Hamish McRae: Human Solidarity and Economic Self-Interest: From Disaster We Can Forge New Relationships
McRae, Hamish, The Independent on Sunday (London, England)
People matter more than economics. The financial consequences of the tsunami must and will remain secondary to the human ones. But there will be economic consequences and these will affect people's livelihoods. While it is too early to fully comprehend the human toll, it is possible to set out a framework for thinking through the economic aspects of the catastrophe.
For we do know quite a lot about the way that natural disasters affect economic activity. We know that at a macro-economic level - the big numbers of gross domestic product or inflation - the overall impact is surprisingly small. We also know that at a micro-economic level - the towns, industries, companies and so on - the effects vary enormously but can be positive or negative. And beyond these purely economic consequences, we can look for changes in society and trading relationships that will affect economic outcomes in the future.
The macro first - there are several points to be made here. One is the strange, but in a way obvious, point that disasters create economic activity as well as destroying it. The huge and wonderful effort the world is making to try to cope with the catastrophe is economic activity.
A second point is that the four main countries most seriously affected - India, Indonesia, Sri Lanka and Thailand - are all fast- growing ones. In addition, India and Indonesia have huge populations while Thailand has more people than the UK or France (see the charts). And while living standards as measured by national income per head are far below those of the developed world, were one to measure by the amount that the income actually buys, the gap would be much smaller.
A third point is that for all its horror and physical scale, the damage to the infrastructure is not - with one exception - so great as to cripple an entire economy. The exception is the Maldives where there are two core industries, fishing and tourism, both of which have been shattered. But then the Maldives' economy is tiny: the population is only 340,000, little more than the figure for a big London borough like Bromley. It matters in human and cultural terms, but the big economic numbers are unaffected.
This question of scale is particularly evident when thinking through the consequences for India and Thailand. In the case of India, a huge, fast-growing and increasingly flexible economy, the macro-economic impact is very small. Capital Economics has calculated that the short-term impact on the region will be a loss of less than 0.5 per cent of GDP - much the same as the effect of the Sars crisis.
The Indian finance minister, Mr P Chidambaram, aroused some criticism when he seemed to be rejecting outside financial help - in favour of other countries that needed it more. But actually it was a thoughtful and admirable response. Where India may need foreign resources will be in investment for reconstruction.
In the case of Thailand, the tourist sector is not much more than 10 per cent of the country's output, even adding in the indirect effects. While many beach communities have been destroyed, the physical infrastructure of the rest of the industry is unaffected. The economic difficulty for Thailand (and Sri Lanka) is that visitors may stay away in the future because they think the …
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Publication information: Article title: Hamish McRae: Human Solidarity and Economic Self-Interest: From Disaster We Can Forge New Relationships. Contributors: McRae, Hamish - Author. Newspaper title: The Independent on Sunday (London, England). Publication date: January 9, 2005. Page number: 13. © 2009 The Independent on Sunday. Provided by ProQuest LLC. All Rights Reserved.
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