The Economist: The rising cost of catastrophes
COMMERCE has long been at the mercy of the elements. The British East India Company was almost strangled at birth when it lost several of its ships in a storm. But the toll is rising. The world has been so preoccupied with the man-made catastrophes of subprime mortgages and sovereign debt that it may not have noticed how much economic mayhem nature has wreaked. With earthquakes in Japan and New Zealand, floods in Thailand and Australia and tornadoes in America, last year was the costliest on record for natural disasters.
This trend is not, as is often thought, a result of climate change. There is little evidence that big hurricanes come ashore any more often than, say, a century ago. But disasters now extract a far higher price, for the simple reason that the world’s population and output are becoming concentrated in vulnerable cities near earthquake faults, on river deltas or along tropical coasts (see article). Those risks will rise as the wealth of Shanghai and Kolkata comes to rival that of London and New York. Meanwhile, interconnected supply chains guarantee that when one region is knocked out by an earthquake or flood, the reverberations are global.
This may sound grim, but the truth is more encouraging. When poor people leave the countryside for shantytowns on hillsides or river banks they are exposed to mudslides and floods, but also have access to better-paying, more productive work. Richer societies may lose more property to disaster but they are also better able to protect their people. Indeed, although the economic toll from disasters has risen, the death toll has not, despite the world’s growing population….Read More
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