Which costs more: prevention or recovery?

Mary B. Anderson

The basic argument for integrating disaster awareness into development planning is that it is wasteful not to do so. The value of property lost to disaster (the absolute value of direct costs) is higher in developed than in developing countries, but losses as a percentage of national wealth are 20 percent higher in developing countries. Disasters particularly hurt developing countries because poverty and disasters are mutually reinforcing, undermine incentives for development, and particularly hurt the nonformal sector. Societies do not choose between disaster prevention or recovery - they usually “buy” some of each. The question is, how much of each to buy. By and large, developed nations choose disaster prevention over recovery. In weighing options, methods of cost-benefit analysis that acknowledge and assess the actual outcomes of different courses of action are preferable to those that “handle” them by mathematical manipulation.

“A stitch in time saves nine,” wrote Benjamin Franklin. Policymakers and economists, who consider the opportunity costs, are not so easily persuaded. “What,” they ask, “does the present stitch cost us relative to the later costs (discounted to the present) of the nine stitches? Is it better to take only one stitch now, or two? And how do we know if the rip will occur or when?” The choices about where, when, and how much of a nation’s resources to use to prevent or ameliorate an uncertain event are complicated.

Which is more cost-effective for a developing country: disaster prevention or disaster recovery? What choices do governments of disaster-prone developing countries face as they adopt programs for economic and social development and try, at the same time, to manage losses and suffering from natural disasters? What are the implications for long-term development of prevention versus recovery? What are the costs and benefits of approaches governments - and donors - must consider as they decide when, where, and how much of their resources to allocate for disaster response?

It is important to understand the links between disaster and development. Disasters often undermine development efforts and waste development resources. All societies can now forecast and prepare for disasters, so their failure to allocate resources to disaster prevention is both inefficient and wasteful.

Frederick Krimgold (1974) defined as a crisis an event that outstrips a society’s ability to manage or cope with it, at least for a time. The World Bank identifies a disaster as an extraordinary event of limited duration (such as war or civil disturbance) or a natural disaster (such as an earthquake, flood, or hurricane) that seriously dislocates a country’s economy (World Bank 1989b). For the Bank to consider emergency assistance, the event must be significant enough to “cause the government to modify its economic priorities and programs substantially” - that is, to alter its development strategy, at least for a while (World Bank 1988).

Disasters are different in scope and nature from accidents and everyday emergencies. And disasters are different from catastrophes - in which the effects of disaster are societywide. Not every crisis is a disaster. An earthquake may be severe, but if it occurs in an unpopulated area, or in a populated area where there has been enough preparation so that damage is minimal (as in San Francisco in October 1989), it may not become a disaster. That is, it does not exceed the society’s coping ability and does not qualify for World Bank emergency lending. We use the term “disasters” to refer to events that usually have both a “natural” basis (winds, water, land movement) and a negative impact on human life.

The link between disasters and development

It is important to consider the relative cost-effectiveness of disaster prevention and disaster recovery in terms of their potential impacts on the long-term development of developing countries because there is a basic relationship between development and disaster-proneness. (Oddly, disasters are seldom discussed in development literature but development is discussed in disaster literature.) There are three reasons why the disaster “variable” should be integrated into development planning.

(1) Disasters are linked to poverty. Poverty increases vulnerability to disasters. Most disasters occur in poorer countries, and the people who suffer most from disasters - and from environmental degradation - are almost always a society’s poor people. One study (UNDRO 1976) estimated that 95 percent of deaths from disaster occur among the 66 percent of the world’s population that lives in the poorer countries. In Japan, for example, the average annual death toll from natural disaster is 63; in Peru, with a similar incidence of natural disasters, the annual death toll is 2,900 (Anderson 1985).

Natural events destroy life and property in every country, but the losses, relative to a country’s resources, are more of a burden on the poorer countries. Absolute economic losses may be higher in wealthier countries, because more property of higher value is damaged, but the loss of GNP from disasters is about 20 times greater in developing than in developed countries (Funaro-Curtis 1982). Poverty increases the likelihood that a crisis will become a disaster.

