The economics of disasters

THE northern areas of Pakistan and the adjoining areas of Kashmir under Indian control were ravaged by an earthquake on the morning of October 8. Measured at 7.6 on the Richter scale, this was the worst earthquake to hit Pakistan since the founding of the country. In intensity it equalled the 1935 tremor that destroyed much of Quetta and took 50,000 lives, almost the entire population of that city.

The recent earthquake’s epicentre was located in the Hindu Kush mountains, near the town of Garhi Habibullah, a small town close to the Line of Control that separates the part of Kashmir administered by Pakistan from the one controlled by India. The epicentre was only 100 kilometres north of the capital city of Islamabad. It took the earth a while to settle down after going through the convulsion that jolted most of northern and eastern Pakistan. The big jolt was followed by some 120 significant aftershocks measuring between 5 and 6.2 in magnitude. They were felt for 48 hours of the initial tremor. Another earthquake hit the area on October 12, four days after the big tremor.

Pakistan is located right atop one of the most geologically disturbed places on the planet Earth. According to one way of looking at the earth’s crust there are about 36 floating plates which the scientist Simon Winchester calls “rafts of solid rock” in his recent book, A Crack in The Edge of the World. The plates move slowly, propelled by the Earth’s “molten innards, the boiling and bubbling radioactive residue of the planet’s formation 4.5 billion years ago.” If they collide while moving they send shock waves to the surface that can cause great havoc depending upon their intensity.

The earthquake of October 8 occurred along one of the great tectonic collision zones. The South Asian subcontinent that includes Bangladesh, Bhutan, India, Nepal, Pakistan, and Afghanistan rides on a separate tectonic plate that was once attached to the Antarctica plate. That was 150 million years ago. It broke and began to move north. Some 50 million years ago the plate hit the Eurasian plate; the Indian plate slid under while the Eurasian was bent upwards.

The collision produced the Himalayas, the Karakoram and the Hindu Kush ranges as billions of tons of rock were squeezed out of the Eurasian plate and sent into the sky as giant mountains. In geological time the Himalayas are a relatively young range of mountains. In fact, some of the peaks are still gaining height and mountain ranges are still being formed as the Indian plate continues to travel north at a speed of 40 millimetres a year.

There will be more earthquakes in the future as this geological positioning of tectonic plates continues and as the Indian plate proceeds to press against the Eurasian plate. In fact, in 1905 an earthquake on the Kashmir-India border killed 19,000 people. The earth moved again and on December 1964 an earthquake of 6.2 magnitude struck the same area affected by the earthquake on October 8 and killed 5,300 people. Pakistan will remain vulnerable and so will its population for centuries to come. For this reason the subject of the economics of natural disasters is something that should begin to interest the policymakers in Islamabad.

However, this is not a well researched or well understood subject, particularly in the developing world. Most of the serious work in this area has been done by insurance companies in rich countries which have always to be ready to provide compensation for those affected. The helter-skelter way in which we have handled the tragedy brought upon the nation suggests that we should prepare ourselves better to deal with similar occurrences in the future. There will be many more of these in the future and the damage caused by them will continue to mount as the size of the population goes on increasing and as human beings press on into even more remote areas to find new places to live.

It is incumbent upon the government and the people to ready themselves for such occurrences and to deal with all aspects of the tragedy once it occurs. Being prepared is an important part of handling situations such as these. The country was not ready for this event. It could have been had it assigned a higher probability of being hit by an earthquake of this magnitude. Being ready is one part of good governance.

There was a time when the administrations were prepared to handle natural disasters. I recall being told to make myself familiar with the plans the British had drawn to deal with floods in the low lying areas of the Punjab plains. This was a part of our training as officers of the now defunct Civil Service of Pakistan. As a district officer, I had to be familiar with the evacuation plans when the news arrived from the monitoring stations upstream of a river that a flood of certain intensity was approaching. High areas were identified to be used for relocating the population out of harm’s way when the river level began to rise.

