The Disaster Profiteers: How Natural Disasters Make the Rich Richer and the Poor Even Poorer

by John C. Mutter

  CEPR’s analysis showed that all the other contracts went to US firms, half of which were so-called Beltway contractors (firms from Maryland, Virginia, or Washington, DC). USAID contracted with Beltway firms for 92 percent of its work; it contracted with no Haitian companies at all.

  Of the Haitian companies that did get contracts, one, Sanco Enterprises, was initially awarded nine contracts, mostly for waste removal. Sanco is the largest waste removal company in the Port-au-Prince area. But soon after a cholera outbreak occurred in the north of Haiti, well away from the earthquake-affected areas, Sanco was found to be the contractor that provided waste removal services to the Nepalese UN peacekeepers believed to be the source of the outbreak. Sanco was suspected of being responsible for the outbreak, as improper human waste removal is a leading theory for the spread of cholera, but its culpability was never proven. Sanco improved its performance at the UN base, but by that time it was too late; the cholera epidemic had caught hold and was heading south.

  Another contract went to a Haitian company, GDG Beton & Construction, the largest supplier of cement in the country. The leader of the reconstruction commission that awarded the contract is Haiti’s minister for tourism, Patrick Delatour, who acknowledges he has a 5 percent share in the company, which he started with a cousin in 2000.75

  A few members of the Haitian elite who owned contracted companies have benefited from the reconstruction, and many American companies close to the political elite in Washington have benefited also. It’s hard to see how ordinary Haitians have benefited, if at all. The negs still suffer in poverty.

  And things haven’t gone very well. Initially, an industrial park was planned near Port-au-Prince, but it proved difficult for the government to obtain the necessary land. The new location is far away on the northern coast; you can’t get any farther away from Port-au-Prince and remain in Haiti.76 The cost of construction so far has been about $300,000. The Clinton Foundation says:

  In collaboration with the Government of Haiti, the Inter-American Development Bank, and the U.S. State Department, the Clinton Foundation assisted with the development of the Caracol Industrial Park, which could ultimately create up to 60,000 jobs and help to decentralize the Haitian economy. In October 2012, President Bill Clinton joined Secretary of State Hillary Rodham Clinton, President Martelly, Prime Minister Lamothe, and President Moreno of the Inter-American Development Bank (IDB) for the opening of Caracol Northern Industrial Park. Today, the Korean apparel manufacturer Sae-A is the anchor tenant and will create 20,000 jobs alone.

  Well, not quite. To date Sae-A is the only major tenant, and 2,000 jobs have been created. Other companies have pledged to join but have been slow to move. Most of the land was acquired from several hundred farmers at minimum compensation, and no alternative form of income has taken its place. Those who have jobs at Sae-A are not so thrilled with their working conditions, security, and pay. They get $4.56 a day. At that rate, a worker would have to work 29 days a month just to buy food.77 And there have always been critics of this sort of development who argue that it is too insecure, because companies can easily relocate if they find a country with even lower labor rates and greater tax and other incentives. These companies have no allegiance to the country. More important, the establishment of a garment factory does little for Haiti’s drastic food insecurity. A few more people may be able to pay for imported food, but it will do little to reduce rural poverty.

  But to be less critical, the project is going forward. A power plant was built on time and under budget and supplies power to the park and to surrounding villages. And based on the celebrities who attended the opening in 2012 and are identified as supporters of the project—Hillary Clinton was master of ceremonies and Bill Clinton was prominent, and guests included Donna Karan; Brad Pitt; Ben Stiller and his wife, Christine; Haiti’s current and former presidents; and Czech supermodel Petra Nemcova, who is ambassador at large to Haiti—then the project is a certain success. I certainly hope so.