(2) Development can increase disaster-proneness. Under some circumstances, development itself can increase the likelihood of disasters. One might assume that a dollar spent decreasing poverty - that is, on development - is a dollar spent on disaster prevention. This is largely true, but the opposite also occurs. The development of industry, for example, increases the possibility of industrial accidents, some of which - including the accident in Bhopal, India - are disasters. Some development projects are planned without recognizing local natural hazards. Human settlements have been built, for example, with no awareness of heavy seismic activity in the area, using no earthquake-resistant building techniques (Kreimer 1989). Development sometimes increases the probability of disaster indirectly. Improved human and animal health and nutrition, for example, have in some regions contributed to overpopulation, overgrazing, and land depletion - to the point of environmental deterioration and ecological crisis. Elsewhere, populations have moved to urban areas for productive employment but, for lack of planning, have inhabited lands susceptible to flooding and mudslides. The environment is often the point of interface between development programming and disaster vulnerability.

Every development program or project in disaster-prone countries either increases or decreases the likelihood of disasters. When development increases a country’s ability to cope with (predict, manage, ensure, or shore up against) natural hazards, it contributes to disaster prevention. When development is undertaken in ignorance of disaster-proneness, it may add to the possibility or increase the potential damage.

(3) Development resources are often wasted out of failure to consider disaster-proneness. When development projects are undertaken without regard for potential disaster, scarce development resources are often inefficiently allocated. Investment dollars are wasted when a project is wiped out by a (predictable) typhoon, earthquake, or mudslide. Disasters shorten the economic life of development investments yet donor-funded development projects have increased the likelihood of disaster or have been built (and destroyed) in disaster-prone areas. (Community-built centers and newly acquired livestock were wiped out by a typhoon in Asia; export crops, requiring a fairly long cultivation period, succumbed to wind and rain damage from tropical storms in Central America; housing projects built on unstable lands were destroyed by earthquake in the Middle East; and irrigation projects that increase soil salinity threaten subsistence agriculture in Africa.) More often, a disaster interrupts ongoing programs and diverts resources from their originally planned use (Jovel 1989). When disaster-proneness is well-known, failure to factor it into planning represents a serious mismanagement of resources.

Between fiscal 1987 and fiscal 1988, the World Bank reallocated about $2 billion of existing loans to reconstruction and rehabilitation efforts after natural disasters. Specific disasters could not have been predicted, but most Bank postdisaster funding goes to countries known to be disaster-prone. More than 80 percent of the Bank’s reconstruction and rehabilitation loans between 1947 and 1989 were to countries receiving more than one such loan. Of the 57 countries receiving these loans, 18 - more than one third - received loans for more than one type of disaster and three received assistance for three different types of disaster. Certain types of disaster consistently get proportionately more Bank emergency assistance. Discounting war emergencies - which, since 1947, have received the most emergency loans - floods and drought together account for more than half of the emergency assistance since the early 1970s (Kreimer and Zador 1989).

The point is that even without full-scale probability analysis, a lending institution can predict in which countries economic activity is most likely to be disrupted by natural events, and by which types. Disasters affect the returns on investment for any lending venture, so it is rational to factor the likelihood of such events into economic analysis. (One way to include likely disasters in an analysis of returns on investment would be to use a discount rate that ensures that the returns are realized shortly after the investment before any disaster could wipe them out.) Frequent reallocation of loans is inefficient if for no other reason than that reallocation decisions take time and money.

Donor agencies have a mixed record on acknowledging disaster-proneness in deciding about the economic viability of development projects. Seldom is disaster potential included in economic analyses in project design. In some project papers, the potential impact of a disaster is discussed under “social analysis.” One paper, for example, which dealt with the decision to construct a hydroelectric dam in an area of Colombia where seismic activity was common, noted that the project should “pay special attention to the social and environmental effects of a major accident at the hydroelectric site.” No mention was made of the potential economic effects of earthquake damage to the dam from seismic activity nor was the probability of an earthquake considered in the analysis of the project’s profitability.

The basic argument for integrating disaster awareness into development planning is that it is wasteful not to do so.

