On Catastrophes and Renewal

William Krehm

Amongst the privileged, major disasters giving rise to reappraisals of man and his destiny, The Wall Street Journal (16/01, “Rising from the Ruins” by Kevin Rozario) provides an excellent example: “The earth shuddered. According to an American observer, ‘every Building rolled and jostled like a ship at sea, which put in Ruins almost every House, Church, and Publick Buildings, with an incredible Slaughter of the Inhabitants.’ Fires broke out all across the city, and the river rose 20 feet, breaking its banks and engulfing the lower elevations. It was November 1, 1755, and without warning, Lisbon, capital of the Portuguese empire, became a wasteland. Earthquake, fire and flood left 15,000 people dead (reports at the time spoke of 50,000); 17,000 of the city’s 20,000 homes were destroyed.

“The scale of the calamity shocked the Western World. It demanded a response, and an explanation. Aid arrived from many nations; explanations were harder to agree upon. Clerics in this Age of the Inquisition described the calamity as an act of God, a judgment for the sins of the people. Fashionable thinkers attempted to explain the earthquake as a blessing in disguise, part of God’s benevolent design wherein everything happened for the best.

“But the French philosopher Voltaire denounced both views. Could any survivor be expected to be consoled by the fact that ‘the heirs of those who have perished will increase their fortune; masons will earn money by rebuilding the houses’? He cared nothing for divine designs, his sympathy lay with the victims, and the only truly ethical response to the Lisbon earthquake was to act, to repair bodies and buildings, and to study nature all the better to protect against nature’s harms. Like London after the great fire of 1666, cities had been rebuilt, and often improved after past calamities. But Voltaire turned this into a modern moral imperative. A civilization worthy of its name should pay special heed to disasters, learn from the mistakes they revealed, and harness intelligence, science and sympathy to make a more secure world. This was the project of modernity.

“What he did not expect was that Lisbon would itself rise so triumphantly from the rubble. Employing the absolute power of the monarchy and the resources of empire, the Marquis de Pombal built a new metropolis with earthquake-proof buildings, wide thoroughfares and a sewer system. Merchants had braced themselves for business failures and the decline of their fortunes. But Pombal turned one of the worst natural disasters in European history into an occasion for modernization. The message was clear, and it was one that would resonate down through the centuries; with the right intervention, catastrophes presented extraordinary opportunities to make improvements.

“Indeed, over time, and nowhere more so than in America, urban disasters came to be understood as engines of urban development and economic growth. Puritans had viewed calamities as useful ‘corrections,’ afflictions sent by God to call sinners back to the path of virtue. But the material benefits of destruction were soon apparent, too. After a fire wiped out much of Boston in 1676, the town took advantage of the destruction to build wide thoroughfares and implement new fireproofing regulations. Such measures, repeated after subsequent fires into the 19th century, equipped the city for commercial expansion, laying the foundations for the seaport’s subsequent prosperity and growth at a time of burgeoning trans-Atlantic trade. Disasters demanded a response that was often impossible in ordinary times.”

Economic Theory Adopts Models Leading to Calamities

“With the establishment of credit networks, insurance coverage, new technologies and systems of industrial production over the next two centuries, successful reconstruction became so predictable that it became a tradition of the modern age that disasters were instruments of progress. When most of Chicago burned down in 1871, prominent clergyman Henry Ward Beecher made the extraordinary statement that Americans ‘could not afford to do without the Chicago Fire.’ The official account of the conflagration enumerated the ‘unquestioned material advantages’ that were sure to be realized if the ‘natural laws’ of the market were allowed to guide the reconstruction of the city, encouraging readers to look beyond the destruction to the bigger and better metropolis that would arise from the ruins. And, indeed, Chicago became the fastest growing city in the Western Hemisphere over the next two decades, staging the colossal World Fair in 1893 to celebrate the economic forces, technological developments and political values that had ensured the great fire would become a source of prosperity.