  I don’t want to throw a wet blanket over Caracol, but there is a serious problem that none of the planners appears to have considered. In the north of the island of Hispaniola, the western half of which is Haiti, lies the deadly equivalent to the Enriquillo-Plantain Garden Fault that ruptured in 2010, devastating Port-au-Prince: the Septentrional Fault (literally, the fault of the north). It forms the opposite side of the Gonâve Plate and runs under the Dominican Republic and almost exactly along the north coast of Haiti.78

  The Septentrional Fault is the same class of fault as its southern counterpart (technically a right-lateral strike-slip fault like the San Andreas). In 1842 this fault ruptured in the Cap-Haïtien earthquake, which had an estimated magnitude of 8.1. About 5,000 people died in that quake, and another 300 in the tsunami that followed. That is far fewer people than were killed in the 2010 event, but there were far fewer people in the exposed area at that time. The site of the planned Caracol development park is just as close, maybe even a little closer, to the Septentrional Fault than Port-au-Prince is to the Enriquillo-Plantain Garden Fault.

  A New York Times article that discussed the fault was highly critical of the project and pointed to the possibility of environmental damage as well as poor planning and execution. However, if all goes well and the critics are wrong, Caracol could become a thriving center of production that could help lift Haiti out of postdisaster torpor and contribute to economic renewal. Though seismologists cannot say when or exactly where it will happen, they can say with certainty that the Septentrional Fault will move again. None of the new buildings has been built to resist an earthquake the size of the 2010 quake, and the Septentrional Fault has generated larger events. Because the fault has supported a magnitude 8 earthquake in the past, another earthquake of that magnitude is possible. A north-coast counterpart to the Port-au-Prince tragedy is likely to result.

  Haiti has suffered so many tragedies in its history. To avert the next one, factories and houses in the new center must be built to very high earthquake-resistance standards. Including earthquake-safe features in new construction adds just a few percentage points in costs but can ensure that many lives are saved and that businesses can keep running or get back online fairly quickly after a quake. Haiti need not lose so many people, and the economy need not lose more than 100 percent of GDP, as it did in 2010.

  Every seismologist who read the New York Times article and saw the location of Caracol must have put their head in their hands and cried Oh no, not there. A safer place would be on the western coastline near Gonaïves or Saint-Marc. Although these areas suffer from repeated flooding from hurricanes, they are far from active faults; hurricanes here are far more manageable than earthquakes.

  The die was cast for development in Caracol a long time ago, and changing the location of the new industrial center is not feasible. But the catastrophe in Port-au-Prince should have heightened sensitivity to earthquake risk in Haiti. Since the project began so soon after the 2010 quake, you would think that someone might have looked at a seismicity map.

  The map shows that for most of its length in northern Haiti, the fault is just a few miles offshore. If a significant earthquake does occur on the Septentrional Fault, the motion on that submarine segment of the fault could cause the seafloor to shift and give rise to a tsunami. The Caracol complex, with its worker housing, power plant, and nearby villages, is close to the coast, and the topography is fairly flat. Caracol Park itself is about two miles from the shoreline. A river runs through the complex into Caracol Bay. The river could funnel tsunami waves from the coast into the complex just as the earthquake in Chile in 2010 found the relocated Concepción by traveling up the Bío Bío River. From a geophysical viewpoint, Caracol is in just as dangerous a place as Concepción.

  I have identified some ways in which we can look at the earthquake disasters in Chile and Haiti that occurred within a few weeks of each other in 2010, with an excursion into an earlier earthquake
in China. In absolute magnitude of energy released, the order goes: Chile, China, Haiti. In order of the misery caused, we could argue for the reverse ordering. In order of speed of reconstruction, China wins hands down, even though Haiti received by far the largest donations of relief monies. Haiti is easily last in recovery.

  Each place has a markedly different form of government, and each is at a different stage of development. In GDP per capita, of 185 countries assessed in 2013, the World Bank ranked Chile the highest at 51, China at 85, and Haiti at 165. Transparency International ranks Chile very highly at 21, China quite low at 100, and Haiti even lower, at 161 out of 175 countries assessed for perception of corruption. The countries are closest to each other in income inequality: the Central Intelligence Agency (CIA)79 ranks all three in the top 20 percent of the world’s most unequal countries, with Haiti number 7 (the most unequal country outside Africa); Chile, number 14; and China, number 27 of 141 countries assessed. (Haiti and Chile are in the top 10 percent.)