Definitions

To identify the relative costs and benefits of disaster prevention and disaster recovery we must first define the two responses. “Disaster prevention” is the activities undertaken before crisis to control or mitigate its impact, so that damage is prevented or reduced to a level with which the society can cope. “Recovery” from a disaster involves only those activities undertaken after a disaster to restore an economy/society to its predisaster condition - or “get things back to normal.” In the real world, activities for prevention and recovery overlap. Most governments maintain permanent disaster recovery institutions to mitigate the negative impacts of disasters through rescue and relief. These operations become active after a disaster, but receive funding and organizational support before and between disasters. In this sense, disaster preparedness is a form of disaster prevention because it focuses on keeping the impact of a crisis within the bounds of society’s ability to cope. Similarly, recovery expenditures are seldom intended only to get things back to normal, because “normal” includes those conditions that gave rise to the disaster in the first place. Usually, rebuilding involves improving the capital stock in a way designed to prevent or mitigate future disasters - for example, replacing earthquake-destroyed housing with earthquake-resistant housing. The World Bank’s recovery and rehabilitation projects almost always support improving stock to lessen the damages from future disasters. The overlapping of disaster prevention and recovery activities complicates the analysis of their relative cost-effectiveness.

Moreover, societies do not choose between all prevention or all recovery. They “buy” some prevention and some recovery; the real decision for governments is how much of each to buy. Economically, the amount of disaster mitigation that is warranted is the amount that can be bought for less than the cost of losses that are averted through mitigation efforts (Milliman 1984). To make this marginal decision, governments must be able to assess the benefits and costs of the options available.

Benefit-cost analysis

Benefit-cost analysis involves three basic steps - first, enumerating all of the expected benefits and costs of an activity; second, assigning monetary values to them all; third, discounting all future benefits and costs to present values. One then chooses the option for which the net present value is both positive and greater than that of all available alternative actions (Kramer and Florey).

When natural hazards are known risks, their probability of occurring is essential to the analysis. This presents a few problems. First, not all benefits or costs associated with disaster responses are quantifiable. It is difficult, for example, to “price” social, political, and psychological costs. You can estimate future income lost from injury or death, but not emotional losses. And when a great deal of economic activity occurs in the nonformal economy, loss of “income” is difficult to estimate. It is equally difficult to price the benefits of disaster responses. What, for example, is the value of the sense of security that comes from living in earthquake-resistant housing? Or what is the political benefit to a government of imposing building codes (or the political cost of not doing so)?

Second, how do you calculate the economic value of geological outcomes (such as acres lost to desert or the extinction of a species)? How do you capture the cost of the loss of nonrenewable resources? Do you price them according to lost production? Over infinity? How do you measure the value of acres, ozone, and lost income?

Third, how do you discount future benefits and costs and incorporate the risk of natural hazards into the analysis? Discount rates are the subject of much debate in the literature and there is an inherent problem in some approaches to handling uncertain future outcomes. Some methods - using a cutoff period or adjusting the discount rate to include a “risk premium,” for example - incorporate risk into benefit-cost analysis through statistical manipulations that effectively minimize the importance of future disasters to present decisions. The effect of these approaches is to obscure the differences in impacts on long-term development of different courses of action. Game theory and sensitivity analysis, which also incorporate risk into benefit-cost analysis, are more useful at highlighting potential differences in outcomes (Kramer and Florey). In disaster response (as in environmental planning), one is concerned with the measurable economic benefits and costs of different courses of action and with a host of other realities that affect human existence. Even if it were “cheaper” to let disasters happen than to prevent them, it is generally agreed that widespread human suffering should be prevented when possible. So in assessing alternative courses of action to respond to disasters, methodologies that acknowledge and assess the actual outcomes of different courses of action are preferable to those that “handle” them by mathematical manipulation.

Models in the developed world

The wealthier countries, which consider marginal costs and returns in their decisions, by and large choose the course of disaster prevention rather than recovery - as statistics on relative death tolls from disasters in the developing and developed world show. London, for example, undertook a disaster prevention project - construction of the Thames Barrier - to prevent flooding of the Thames River. The project cost £730 million but the potential loss of property - if the “demonstrably mathematically certain” flood were not prevented - was an estimated £3.5 billion. The decision was made despite a very long disaster horizon because, although the generations who paid for the prevention were unlikely to suffer from such a flood, the losses in case of such a disaster would be enormous. ¹

The San Francisco earthquake of October 1989 did not become a disaster (despite tragic results for some individuals) because major investments in disaster prevention had been undertaken by the region’s construction industry. Following building codes that ensured earthquake resistance added an average 4 percent to building costs, a sizable investment in the years before the earthquake. ² Society judged those costs justified in preventing loss of life and property.

