By Eric Crampton 04/11/2016


There are a lot of lessons from Hurricane Matthew that New Zealand might have found useful in the aftermath of the Canterbury earthquakes. 

Vero de Rugy has a great summary of Virgil Storr’s work for the Mercatus Centre on hurricane recovery in New Orleans.

Take a recent investigation by PBS’ “Frontline” and NPR into flood insurance and aid distribution in the aftermath of Superstorm Sandy. They found that disaster victims’ flood insurance claims were systematically underpaid, while the insurance companies selected by the feds to handle these claims were busy finding ways to increase their profits and limit payouts. Meanwhile, aid programs were slow to distribute funds while punishing homeowners with mountains of red tape and unqualified contractors, which ultimately prevented them from returning to their homes and communities.

Brad Gair, a disaster recovery manager in New York, said during the “Frontline” episode: “Did we put a bunch of money out? Yes. Is everybody mad? Yes. Did people get what they needed to get back into a home? No.” These horrifying stories were unfortunately a repeat of previous governmental responses to disasters — for example, after Hurricane Katrina and Hurricane Andrew.

Disaster en route to New Orleans. NASA.
Hurricane Matthew. NASA

 

You might have thought that having a government-provided insurance company would solve that problem. That stops working though where the government backstops claims in excess of reinsurance coverage and cares about keeping the budget in order. I’m not sure it would be unfair to characterise EQC as having seen its main job as helping to keep costs down rather than honoring its insurance contracts. At least I’ve seen an EQC spokesperson rather proudly lauding successes in keeping costs down.

In a recent book titled “Community Revival in the Wake of Disaster,” three of my colleagues at the Mercatus Center — Virgil Henry Storr, Stefanie Haeffele-Balch and Laura E. Grube — explain in detail why we shouldn’t be surprised that governmental responses to disasters lead to high administrative overhead costs and little relief to those who need it the most. They also show how entrepreneurs, “conceived broadly as individuals who recognize and act on opportunities to promote social change,” end up filling this critical role.

They reveal how in general, these entrepreneurs promote community recovery by providing necessary goods and services and restoring and replacing disrupted social networks. The entrepreneurs also provide signals to indicate that a community is rebounding. These signals are essential to incentivize people and businesses to stay in the community or, in the event they deserted it during or after the hurricane, come back.

Just as importantly, they argue that creating space for entrepreneurs to act after disasters is essential for promoting recovery and fostering resilient communities. They tell many uplifting stories of communities that didn’t wait for the various government agencies to rescue them and instead took matters into their own hands, finding ways to obtain funding, clean up and rebuild — which resulted in getting people back into their homes faster.

Disaster recovery in Christchurch

The same thing happened in Christchurch. Lots of fantastic community initiatives for helping. The government tried to stop the student volunteer army from helping. Gap Filler was great, and did receive some government funding as well. But, overall, locking downtown up for years while the planners planned didn’t make it easy.

Vero concludes:

Storr and his co-authors link the success of these local entrepreneurs to people’s knowledge of one another’s needs, which allows them to find creative ways to overcome adversity. As opposed to the top-down approach of a distant government bureaucracy, the best knowledge is local knowledge. Those who have lived and worked in these communities know them best and are paramount to revival.

When it comes to the recovery after Hurricane Matthew, policymakers should remember that when social networks are broken by disasters, local knowledge is particularly powerful and holds an even bigger advantage over bureaucrats than usual, no matter how well-intentioned the public officials are. In fact, bureaucratic red tape will only cause more people more pain.

Hard to disagree with the broad thrust, but there are important things government can do to help. Quickly funding some test cases through the courts for declaratory judgements where the event reveals previously unknown uncertainties in contracts – that can provide a substantial benefit.