amount to between 16 trillion yen and 25 trillion yen, today’s report said. It covers destruction to infrastructure in seven prefectures affected by the disaster, including damages to nuclear power facilities north of Tokyo. Wider implications on the economy, including how radiation will affect food and water supply, are not included in the estimate.

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Buyouts after a disaster — may be the most cost-effective recovery option

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Hurricane Katrina Video from NASA GOES Satellite

Image by NASA Goddard Photo and Video via Flickr

From a book review in BusinessWeek.com, March 17, a Harvard economist looks at urban life in the future: Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Healthier and Happier, by Edward Glaeser.Penguin Press; 352 pp; $29.95.  Athough the book is primarily about urban planning, one quote from the review is worth considering:

The author’s prescription for Detroit, as well as Buffalo and Leipzig, is to “shrink to greatness” by searching for fresh advantages. What if they fail? Well, that would be too bad, but Glaeser believes cities are about people, not places or buildings. Does it make economic sense to resurrect Detroit when the cost of building a house is greater than the reward from selling it? It could have been cheaper, he notes, to hand every household in New Orleans $200,000 after Hurricane Katrina rather than pump vast quantities of public money into rebuilding a city of waning economic significance. As disturbing as this may sound for New Orleanians, there exists a far more disturbing thought: Glaeser may be right. As the latest U.S. Census figures prove, the city’s capital is disappearing in droves.

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Japan Disaster Victims — returning and rebuilding decisions are fraught with conflicts

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Decisions to return and rebuild, or not, in Japan are similar to those experienced in the U.S after major disasters. The article ‘Too Late’ for Some Tsunami Victims to Rebuild in Japan presents some of the conflicts inherent in that decision; NY Times, March 19.  A week after the tsunami obliterated most of this northern Japanese city’s seafront and not a little of its inland, some of the shopkeepers and their employees were outdoors shoveling mud and hauling wreckage from their businesses, the first signs of restoration.  Will they stay and rebuild or not?  Among the factors to consider:

“These are declining areas. With an exogenous shock like this, I think it’s possible that a lot of these communities will just fold up and disappear.” Some have been hollowing out, albeit slowly, for a long time. Japan’s population as a whole is shrinking and graying, but the Japanese prefectures hardest hit by the tsunami — Miyagi, Fukushima and Iwate — often outpace the national trends, and their workers’ average incomes are shrinking as well.

“There’s really no economic engine in these communities,” said Mr. Aldrich, whose 2010 book “Site Fights: Divisive Facilities and Civil Society in Japan and the West” details the government’s strategy for locating reactors in struggling areas. “These facilities bring $20 million or more to depopulating, dying towns. Many people saw these power plants as economic lifelines at a time when their towns are dying.” And they were, until an earthquake and tsunami changed the economic equation last week.

Now at least one of the Fukushima complexes appears destined never to reopen. Part of the prefecture could remain off limits for years because of radiation. The future of similar plants could be thrown into doubt, along with the jobs and supporting businesses that sprung up around the nuclear industry.

… the tsunami wiped out thousands of businesses and tens of thousands of homes, many of them owned by retirees who lack the spirit or money to rebuild. And Mr. Aldrich — also the author of a long-term study of the societal impact of major disasters like Hurricane Katrina in New Orleans — says the dislocation caused by the tsunami threatens to permanently rend the social fabric that keeps many coastal villages afloat in hard times.

“We faced exactly the same question after Katrina,” said John Campbell, an expert on aging at the University of Michigan and visiting scholar at the University of Tokyo. “There was a big discussion about whether we should rebuild the Ninth Ward, since it was below sea level, and so on. In terms of economic rationality, it didn’t make any sense, really. But on the other hand, it’s where these people lived, and there were emotional reasons to do it. “These villages may not have the same sentimental attachment. Nonetheless, there’s an emotional argument that’s going to be made, and I think it will be a potent one.”

Thanks to Bill Cumming for pointing out this article.

See also another NYT article, same date, titled Reeling from Crises.

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Sendai, Japan Disaster – updates on economic and financial aspects

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Japan Earthquakes 3-13-2011 11-29-13 AM

Image by Kevin Krejci via Flickr

Right now the dominant news coverage deals with the nuclear and radiation issues that are hindering the response.  Regarding the recovery phase, most of the news reported comes from financial experts. I have not seen any significant interviews or articles that provide insights or analysis from major historic earthquakes and successful recovery from them.  Many dimensions of recovery are not being considered, other than financial. And few media types seem to understand of the complexity or actual duration of the recovery process.  See the “Worth Reading” page on this blog, which is my attempt to highlight some useful documents for consideration.