The calculations on which the Thames and San Francisco decisions were made involved marginal economic analysis - and convincing the public to allocate major resources to disaster prevention. ³ But it would have been politically unthinkable for both governments not to have undertaken actions to mitigate the consequences of natural disasters experts predicted as certain.

In choosing between prevention and recovery, the richer countries calculate that the sum of the economic, political, and social costs of a disaster justify significant investment in prevention and mitigation. Decisions about how much prevention to “buy” are made keeping in mind both economic and noneconomic considerations. One factor to consider is the state of the art in available technologies for prevention and mitigation. The Thames Barrier could not have been built until certain technologies existed - at a cost and level of reliability that made the decision possible. The state of the art for predicting natural crises also affects decisions about prevention or recovery (Holden and others 1989).

Options for funding preventive action - involving who will pay, under what circumstances, and over what period - also affect the decision about whether or not to undertake it. (The costs of earthquake-resistant construction in San Francisco were spread among all builders or buyers of buildings. The Thames project was funded through the sale of bonds - a decision to increase the public debt.) One must face the issue either of distributing the cost of prevention, or of distributing the costs of not preventing a disaster - that is, distributing the costs of recovery. How severe and extensive would the damage from a disaster be? Volcanic damage would remain fairly localized and would have more or less impact depending on what was built at the foot of the volcano. The impact of a major Thames flood would clearly be widespread. The economic and political perceptions of the “right” choice are influenced by the public’s awareness of available technologies (even if expensive) and by people’s expectation that they, or someone they know, might be victimized by a disaster that could be prevented. A major Thames flood in 1953, which caused extensive property destruction and the deaths of 300 people, provided the impetus for the decision to build the elaborate Thames Barrier. Often it takes a catastrophic event to arrive at a decision to invest in disaster prevention rather than recovery (Glantz 1989), even though for a disaster such as an earthquake or volcanic eruption the likelihood of a repeat catastrophe is least immediately after the event. Not all benefits from these investments accrue to future generations. Current generations enjoy the “psychic” security of investments in disaster prevention.

Often people in developed countries conclude that sizable investments in disaster prevention are economically and politically justified even if a disastrous event cannot be predicted with certainty. These countries seem to see such investments as sound, as preferable to recovery. Could the same conclusion be assumed to apply to all countries? Or do different circumstances in the developing countries alter the economics or politics of the calculations?

The higher cost of disaster in developing countries

Disasters are costly in all countries, in both immediate losses and long-term consequences. It is difficult to assemble data across countries, but one report (Zupka 1988) indicates that between 1970 and 1985 disasters of only three types (windstorms, floods, and earthquakes) cost an average US$18.8 million a day and, between 1980 and 1985, affected 216.8 million people or almost 5 percent of the world’s population. Using Red Cross data, another report (UNDRO 1979a) calculates that between 1900 and 1976 an average 60,000 persons were killed and 3 million injured or left homeless by natural disasters each year. Jovel (1989) reports that in Latin America and the Caribbean, more than 6,000 lives and more than $1.5 billion are lost to disasters each year. Disasters affect developing countries disproportionately.

To assess the costs of a disaster one must consider both the immediate impact on physical assets, employment, and output and the impact on future economic prospects. Costs are assessed in three categories: direct, indirect, and secondary. Direct costs, including losses of capital stock and inventories, are usually valued as the cost of replacement. Indirect costs - reflected in lost income, employment, or services - are those resulting from lost productive capacity. Secondary costs - those that result from decreased economic growth - include increased national indebtedness, inflation, and balance of trade deficits. Secondary costs also include effects on income or welfare redistribution because of changes in prices or a particular disaster response. ⁴

Table 1 Economic losses from natural disasters, Latin America and the Caribbean, 1980-87
(US$ millions, 1987)

Note: Figures adjusted for inflation through 1987; secondary effects estimated for 1985 through 1987 and projected through 1990. Source: UN-ECLAC (in Jovel 1989).