  It is hardly unexpected that countries so different in character would experience different disaster outcomes—death tolls, economic setbacks—from geophysically similar natural events. Chile and Haiti can be thought of as the best and the worst in Latin America. But their inequality gives rise to disaster outcomes more similar than might be expected. The small, wealthy governing elite barely notice. It is an inconvenience to them but not much more. Their income is essentially unchanged because they have the capacity to buffer the losses. The poor die or are badly injured and made homeless. They suffer more than they suffered before. What little they had is diminished. They suffer setbacks even if the economy doesn’t because their production isn’t counted and the economy is in the hands of so few. Their deaths don’t count, and their suffering doesn’t matter.

  Do the elite actually profit? Not directly, you might think. But by losing less and recovering more quickly than the poor, they set themselves even further from the poorest. A society of unequals becomes even more unequal, and power and wealth become even more concentrated.

  We turn next to examine the colossal disaster of tsunamis. Tsunamis are the quintessential black swan event,80 an occurrence so unexpected that most people would think it impossible. In most languages there is no native word for them, and the Japanese word is adopted. When they do come to your shoreline, they come with a horror multiplied during centuries of quiescence.

  Chapter 4

  Walls of Water, Oceans of Death

  Earthquakes cause the most destruction when they generate tsunamis—that is, when the quakes are, as seismologists say, tsunamogenic—because they are capable of causing damage much farther from the earthquake hypocenter than is caused by the ground shaking. These earthquakes occur at special places in the tectonic fabric of the planet, mainly around the Pacific Ocean but also along the western coast of Indonesia. To be tsunamogenic, an earthquake has to be large (magnitude 8 or so) and displace the floor of the ocean. The more the ocean floor is moved, the larger the height of the tsunami wave.

  When an earthquake triggers a tsunami, the damage far from the site of the quake itself can be enormous. Places that were not affected by the ground shaking can be devastated by a tsunami running silently across the ocean at speeds as fast as that of a modern commercial airliner. It is very hard to prepare for a tsunami and get out of the way before it is too late. There is no rumbling; the skies don’t darken in advance of the wave. Often the sea does retreat hundreds of yards in advance of the tsunami wave, which gives a very good indication that a tsunami will arrive soon—if you know to watch for that signal. That can give people enough time to escape to high ground or a tall, robust building, the only means to ensure survival when the wave comes.

  But not many people recognize this warning signal. It’s like knowing that buildings kill people in earthquakes; not everyone knows that. There are countless stories of people venturing onto newly exposed beaches to pick up shells and look at stranded sea life, only to be swept to their deaths by the tsunami wave just a few minutes later.

  The tsunami that came to Sri Lanka in 2004 was not anticipated; in fact, there isn’t even a word in the Sri Lankan language for tsunami. The Japanese word meaning “harbor wave” has been adopted in other languages without translation. The term tidal wave is often used, but tsunamis have nothing to do with the tides. Hardly anyone on the eastern coast of Sri Lanka that day would have been familiar with a tsunami. Although the region had experienced tsunamis in centuries past, no one had any memory of them. There were no folktales, no songs of ancient tsunamis. People on the eastern coast of Sri Lanka were as unprepared for the tsunami as those in Port-au-Prince were for the earthquake in 2010.

  A tsunami detection and warning system basically consists of a suite of instruments, some deployed on the ocean bottom and others set in buoys on the ocean surface. They measure tiny pressure changes at the seafloor and changes in sea surface height. Seismometers detect earthquakes. Once a quake is detected, computer codes can quickly analyze the seismic data to determine if it might cause a tsunami and, if so, the wave’s maximum height and how long it will take to reach various locations. This information is sent to areas that might be affected. For the information to be useful, however, there has to be a way to broadcast it to a public educated about what to do in case of a warning—for example, there can be signs giving guidance as to where people should go for safety. In principle, reaching safety is fairly simple—you take the shortest route to high ground or go to the upper floors of a sturdy building.