Discussion of the likely sources of recovery funds, from the NYTimes today. Japan’s Government Likely to Bear Much of the Loss

Apart from an expected $35 billion in insurance claims from last week’s earthquake, the financial losses in Japan will probably fall most heavily on the Japanese government once it tallies the damage from the tsunami and the nuclear disaster.

The extent of insurance coverage is not as great as in the Tokyo area; nor is it as high a ratio as is true in New Zealand.  But the coverage is far greater than that in the U.S.

March 14: The Diva did a brief TV interview on CNBC this morning, where they were interested in the effects on the business and financial communities, as might be expected. (The video clip is now available.) Presently, I am thinking about the upcoming federal National Level Exercise regarding a New Madrid earthquake, planned for May.  To date most of our thinking in the U.S. about recovery has not been broad gauge enough; we should be thinking in terms of events of the size and destructive possibilities of the Tangshan, China (1978), Christchurch, N.Z. (2011), and the current Sendai, Japan events. I plan to provide more details about the first-mentioned in subsequent posts.

March 13:  Disaster recovery has many essential ingredients, two of which are business and financial recovery.  Here is my take on some key business and economic issues/concerns that I have gleaned from secondary sources on the catastrophic events in Japan:

  1. The earthquake, tsunamis, and other cascading events (damage to nuclear power plants) combined resulted in a catastrophic disaster, which probably will be the costliest one Japan has ever experienced. This sequence of major events is unprecedented and quite scary.  Altogether, the compound of events poses the greatest challenge Japan has faced since WWII
  2. The recovery period will begin soon, although completing the damage assessment and cost estimates will take more time than usual.  The recovery process is likely to divert resources away from manufacturing. It no doubt will entail making some major decisions about the future of the country. Plus, it will take decades to accomplish.
  3. Insurance and reinsurance. Earthquake and fire insurance coverage is common for residential and commercial structures, although fewer policies are in place in Sendai than is true in the Tokyo region, which is (was) considered the highest risk. The major reinsurers (Lloyds of London, Munich Re, Swiss Re) expect to make payouts in Japan.  These same companies also provide insurance in New Zealand.
  4. For American business owners and consumers, interruptions in supply chains might occur; e.g., computer parts, chips, cars etc. Sendai is not an industrial hub, like Kobe. But ground transportation and communications have been disrupted in many areas of the main island.
  5. Possible relocation of residents and structures in Sendai and around the failed nuclear power plants.  Similar to the decisions made about downtown Christchurch, N.Z. Already consideration is being given to not rebuilding in place many of the past structures and systems in the most vulnerable seismic areas. Decisions about the power plants remain to be made.

Reuters news service has done an interesting special report, on March 13, titled Japan Quake Unlikely to Shock Economy. The analysis is thoughtful, citing quite a few economists who have studied the economics of disaster recovery. Yet, despite the optimistic sounding title, the article lays out some serious negative considerations re the Japanese economy with respect to the essential requirements for an effective and efficient recovery.

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Sendai Earthquake – economic and financial aspects

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Earthquake and Tsunami near Sendai, Japan

Image by NASA Goddard Photo and Video via Flickr

One good source for breaking news is the English Version of the online news from the Japan Broadcasting Network.

For basic facts of the quake and seismic history of the area, go to this USGS website. And an amazing amount of descriptive info has been posted in Wikipedia. Another useful site is the MCEER Center at SUNY/Buffalo, which maintains a chronological list of major articles and reports.

Earlier I mentioned Crisis Commons, a crowdsourcing and mapping info site.  Consider the fact that this source and also Wikipedia are done entirely by volunteers.  Great work everyone who helped!!

Apparently the Honshu location was a surprise to Japanese seismic experts; similarly, the Christchurch, N.Z. location was a surprise to experts in that country. As I recall, the Kiwis thought Wellington had the greatest risk.  Clearly, earthquake science is an ongoing learning experience.

Financial Aspects — among the anxious watchers of the outcome of the earthquakes and tsunamis emanating from Japan are the major insurance and reinsurance companies. Some are already involved in payout for the N.Z. quake.  See this financial account from a German newspaper. I am not sure how they make the calculation, but already they have estimated the cost of damage in Japan at $100B. Additional information about the reinsurance concerns is an an article in Business Week today.