Once it was determined that the approaching flood was of a given intensity, the district administration moved quickly, requisitioned trucks and buses, and transported the vulnerable people to designated higher sites. I carried out one such operation in Sheikhupura in the early 1960s when I briefly served there as the deputy commissioner. My only contribution to the effort was to give the go-ahead to the launch of the operation which went like clockwork once it was put into operation. District officials were able to move to safe places thousands of people within the space of a few hours.

But earthquakes are different; they strike without warning. Each incident is different from the one that preceded it. That notwithstanding, a better prepared administration would do a good job once it is confronted with a crisis. Only an extensive network of relief centres linked with a disaster relief administration would have succeeded in providing timely aid to those affected.

The quake of October 8 was relatively shallow; the clash of the plates occurred only 10 to 16 kilometres below the surface. Being shallow, it sent many waves of tremor much further than would be the case for a quake of this magnitude. The shocks were felt as far away as Dhaka in Bangladesh. A much wider area was affected and the rescue operations have had to be directed to many places, most of them hard to reach given the terrain. A shallow earthquake is also more damaging since the shocks are of greater intensity and can do severe damage to the structures on the ground.

At the time of writing, it is still not clear as to how many people were killed and injured by the earthquake. The official toll has crossed 38,000, thousands more have been injured. Some three to four million people have been displaced, needing to be housed, clothed and fed as the weather becomes less hospitable. The number of people affected makes this earthquake one of the score or so most destructive in recent history.

The earthquake in Tanshan, China, remains the most destructive in terms of the loss of human life. It struck this medium sized city on July 28, 1976, and killed an estimated 242,000 people. The earthquake struck soon after the death of Mao Zedong and many in China believe that the earth shook at the shock of the death of the Great Helmsman. The next most destructive quake in recent history was the deep sea tremor on December 26, 2004, near Aceh, Indonesia, that took 220,000 lives. Thousands died from the tsunami waves generated by that earthquake.

Can we quantify the damage to the Pakistani economy by the October 8 quake? Will this disaster leave a deep impression on the country’s economic history and create serious economic repercussions in the future? What can the government do to provide relief immediately to those who have suffered loss of lifes and property? Are there changes in regulations that need to be put in place in order to ensure that disasters of this magnitude produce losses that are not as severe? Should Pakistan also create institutions that can provide some security to the people affected by natural disasters? How should the county prepare itself to deal with such occurrences more efficiently and effectively in the future? These are all important questions. It is not too early to ask them since the way the relief effort is undertaken will shape hundreds of thousands lives. It will also leave a strong imprint on the Pakistani economy and society and possibly also on its political system.

Natural disasters come in many forms and damage physical assets as well as take human lives. Earthquakes, fires, floods, hurricanes and landslides are some of the most obvious occurrences that bring great damage and tragedy in their wake. To these we should also add disease and pestilence that affect human beings more than economic assets. Asset damage is not hard to estimate, particularly in the urban areas where better records and information exist. Such evaluation is considerably more difficult in the countryside.

Insurance companies usually work on estimating the replacement value of the damaged asset since the cost of recreating them in their original form is not a good measure of the economic loss. Thus if a fire or a flood destroys a factory, most insurance companies will pay for recreating the lost asset. What is being protected is the stream of income that was being produced over a given time by the destroyed or damaged asset.

Given the number of people involved, the areas in which they lived, and the nature of the economic activities in which they were engaged in, the loss of economic assets would be of about $10 to $12 billion, according to a rough guess. In normal times, these assets would generate aggregate incomes of about a $1billion to $1.25 billion a year. This loss of assets will most likely reduce the annual GDP growth rate by about one percentage point a year in the next one to three years. My estimate of the impact on economic growth is higher than those provided by ABN Amro and some other analysts.

But this an estimation of the loss of economic activity generated by the destruction or damage done to economic assets. Human beings are also economic assets; loss of human life or injuries that incapacitate also cause severe economic loss. Some years ago, the World Bank developed a model to estimate economic loss because of health problems; applying the same model to Pakistan, I would guess that another quarter percentage point would be lost because of the human impact of this strategy.

