Lessons from Katrina For Haiti

|Peter Boettke|

The devastation from the earthquake in Haiti on January 12th will not get a full accounting for sometime.  The loss of human life is simply staggering.

It is not cold hearted to use our heads to start thinking about how best to help.  In fact, our compassion is best served by cool headed analysis.  And economics provides the best tools to think through these problems.  First and foremost, as John Stuart Mill pointed out in the 19th century, countries can bounce back quickly from natural disasters provided the free flow of people and capital is permitted.  In short, if there was freedom of movement and freedom of activity, we would not see the Haitian people languish in poverty.  But that, unfortunately, has not been their fate.

In a fundamental sense, we must remember that disaster and recovery economics is a subset of development economics.  So the policies that produce economic growth and development are the policies that will be best to follow in the wake of a natural disaster.  The recognition of this point is what led to the development of the Hurricane Katrina project at Mercatus that I served as the principal investigator on since 2005.  This past fall we released our second e-book/magazine -- Local Knowledge II -- which focused on the role of civil society in the recovery.  However, over the last several years, Mercatus has sponsored studies that have ranged from on-the-ground oral histories of people putting their lives back together to econometric studies of the impact of FEMA on political corruption in our effort to understand the process of rebuilding a region after devastation.  I have often described the tragedy of Katrina as the compounding of the fury of nature with the foly of man when looking at official political responses.  But we have also seen the great risilency in local communities and the entrepreneurial spirit.

The work produced as part of this project has led to publications in top journals, such as the Journal of Law and Economics, to academic books, and to multiple dissertations and graduate student publications.  We have some important accumulated knowledge about disaster and recovery.  Two of the lead researchers in this project were Russell Sobel of West Virginia University (a leading scholar in empirical public choice) and Emily Chamlee-Wright of Beloit College (a leading scholar of qualitative research in economic development).  I asked both if they would share what they thought were the main lessons from their study of Hurricane Katrina for how to deal with the tragedy in Haiti.

Russ Sobel replied: "Pete Leeson and I argue in our Katrina work that the role of government after a disaster is similar to their proper role in normal times.  Protect rights, create law and order, and let markets get to work in delivering and allocating goods and services. (emphasis added) The stories I've heard about the looting and lawlessness there, similar to Katrina, show how the government is failing to do it's basic job yet again.  After Katrina not only did the government fail at this job, but then it also infringed on the market's ability to work--a double whammy."

Emily Chamily-Wright replied: "The theme we ought to hit is "what can outsiders do to tap the capacity of civil society?". This advice is rather general and abstract, but that is part of the point. Official relief providers can extend their effectiveness by identifying community networks and leaders within those networks that can be the source of local knowledge, authority, and habits of association that can be pivotal to rescue operations, administration of relief and taking the first steps toward recovery."

"As the immediate crisis passes, the concern will turn to rebuilding. The challenges of a disaster of this scale cannot (no matter how much outside help may come) be overcome by official forms of help but instead must be met by local citizens. In the context of US disasters the effort to help often inhibits able bodied pioneers from taking the first critical steps toward rebuilding community. Such forms of "help" had a devastating effect in some New Orleans neighborhoods. The citizens of Haiti simply cannot afford to miss opportunities to tap the capacity that is within civil society."

When I see the frustration with reporters and the people in the aftermath of the chaos with the inability of coordinated efforts to deliver food and water to the population I am reminded of a fundamental debate in economics and political economy about planning and coordination.  Back in 1990, Patrick Bolton and Joseph Farrell published a paper in the JPE on decentralization, duplicaiton and delay.  In the mid 1980s, Sah and Stiglitz had published their architecture of economic systems paper in the AER.  Both papers, working from an imperfect information framework, discussed the trade-offs between centralized coordination and decentralized coordination.  I tried to write a response at the time, but that paper never was able to find a home -- though ironcially it was one of the papers that I wrote at the time that came the closest in the referee process to landing in a major journal.  Still the basic insight in that paper was obviously not from me, but from Hayek and strangely enough for someone like me, George Stigler.  In Stigler's Memoirs of an Unregulated Economists (the best autobiography of an economist I have read yet), he recounts a story during WWII.  Koopmans had written him a letter outraged by the suggestion he had heard attributed to Stigler --- that in the case of a bombing of NYC, we should allow the price system to work to guide the evacuation and allocate resources.  Stigler replied that he had not made such a suggestion, but upon reflection he actually thought it was a good idea.  He explained that in the immediate aftermath of such a bombing any system would be chaotic, but if there was repeated bombings that the price system would outperform alternatives.  And his reasons was that the price system was amazingly risilient and adaptative to changing circumstances.

In the years since 1990, and the variety of episodes I have studied from transition economies to development economics to disaster and recovery efforts, I see no evidence that Stigler's thoughts on this should be questioned.  The real question is why such brilliant minds in economics as Koopmans and Stiglitz could ever come to an alternative position from Stigler's on the use of the price system to guide resource use in not only normal times, but especially in times of emergency.  

Perhaps it is time to go back and revisit that response to decentralization, duplication and delay.

Comments

[Dave Prychitko]

Emily makes an important argument that the local knowledge and culture must be harnessed as a decentralized process of reconstruction.

For the long term, also, we have to get the institutions right. But even so, we have to get the culture right -- respect for clearly defined property rights (enforcement can only go so far), appreciation of the entrepreneurship and the profit-loss system, and so on. That might pose the greatest challenge in restructuring their system. And I expect that we will hear outrage from the Left that we are trying to force capitalist exploitation upon a weak people.

[Jim Hlavac]

In my own blog I commented that it would be very good if the aid groups in Haiti would hand out cash, with a rubber stamped hand to acknowledge receipt of aid, like for voting, and then the goods coming in should be set up in markets, which can be done on the flea market concept fairly quickly, and that the police and military should protect the markets. Then goods sold and traded as people want, not as aid groups think. But anything like a food market destroyed should be stripped bare -- not looting at all -- before it rotted and decayed. It makes no sense to save property like bananas or cans of milk from a destroyed market when the shop keeper may even be dead -- better to distribute it first -- since the time lag in getting the first true supplies in takes a few days.
Yes, it is "fake" money, for it all comes from outside the nation, but the goods are all "fake" too since they are all from outside the nation. It is money from the clouds and goods from the sky -- all of which will be distributed -- all of it for distribution -- but if put into a market concept quickly -- cash for goods -- then the people will have a better time getting what they know they need. And not have to take what they are given. Talk about a confidence builder. And there will be far more order in the delivery of the goods. Everyone knows how to go to a market, even in Haiti.
If we can set up a temporary field hospital we can set up a temporary field market.

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