Economic Impacts — See Quake Disrupts Key Supply Chains, Wall St. Journal, March 12,

Preparedness — three takes on Japan’s capabilities in this area:

Here’s the truly scary thing about the 8.9-magnitude earthquake off the coast of Honshu Island and its resulting tsunami: Japan is a country that is lauded for doing preparedness right. Japan is a rich, high-tech nation with much rough experience of seismic rumblings: those factors have led it to plan, and plan well, for disaster, with billions spent over the years on developing and deploying technologies to limit the damage from temblors and tsunamis. Those steps almost certainly kept the death count lower than it might otherwise be — especially in comparison with the multitudes lost in recent earthquakes in China and Haiti. Last Friday, however, showed the limits of what even the best preparation can do

Japan is a best case because it has three vital things: wealth, technological skill and sufficiently frequent seismic activity to boost political will to invest against the worst case. The Pacific Northwest has two out of three, which isn’t evidently good enough.

 

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Canterbury, N.Z. Earthquake — Updates

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Useful map showing the epicenter of the first earthquake (Sept. 2010) and the largest aftershock. ( Thanks to Eric Holderman for the location.)

Economic Aspects:

News from Bloomberg’s business news site about the costs of the earthquake, to N.Z. and to the reinsurance industry. (Feb. 24, 2011)

Wikipedia has a useful initial account of the earthquake. What follows is their account of some of the economic ramifications of the quake:

New Zealand Finance Minister Bill English advised that the effects of the 2011 quake were likely to be more costly than the September 2010 quake. His advice was that the 2011 Earthquake was a “new event” and that reinsurance cover was already in place after the previous 2010 event. New Zealand’s Earthquake Commission (EQC), a government organisation, levies policyholders to cover a major part of the earthquake risk. The EQC further limits its own risk by taking out cover with a number of large reinsurance companies, for example Munich Re. The EQC pays out the first NZ$1.5 billion in claims, and the reinsurance companies are liable for all amounts between NZ$1.5 billion and NZ$4.0 billion. The EQC must cover all amounts above NZ$4.0 billion.

EQC cover entitles the holder to up to NZ$100,000 plus tax (GST) for each dwelling, with any further amount above that being paid by the policyholder’s insurance company. For personal effects, EQC pays out the first NZ$20,000 plus tax. The EQC covers only domestic assets and does not provide cover for businesses.

Claims from the 2010 shock were estimated at NZ$2.75–3.5 billion. Prior to the 2010 quake, the EQC had a fund of NZ$5.6 billion, with just over NZ$4 billion left prior to the 2011 quake, after taking off the NZ$1.5 billion cost. The EQC does not cover commercial buildings, whose owners have to arrange cover with private insurers.

I am trying to figure out why the physical damage was so great from the 6.3 aftershock. Perhaps a sizable no. of structures and infrastructure were weaken during the initial quake  (magnitude 7.1) last Sept. and then failed during the major aftershock.  I would welcome some input on this question.

Additional Information from Related Articles:

Recovery from N.Z Earthquake surpasses U.S. process

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Aftermath Canterbury Earthquake

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Observations from U.S. earthquake experts who visited New Zealand confirmed what I have expected, but could not confirm. See: Canterbury Earthquake Victims Much Better Off Than Californians . Source is NZ news outlet, Voxy.co.nz; Dec. 22, 2010.

Canterbury earthquake victims head into 2011 knowing they are much better off than the people of California whose lives are mostly ruined by earthquakes. The Canterbury earthquake response has been judged far more efficient than what occurred after the 2005 Katrina hurricane in New Orleans, a city that is still not rebuilt after more than five years, a leading American earthquake response expert says.

Dyce said they were impressed with the near universality of EQC insurance coverage, the helpful and cost-effective “top-off” cover offered by private insurance companies, and the excellent overall level of response and assistance being provided to New Zealanders with damaged homes. We know this will lead to the quickest possible recovery, for families and for the community, particularly because additional public expenditures can go immediately to public expenses such as damaged infrastructure.

While at times people living in or awaiting repair of their damaged homes will grow impatient for a return to normalcy, we saw just how quickly the EQC staffed up their adjuster and estimator response teams as well as its organisational ability to handle all facets of the massive event response. New Zealanders are quite fortunate that the average annual cost for earthquake cover is less than $60 for the first $100,000 of coverage, with minimal additional cost charged for higher, replacement-cost limits provided through private insurers. By comparison, the average annual cost for a homeowner’s earthquake policy in California is about $US690, some 15 times more expensive and with a much, much higher excess (deductible).

My thanks for Mark Chubb for pointing out this article to me.

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Oil Spill Disaster – regulating oil and gas drilling is hard to do

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One has to wonder if the “public interest” is being served, given that the regulation of oil and gas drilling at both federal and state levels is under attack by industry forces.

See Drilling Industry and Gubernatorial Candidates Move to Weaken Some State Regulations, ProPublica, August 5.

As the federal government focuses on strengthening regulations for deepwater drilling, the gas and oil industry is quietly trying to weaken state regulations for drilling on land.