Hamish McRae: The modern world shows its resilience after storm's fury
Economic View: We can manage with flights grounded... We can manage with power going down
Thursday 01 November 2012
Sandy has passed, the skies are blue, and Washington, at least, is pretty much back to normal. It is of course different in New York. It is too early to do more that make the roughest tally of the costs of the hurricane, but not too early, I think, to appreciate how extraordinarily resilient our complex modern world is to really big blows.
There are many way of looking at a disaster such as this, and none of us in trying to make an economic assessment should forget the human costs. But I think the narrow – what does it do to growth or GDP? – approach is much less interesting than what it tells about the way we live now.
The first distinction to make is between economic activity and human wellbeing. We take GDP per head as a proxy for living standards, and by and large it is not a bad one. But an event such as this demonstrates the difference. There will be some loss of economic activity because of the disruption, but fixing things generates economic activity that would not otherwise have happened. In the coming months there will be a wave of investment in the infrastructure of the north-eastern states.
There will be some short-term loss of output and estimates of the hit to GDP suggest it may knock 0.25 per cent off US growth. But it is quite possible that measured GDP will eventually end up higher, not just because of the reconstruction but also because the new kit put in will be better than the old kit that has been damaged.
As for the crude numbers, current estimates of the cost at some $20bn (£12.39bn) should be seen in context of the costs of Hurricane Katrina at $100bn and the Japanese earthquake of more than $200bn. Even if that proves an underestimate, the costs are manageable. It is a huge blow; but it is a huge economy.
I find this comforting. The 60 million people in the north-east generate about a quarter of US GDP. They produce more, in terms of economic output, than any other similar-sized region on earth. More important still, if you take national and international business together, New York remains the largest single centre in financial activity in the world. It will not always be so, for while London remains the main rival at the moment, power is shifting to Asia. But we know now that the New York Stock Exchange can shut for two days, the longest weather-related stoppage since 1888, and the world gets along fine. What can devastate the world economy is not a blow to its physical fabric by a hurricane or a tsunami, but rather a blow to its financial fabric and its economic self-confidence from a badly handled banking crisis. You can see the impact of the collapse of Lehmann Brothers on US GDP in the graph, but also the steadiness of growth in 2005 when Katrina hit New Orleans.
There is a huge amount of concern about the way the world has become so interconnected that one small event on one side of it can cause havoc on the other side, but the lesson here seems to me to be quite the reverse. We can manage with flights grounded for two or three days. We can manage with power going down, notwithstanding the fact that computer systems are down as a result. Indeed the communications revolution, giving people a much greater freedom to work from wherever they happen to be, seems to have made for a more robust world economy, not a more vulnerable one.
None of this should downplay the human cost of any disaster, let's remember that again, but let's also try and think through what lessons might be learnt from this experience. I can see at least five.
One is that we should try to build spare capacity into essential services. That covers obvious elements such as back-up computer servers, and making sure the back-ups are located physically a long way from the primary ones, or planning for there to be excess electricity generating capacity, something that the UK should heed – and what about spare airport capacity too?
A second lesson is the value of contingency planning. What happened in New York was at the outer limits of such planning and that carries a lesson too: you need to think the unthinkable. But you could say that in the case of New York's public utilities the system worked. I suspect this was helped by the fact much of the planning was not of a tick-box, health and safely nature but a tough-minded, New York character.
A third is less tangible. Just watching the way ordinary people in Washington went about preparing for the storm and the way small businesses stayed open even when public transport was shut, made me aware of the social glue of a society when faced with trouble. The US has shown the some of these wider strengths in coping with Sandy and that deserves respect.
A fourth is that we learn from the unusual more than we learn from the routine. Just as the UK learnt from the experience of staging the Olympics and is I hope trying to apply those lessons more generally, so we can already see that the US is seeking to learn. Whatever you think of US national politics, municipal administration has done pretty well. If US politicians at a local level can lead competent administrations, could national ones find ways to lift their game? We'll see, but I am hopeful.
Finally, I think the points above have wider application. In other words, building spare capacity is something we should try to do as individuals and employees. Scenario planning is a helpful discipline in many aspects of our lives. We should all be more aware of the importance of social glue, as well as professional competence – and we all need to learn from things that go badly, as well as things that go well.
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