“By 1908, one newspaper correspondent was so struck by soaring stock prices after the decimation of San Francisco by earthquake and fire that he launched an investigation into what he called ‘catastrophe markets.’ What he discovered was that the enormous profits for some and enabled economic innovations that increased productivity – a combination of circumstances that fueled investor confidence…. Hence the broad resonance of economist Joseph Schumpeter’s famous description of capitalism as a ‘gate of creative destruction.’ As Federal Reserve Chairman Alan Greenspan explained in the 1990s, this metaphor captured the dependence of a capitalist economy on the continual obliteration of outmoded goods and structures to clear space and make way for innovation, new efficiencies and greater productivity.

“Disasters, it seemed, were good for business in a dynamic, expansive, capitalist economy. In part this was so because investors believed it to be so. In 1999, The Wall Street Journal reported that major calamities like the 1989 Hurricane Hugo and the earthquake in California had generated intermediate and long-term gains that more than offset initial losses; ‘anthill economics’ illustrated the general principle that disasters promoted economic growth. And this was by no means exclusive to the US. The Chinese State Information Research Center claimed the earthquake that killed 80,000 people in Sichuan Province in May 2008 would trigger a building boom that would boost national economic growth by 0.3%. Whether or not this figure is reliable, there were ample precedents here, not least the response to the Tangshan earthquake that destroyed 78% of residences and killed at least 240,000 people in 1976. Economic production from this important industrial center was restored within two years and, after careful planning and investment, a new-and-improved Tangshan was completed in 1986 and presented as a symbol of Deng Xiaoping’s success in modernizing China.

“In the US such confidence has taken a hard hit in recent years, and perhaps nothing speaks more to the possibility that we may be entering an age of diminishing expectations than the difficulty we have in seeing disasters as opportunities. Such optimism seemed to evaporate after Hurricane Katrina in 2005. Certainly, the president of Merrill Lynch reminded investors that disasters historically promised economic opportunities that would compensate for any losses. And New Orleans Mayor Ray Nagin promised ‘to bring our city back bigger, better and stronger.’ But the optimists, for once, were outnumbered.”

Clearly this had an intimate connection with the detail that human capital – largely because of the racial colour bar – had created a local undervaluation of human capital that today has been overtaken by Washington policy, to say nothing of the official Deregulation and Globalization criteria that have dominated the world.

Let us return to The Wall Street Journal for guidance: “From the beginning many observers emphasized the social and environmental costs of the calamity. The mismanaged evacuation of poor and African-American residents from New Orleans symbolized the social costs of capitalist development. Commentators noted the deleterious effects of developing the wetlands and barrier islands upon which New Orleans depended for natural protection against storm surges, and explored the links between industrial production, carbon dioxide emissions and the increased ferocity of hurricanes. Development was not the solution, the inevitable happy outcome, but the problem.

“In truth, the dominant narrative of disasters as instruments of progress has always been contested. Disasters have often been truly disastrous for the poor. The emergency conditions introduced by calamity have often encouraged a disregard for the rights of citizens; a fervent commitment to economic development often discouraged attention to social costs. Because employers disregarded safety measures, more died – as many as 12 workers a day – in the rebuilding of Chicago than during the 1871 fire itself. And free-flowing investment and government aid has only encouraged businesses, developers and home owners to refuse the lessons of endless hurricanes in Florida and the Gulf Coast, rebuilding and expanding settlements along vulnerable coastal zones, and thereby increasing the likelihood of future destruction. Voltaire would despair.

“For the most part, the social and environmental costs of development have been rendered invisible by dominant articulations of American progress.”

(This even uses the language of François Perroux’s “dominant revenue” that for close to a half century we have laboured to bring to the attention of our governments. There is a crucial message for President Obama in these lines, that he has been ignoring only by putting the future of the US and the world at risk.)

“But after Hurricane Katrina, this buried history surfaced with a vengeance. The timing is key here. In an age of energy crisis, terrorist attacks, global warming and global financial instability, progress no longer seems quite so inevitable. Disasters increasingly present themselves as manifestations of a catastrophic world rather than as instruments of improvement.”