It is easier for economic assets to be rebuilt which is why, as I will discuss in my next article, even major natural disasters do not have a long-lasting impact. However, human capital is not easily replenished and its loss can be felt for a long time to come. In other words, the deaths and injuries will have a longer lasting reduction in GDP growth than the loss of assets.

Some misjudgments

IN one of his most radical pronouncements on the Iraq war, President Bush declared at the National Endowment for Democracy in Washington on October 5 that Muslim militants were battling to “establish a radical Islamic empire extending from Spain to Indonesia”. This chimera or utopia of a revived Islamic world empire has not occurred even in their wildest dreams to the most fanciful of pan-Islamists during the recent period of Islamic revival.

That this pipe-smoker’s dream would be dignified by the US president reflects the desperate search for new justifications for the Iraqi invasion, necessitated by the increasing fall in the president’s approval ratings in domestic opinion polls, the exposure of the previously given grounds for the war including the baseless WMD allegations and the increasingly higher human price being extracted by the war and the growing alienation of the Arab/Islamic world.

Reacting apparently to the increasing loss of American popular support for the war, which is the one factor most likely to force the US administration to reconsider its stance on Iraq, President Bush declared Iraq as “the central front in the war against terror” and the Muslim militants to be “as dangerous as the communist threat in the twentieth century”. Osama Bin Laden would certainly be flattered at being bracketed with the Soviet superpower even if nobody else in the world believed this.

The greatest test of a statesman comes in recognizing when persistence in following a mistaken policy becomes counter-productive. As Machiavelli said, “a Prince should always be a great asker and a patient hearer of truth.”

Discussing the Vietnam war, American historian Barbara Tuchman said that America’s misfortunes lay in having had presidents who lacked the self-confidence for the “grand withdrawal”. While a “grand withdrawal” would not be feasible in the Iraqi scenario, the vital interests of this crucial region demand assurances for an early phased out end of military occupation and a return of unfettered Iraqi sovereignty over a unified Iraqi state, threatened with its break up into Shia, Sunni and Kurdish entities.

The leadership of a superpower and a tunnel vision do not go well together. In the US where fund-raising and image-making to a great extent determine the electoral process, what has emerged is a process of selection which is only distantly related to the basic pre-requisites for holding the American presidency. The bind in which the US administration finds itself over Iraq is a consequence of the administration’s sweeping miscalculation of the Iraqi response to the US invasion, and of the snowballing of Islamic radicalism in the wake of the tragic destruction of Iraq.

If we look at some of the momentous miscalculations of history, it is the failure to sense or appreciate the fears and concerns, the priorities and values of the other party concerned, adversary or ally, which led to significant misjudgments at important crossroads of world history.

Wisdom has been defined as “the exercise of judgment based on common sense, experience and available information.” This definition, perceptive in its own right, would have been nearer the mark if the essential attribute of “sensitivity” had been included in wisdom’s equation.

It has been said that the wise learn from the mistakes of others, while the not-so-wise learn, if at all, from their own mistakes. Of interest in the sphere of foreign affairs are examples of governments which adopted courses that led to disaster when other options were available. Mankind, it has been said, “makes a poorer performance of government than of any other human activity.”

While limitations of space do not allow a detailed discussion, a few important instances may briefly be referred to. What was it which compelled George III to continue on a course of confronting his American colonies when initiatives by some of his ministers held prospects of avoiding a total break? Why did Charles XII, Napoleon and Hitler undertake their disastrous forays into Russia, in spite of the forbidding experience of each successive invader?

Why did the Soviet Union, in invading Afghanistan, ignore the lesson of the British failure to subjugate Afghanistan despite of three wars? Why did the German general staff decide to renew unrestricted submarine attacks against neutral vessels during the First World War, when they had been warned by Chancellor Bethman Helwegg and by the German ambassador in Washington that this would be the one act bound to bring the US into the war and tilt the scales decisively against Germany?

A greater miscalculation was made by Japan during the Second World War. At a time when at least half the US was strongly isolationist, Japan committed the one act which was bound to bring the US into the war i.e. it attacked Pearl Harbour. This gross miscalculation stemmed in part from the Japanese assumption (as Japanese war records show) that the destruction at Pearl Harbour would irretrievably damage American morale (instead of uniting American public opinion and bolstering morale as actually happened).