  If you are not warned, you may see the wave arriving as it enters the shallow regions and grows ever larger. If you are on the ground, your instincts will tell you to run away as fast as possible, as if it were a very large but otherwise normal ocean wave. Over 20,000 people died making futile efforts to escape the 2004 tsunami in Sri Lanka.

  Why was there not a warning system in place in the Indian Ocean in 2004? The UN’s Intergovernmental Oceanographic Commission (IOC)1 could have established a suitable system, and it had been an agenda item at meetings for some time. Although the instruments themselves are not very costly or sophisticated, the countries around the Indian Ocean are quite poor and don’t have much clout at the IOC. The countries around the Pacific Ocean are exactly the opposite. They are wealthy and have plenty of clout, as well as large numbers of scientists, scientific institutions, and infrastructure that they can contribute cost free to the Pacific warning system. The Indian Ocean countries have far less. So they lost out.

  Scientists at the Pacific Tsunami Warning Center in Hawaii detected the earthquake off Sumatra on December 26 and calculated that it would not generate a tsunami that would threaten any of the member countries to which it provides warning—none of which are in the Indian Ocean region. Although those scientists knew that the earthquake was tsunamogenic and posed a threat to Indian Ocean countries, there was no established way for the Hawaiian warning center to contact appropriate authorities around the Indian Ocean. The scientists made calls and sent e-mails to whomever they could think of, but no tsunami warnings were issued in any Indian Ocean country. Sarath Weerawarnakula, the director of the Sri Lankan Geological Survey and Mines Bureau, later acknowledged receiving word of the earthquake and its tsunami potential, but, it seems, he did nothing.2 And it’s not so clear what he could have done. There was no system in place whereby he could have broadcast a message of warning to people by the coast.

  One fascinating story that emerged from the 2004 tsunami in the Indian Ocean is that despite the massive human death toll, very few animals died. It made me wonder if that was true in general in disasters of all types. I don’t know the answer, though it has been argued that animals have a sort of sixth sense about impending danger and take off in a direction away from the danger. Elephants in particular are believed to be highly sensitive to unusual sounds, and their feet can sense low-frequency vibrations, which tsunamis do create. There are many stories
of elephants trumpeting and moving to high ground five minutes or so before the tsunami arrived.3 Other animals apparently saw that the elephants were upset and, even if they did not sense anything themselves, followed the elephants’ lead. Still, it would be fairly impractical to post elephants along the coastline to act as a tsunami warning.

  There was no warning system in place in the Indian Ocean before the tsumani of December 26, 2004, but there is a system now. The new system is much like the one that has been in place for many years in the Pacific Ocean and provides accurate and timely warnings of tsunamis generated by earthquakes in the Aleutian subduction zone off Japan and other Pacific regions.

  Sri Lanka did not collapse economically from the tsunami. The World Bank’s overview says that “the Sri Lankan economy has seen robust annual growth at 6.4 percent over the course of 2003 to 2012, well above its regional peers”; it doesn’t mention the tsunami at all.4 Why did the economy not suffer from such a severe blow?

  First, although the extent of disaster damage is terrifying in its scope, the total damaged area does not take up a very large fraction of Sri Lanka as a whole, just a strip a few miles wide, mostly on the eastern and southern coasts. The capital city, Colombo, is on the western side of the island and was not greatly affected. Government was not disrupted. Conflict between the government and Tamil separatists took a short break, then continued as fiercely as before.

  Second, the businesses most affected were fishing and tourism because they were and are concentrated in the coastal strip. In the tsunami, 150,000 lost their main source of income.5 There was a massive loss of fishing boats and fishing nets (1 million or more nets). But revenues from fishing make up a small part of the Sri Lankan economy.6 So, while fisheries were important to the local economy of affected areas, their loss did not upend the aggregate economy. Textiles, tea, and rubber products are the largest exports; all are produced inland, and none were damaged by the tsunami. The port facilities through which these products move were largely unaffected also.