Which brings us to Haiti, shattered by an earthquake that adds to the compounded tragedies of its history. Home of one of the world’s few successful slave revolts – overthrowing an army of Napoleon, no less, it worsened the crime of liberation by providing shelter to Simon Bolivar, one of the two great Liberators of Spanish America during an interval when the war gods scowled at him. That hardly recommended the former slave republic to Washington, land of the free that still had a civil war ahead to sort out even the shallower formalities of freedom.

When History Foretold the Guantanamo Disaster

Until it had, these ruled the Americas, and a good part of the world, in a way that foretold the Guantanamo Bay Chapter. By the so-called Monroe Doctrine it reserved the right to prevent any outside power from contributing to free any part of the New World pole to pole. Even F.D. Roosevelt, while fighting a world war for human freedom could boast that the Haitian Constitution was a good document – he had written it himself, when Assistant-Secretary of the Navy under President Wilson. And after WW II had been won the US army set up a school of torture in the Canal Zone where the armies of Washington-supported dictators throughout Latin America were instructed in techniques of torturing aspiring liberators. Perfectly elected regimes from Guatemala to Chile were tumbled, and their presidents murdered. Hundreds of democrats were dropped into the ocean that lapped the US-certified lands of the free.

What then sets off one small country like, say, Belgium or Finland, that is able to maintain its independence and freedom from a small country like Haiti that spectacularly is not. The answer to that riddle was given by a great French economist, dead for some two decades, and is largely forgotten even in France – François Perroux. And yet before the world economy was so completely globalized, the work from which I quote was published by Unesco, and such matters were discussed at university conferences outside most approximately democratic lands. I quote a single summary of the rich content of ideas relevant to the problem posed for us by Haiti and its human problems, essentially the reasons why it so sorely lacks the human resources for converting its formal “independence” to a meaningful regard for preserving and increasing its potential for recovery and independence.1

We quote: (p. 35): “Let us consider a national economy very much inspired by the liberalism of the current period to benefit from the closeness of both Germany and France for adapting its economy quickly to make the most of contemporary trends accessible to it from its position rather than accepting passively what its inherited economy provides. For us the foreign trade will be determined not by the given structure of their economies but by taking advantage of the integrated and integrating structures that are at hand and that can be taken advantage of to increase their economic potential.”

The influences of one structure on another through the flow of foreign exchange have to do with the asymmetrical relationships in three different domains: exports, direct investments and monetary flows.

Haiti lacks even the educated labour force that the Netherlands or Finland have in prodigious quantity: a capacity for direct investment in what is at hand from its neighbours, and similar monetary influences to use to advantage in such situations.

And of course, a highly educated population to apply such favored structural assets.

That is why destruction in Haiti will not in any sense of the imagination automatically lead to renewal of population and resources. Nothing will automatically arise on its own from those ruins – any more than they did in New Orleans.

“This disaster, like all disasters, then poses a question. One argument holds that the solution to both the poverty and the disaster is integration into world markets, more International Monetary Fund loans and structural adjustments. On the day after the earthquake, James Roberts, a research fellow at the Heritage Foundation laid out an expansive vision of the prospect this disaster presented for a ‘bold and decisive’ US intervention to impose the democratic and economic reforms that would turn Haiti into a stable state and trading partner. Disaster, once again, figures as an agent of progress.

“At the same time, critics of neo-liberalism are arguing that the disaster was the result of capitalist development, as mandated by the international community. The country – impoverished over the centuries by slavery, the extraction of its resources to imperial metropolises, international occupations – has been dependent on IMF loans since the 1980s, but these have come with strings attached. Haiti, once self-sufficient in rice production, was forced to remove barriers to heavily subsidized American rice. This led to the decimation of local farming and the migration of farming dwellers to the city in search of work. With recent escalating world food prices, Haitians, unable to grow their own food, have sunk deeper into poverty, locked in a cycle of dependency that contributed to the scale of the destruction and loss of life in the wake of the earthquake.

William Krehm

1. François Perroux, Independence de la Nation, Professeur au College de France.

– from COMER, March 2010