Economic Institutions under Disaster Situations: The Case of Hurricane Katrina

By Watkins, John P. | Journal of Economic Issues, June 2007 | Go to article overview

Economic Institutions under Disaster Situations: The Case of Hurricane Katrina


Watkins, John P., Journal of Economic Issues


Hurricane Katrina represented the "perfect storm." The storm stranded approximately 100,000 people for five days without access to adequate food, water, or shelter; inundated 200,000 homes; displaced 500,000 people; caused $200 billion in property damage; and left over 1,800 people dead.

Disasters happen; they are part of natural and social processes. The flooding of New Orleans, however, resulted from long-run policies that value growth over security, the affluent and middle class over the poor. The long-run policies form the backdrop for the short-run policies based on a neoliberalist philosophy. Those policies fostered a collapse in the basic economic institutions leaving 100,000 people stranded. With their collapse, the process of social provisioning collapsed as well.

Economic Institutions and Social Provisioning

In modern societies, social provisioning depends on three types of economic institutions: the market, reciprocity, and redistribution. As Karl Polanyi (1944) observed, these institutions represent different patterns of economic and social integration. They differ in how they provide access to goods and services, the legitimacy of that access, and their underlying ideology.

The market organizes society based on the voluntary exchange of equivalents. As Karl Marx noted, the "exchange of equivalents" involves a process of social abstraction ([1867] 1976). Quantitatively relating jambalaya cooks, jazz musicians, and the goods and services they create requires abstracting from their qualitative differences. This "exchange of equivalents" involves disembedding the economy from its social context. As Polanyi notes, human relations become subject to market forces, which becomes the basis for the impersonal nature of market relations.

Income becomes proportional to the value contributed. Each person looks to his own interest, not to the interests of others. Access to the stream of goods and services finds legitimacy in definitive rights over property. Ultimately, income from property finds its justification in the tradition of natural rights.

In contrast, reciprocity is the basis of the "gift economy," that universal system of obligatory "gift giving" characteristic of personal relationships. Reciprocity is the simple pattern of give and take, illustrated by two friends, two families, or two tribes engaged in mutual "gift" giving. The gift fosters and reinforces social relations, offering a measure of security. "Gift giving" is a recognition that my survival depends on the survival of others (Polanyi 1944).

Reciprocity is central to the concept of social capital (Carroll and Stanfield 2003). In fact, Robert Putnam (2000) defines social capital as "social networks and the associated norms of reciprocity." He identifies the positive aspects of social capital with "mutual support, cooperation, trust, institutional effectiveness," all related to reciprocity.

Reciprocity involves considering the interests of others. People offer rides to friends because their friends are important, because imagining themselves in their friends place they too would want a ride. As Michael Woolcock (2001) observes, "one's family, friends and associates constitute an important asset, one that can be called upon in a crisis."

Redistribution characterizes arrangements in which claims collected bear no necessary relation to claims paid out. Government represents the obvious example; other examples may include non-profit organizations, insurance, and so on. The general purpose of redistribution is to provide security.

Redistributive institutions involve pooling resources that are allocated based on social values. Those values reflect a wide range of purposes: income maintenance, security, economic development, and so on. As the Katrina disaster illustrates, government spending to mitigate disasters falls short of government expenditures following disasters. …

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Economic Institutions under Disaster Situations: The Case of Hurricane Katrina
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