A page from Iraq’s recent history provides another case of historic misjudgment. In a scenario which the US could only have dreamt of Saddam Hussein’s invasion of Kuwait and refusal to withdraw played right into the US hands, enabling the latter to establish a significant military presence and evolve firmer control over the region’s oil resources. The disastrous change in the Iraqi people’s fortunes after 1990, could not have occurred without the suicidal policies of Saddam Hussein who ignored the certainty of US military action over Kuwait and the equal certainty of the war’s consequences for Iraq and the Gulf region.

These misjudgments, like others made by governments, stemmed from the failure to anticipate the likely response of the other party involved. In 1965, Pakistan’s leadership astonishingly discounted the possibility of an Indian attack across the international boundary in case hostilities were confined by Pakistan to the disputed state of Kashmir. This betrayed a dangerous misreading of the Indian mind. The 1971 debacle stemmed in part from Pakistan’s failure to appreciate Indian intentions.

It goes without saying that the attacks of 9/11 which set the stage for the unprecedented predicament which the Islamic world faces today, were strongly condemnable on humanitarian grounds. But even from the point of view of the organizers of these brutal attacks, was the chain of events set in motion by 9/11 likely to promote Arab/Islam interests or to set them back as the inevitable backlash of the strongest military power on earth and the resulting fallout on Islamic global interests show?

Factors which contribute to major misjudgments in foreign affairs also include the impact of domestic considerations which distort diplomatic options available. There is also the element of “selective hearing”, confined to quarters considered personally loyal.

The writer is a former ambassador.

When death took the roll call

CAN there be anything more heartbreaking in the life of a young nation than that it should have to bury its young? Can anything portray more vividly the horror of the dreadful earthquake that shook almost every part of Pakistan on October 8, than the image of bright-faced Kashmiri children, entering their schoolrooms that morning and then being suddenly suffocated under an avalanche of concrete?

One death in a family is a trauma. The death of an entire family can be described as a tragedy. The decimation of entire villages becomes a statistic. And today, when the death toll mounts higher and higher as the rescue teams move higher and higher up into the northern reaches of our devastated country, the human mind cannot comprehend the enormity of the national loss in human lives. Is the roll call of the dead 40,000? Or is it 50,000? Or could it be as high as 60,000? Only Death who took the final roll call that fateful morning and God who received their souls know. We who remain can only mourn.

To a nation that has depended on foreign aid for its survival, the deluge of humanitarian aid that has poured into the country from every curvature of the globe has demonstrated that foreign aid can come without strings, and outside help can come without handcuffs. The first foreigners to arrive were the British rescue teams, followed by those from European countries.

One was about to say that even India offered aid, but why should one use the word ‘even’? India as our closest neighbour not only offered its helicopters, it sent planeloads of materials and permitted its troops to cross the Line of Control to help Pakistani soldiers rehabilitate their damaged bunkers. This act which consisted of nothing more than walking across a narrow bridge and back again showed with searing clarity that borders are often only skin-deep. Pain shared is often the only counterforce to divisive politics.

Within the country, never before has there been such a sense of unity and common purpose towards a single endeavour. Before the government could collect its wits, the general public — first in Islamabad and then quickly throughout the country — collected and coalesced the national conscience.

With often nothing more than bare hands and blunt shovels, they rescued the injured and retrieved the dead. On their own, they began mobilizing resources and supplies, identified gathering points for collection and created satellites of awareness in every suburb and village market place. A nation that is regarded by some as not mature enough to decide on its preferred form of government showed that it can manage itself.

President Pervez Musharraf, rather like President George W. Bush during the Katrina hurricane crisis, had to resort to the military to provide the backbone to the relief effort. President Bush did it by sending in the National Guard into New Orleans and President Musharraf by deploying the Pakistan Army for rescue and relief missions. In both instances, they were visibly slow off the mark and have suffered the whiplash of criticism for not doing enough in time.

