Freeman

THE CALLING

Who Plans Best for Natural Disasters?

Private firms or government agencies?

AUGUST 30, 2012 by STEVEN HORWITZ

As Hurricane Isaac rakes the U.S. Gulf Coast, it’s worth reminding ourselves who really plans well for disasters and does the best job responding to them. In the last few days TV crews have endlessly interviewed politicians about how well prepared the local communities and states are for the impending storm. As politicians are wont to do, they give the usual answers about whom they’ve mobilized and what they are prepared for, mostly focusing on public safety (such as mobilizing the National Guard). But as important as public safety is, it is hardly the only issue in disaster preparation.

The real challenge after a disaster is often getting crucial resources–food, water, supplies, and fuel–to the areas that have suffered damage. Talking to politicians is barking up the wrong tree. One of the lessons learned from Hurricane Katrina and other disasters is that the people who plan best for them are not found in the police station and office of the mayor or governor, but in the boardrooms and headquarters of private-sector firms.

The failures of FEMA (Federal Emergency Management Agency) during Hurricane Katrina in 2005 is now common knowledge (though its equally bungled responses to a couple of later smaller disasters aren’t). What is not commonly known is whom the real heroes of Hurricane Katrina were: Some organizations really did an excellent job moving resources into New Orleans and other heavily damaged parts of the Gulf Coast. The one government agency that did perform well was the Coast Guard, which rescued thousands of people during the storm, drawing on many local resources like the boats and assistance of local fishermen who knew the area.

The bigger heroes, however, were the big-box stores, especially Walmart.

Truckloads and Truckloads

During its Katrina response Walmart shipped almost 2,500 truckloads of merchandise to the Gulf Coast. Home Depot provided more than 800 trucks’ worth of supplies and moved employees from around the country to stores in the Katrina-ravaged areas. Walmart also gave away a large quantity of goods, including prescription drugs, to those in the worst-hit areas; several truckloads were delivered to evacuees as far away as Houston. The big-box stores were extremely effective at getting this relief to damaged areas quickly–days, and in some cases more than a week, before FEMA and other government agencies.

The private sector was also very effective at getting their own stores up and running. Just after the storm hit, Walmart had 126 stores and two distribution centers closed, with 89 of those stores reporting some damage. However, just ten days later, only 15 of those stores remained closed– the ones directly in the path of the storm that had suffered significant structural damage or major flooding.

Knowledge & Incentives

Private-sector firms are very good at mobilizing resources not only because they do it every day–and not just when a disaster rolls around–but also because they exist in an institutional environment in which prices, profits, and losses provide both the knowledge and incentives to do it well. One reason Walmart was so effective during Katrina is that it has its own in-house weather forecasters, as well as private forecasters under contract, to keep up to date. In fact Walmart’s forecasters predicted Katrina’s strengthening to a Category 5 before the National Weather Service did.

The private sector can move supplies quickly to where they need to be because it can effectively use local and decentralized knowledge. The Coast Guard succeeded for similar reason because it has long-standing relationships with local boat owners who could be called on during the disaster. Both the Coast Guard and Walmart give a great deal of discretion to employees on the spot, such as the captain of a boat or a store manager. Several of the most community-minded things Walmart stores did during Katrina were on the initiative of managers and assistant managers who followed the CEO’s call to “above all, do the right thing.”

So when the next storm threatens and you see the interviews with local political officials, you might ask why they never interview distribution managers at Walmart or Home Depot. The answer, I think, is that, unlike the politicians, who always seem to have the time to do interviews, leaders in the private sector are actually working on disaster-response plans and making sure resources are getting where they need to go. When you really engage in disaster preparedness, you don’t have time to blow your own horn on TV. You have lives to save.

ABOUT

STEVEN HORWITZ

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Microfoundations and Macroeconomics: An Austrian Perspective, now in paperback.

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