The closeness with which the generals of the Pakistan army and the general public have come together during this period of national trauma would seem to indicate that there is much to be gained from having a cadre of civilians trained in civil defence, on stand-by, available to be mobilized during such unpredictable calamities. One is not advocating national service for everyone, although there could be an argument for instituting a scheme such as the one Great Britain introduced after the Second World War.

It required all able-bodied men above the age of 18 to serve for two years in the British armed forces. It provided the youth emerging from schools or universities breathing time before they entered the job market, and it provided Britain with a trained force that could be called upon in war or in a national crisis.

For a country like Pakistan, such a scheme is worth considering and imitating. No army with a total strength of 600,000 soldiers of all ranks can defend our borders, run our government, manage our administration and then also be expected to cope with the crisis of the magnitude of the recent earthquake. Had there been a cadre of trained civilians who formed a civil defence corps, the pressure would not have been so specific in its demands and its responses would not have been spread so thinly.

It is easier to think out of the box when one is not boxed in, and at this moment every agency of the government and every civilian organization or NGO can think only of boxes — of provisions, of medicines, of supplies and of materials for warmth and shelter.

There is no Pakistani who feels that he or she is outside the community. From the ravaged north to the distant south, the tremors that shook everyone have thrown them together. For once we did not see each other as fellow citizens of the same country but as seamless nationals of the same flag.

For once, we were not seen by the world as terrorists. Instead, we found ourselves the victims of an attack, an assault by the most devastating cross-border terrorist of all — an unpredictable Nature.

A question of ethics

NOBODY likes to see a congressman indicted for criminal conspiracy. So all of us in Washington were bereft when Tom Delay was charged with an alleged scheme to funnel illegal corporate campaign funds to Texas Republicans running for the state legislature in 2002.

This gave the Texas legislature an opportunity to redraw House districts, which helped to strengthen the Republican hold on Congress.

The question of Delay’s ethics kept cropping up. Did he violate the rules when he asked for/took the money?

The Capital is split on the issue. Those who defend Delay claim he was a victim of a vindictive Democratic district attorney who would do anything to besmirch the House Majority Leader’s squeaky-clean reputation.

On the other side are those who rejoice in his downfall.

Since I am a fair and honest newspaper reporter, I never take sides. All I do is report the facts.

I have talked to people on both sides.

A Delay supporter said, “It is another example of dirty politics. Our position is you are allowed to funnel corporate money into Republican politics as long as the recipients get nothing in return.”

Another defender said, “It is not a conspiracy to redraw the Texas voting districts as long as Delay feels it is good for the people.”

And a lobbyist told me, “I have played golf with ‘The Hammer,’ and never did he cheat on his score. I have travelled with him, and he has eaten on my expense account. And I have been to his home. Whenever I donate money to one of his worthy causes, he always says in his twangy Texas voice, ‘Aw, you shouldn’t have done that. Your friendship is all I want from you.”’

The next lobbyist I talked to said, “I love Tom like a brother I feel awful about testifying for the prosecution. But if he has to go to jail, better him than me.”

There was joy in Democratic Mudville that the mighty Tom Delay had struck out. One said, “I take no pleasure in seeing Delay swing gently in the wind. But the thing I believe in the most is ethics. If someone has lost his moral compass and has to go to jail to find it, then I believe it will make him a much better person.”

Another one said, “The Democrats are not being vindictive. The facts are just not on his side. All we Democrats ask is that there are no abuses of congressional power.”

A third said, “The Republican Party should be ashamed of itself. If one of its members raises money by violating the law they should apologize to the American people.”

And another, “This is not about Tom Delay — it is about the 2006 elections. The grand jury has spoken, and now his lawyers must speak. I hope it doesn’t cost him as much as I think it will.”

A Democrat friend said, “If he had been pro choice he wouldn’t have gotten into this mess.”

What can we expect to get from all this? Media coverage the likes of which we haven’t seen since the last political scandal, the race for an author to write the definitive book on Delay, a TV movie with Brad Pitt playing the congressman and George Clooney as the district attorney, and T-shirts that say “I do laundry for Tom Delay.” — Dawn/Tribune Media Services