With development resources limited in developing countries, are disaster costs different than they are in developed countries? Do the impacts of different disaster response strategies on long-term development affect the calculation of their relative cost-effectiveness? The value of property lost to disaster is higher in developed than in developing countries. So the absolute value of direct costs is usually higher in richer countries. But the indirect and secondary costs of disasters are significantly higher in developing countries than in wealthier countries. There are four reasons for this (discussed separately below):

· Losses as a percentage of national wealth are higher in developing countries.
· Disasters and poverty are mutually reinforcing.
· Disasters undermine incentives for development.
· Disasters particularly hurt the nonformal sector.

Losses as a percentage of national wealth are higher in developing countries. Although absolute losses from disaster may be higher in developed countries, losses as a percentage of total assets or national wealth are higher in developing countries. And the marginal utility of a unit of currency is presumably lower in richer countries. So the poorer the country, the greater the impact of direct, indirect, and secondary costs. Sometimes all of an asset of national importance is destroyed (as when a cyclone or earthquake destroys a national university). As a percentage of GNP, disaster losses are an estimated 20 percent higher in developing than in developed countries.

The relative impact of a disaster on national wealth depends on a country’s size and population density, the type of disaster (how local or general), the relationship between the type of disaster and the national economic base, and the level of national assets. Thus a small island nation, dependent on agricultural exports and susceptible to regular, severe tropical storms that sweep across the whole island, would experience worse losses than a country in which a small group of poor, subsistence farmers lives at the base of a volcano that erupts infrequently. The National Academy of Sciences (1988) reports that a one-meter rise in sea level, which is expected by the end of the next century as a result of global warming, will cover broad areas of Bangladesh, Indonesia, and Southeast Asia. These highly populated areas depend heavily on agriculture (Stevens 1989).

Hurricanes, floods, and drought (which affect agriculture) have stronger indirect and secondary effects on an economy than do earthquakes and volcanic eruptions, which are regionally more limited (see table 1). Except for volcanic eruptions, indirect and secondary losses are higher than the direct costs of disasters. Where information is available, secondary costs are more than double the direct losses from disasters.

Disasters and poverty are mutually reinforcing. Poverty is exacerbated by repeated disasters. Some of the worst environmental problems in developing countries are often both a cause and effect of poverty (Schramm and Warford 1989). Poverty increases vulnerability to disasters and disasters help perpetuate poverty (often through effects on and from the environment). If the cycle is never broken by preventing or mitigating the effects of disaster, there is little prospect for sustainable development.

This cycle is perpetuated as much or more through indirect and secondary as through direct losses. The Economic Commission for Latin America estimated, for example, that between 1960 and 1974 the damage caused by natural disasters in the five countries of the Central American Common Market reduced their average annual GDP growth rates about 2.3 percent (UNDRO 1979a). Often the cycle is perpetuated by a disaster’s impact on a country’s debt position - when local products, goods, or infrastructure are destroyed and must be purchased or financed on the international market. As a country’s debt service burden increases, it has fewer resources to break out of poverty. The incomplete and scattered data that exist suggest that disasters have significant, long-lasting effects on growth.

Disasters undermine incentives for development. Development requires an environment stable enough to encourage investment and entrepreneurial activity. Repeated losses from natural disasters discourage investment, creativity, and hard work. Were they to occur in wealthier countries they would create similar disincentives and losses in productive investment - except that limiting the impact of disaster also limits the impact on incentives. Repeated disasters limit developing countries’ ability to attract domestic and foreign investment and to encourage entrepreneurial activity.

A 1985 business report on Fiji, for example, noted that two hurricanes had left much more than $80 million in damage. They made Fiji virtually uninsurable against hurricanes. After 17 hurricanes in nine years, and three in less than two years with more than $130 million in insurance claims, the international reinsurers and the six companies who provided coverage in Fiji decided that the rewards were too small and the risks too great. The insurance sector had concluded that many of the losses incurred through repeated hurricanes could have been prevented through different building techniques and stricter building codes. They refused to continue to insure unsound buildings (Richardson 1985).

World Bank reports on Bangladesh (1989a), the Philippines (1989c), and the Sudan (1987d) also show how disasters affect the overall business climate. The report on Bangladesh describes how the effects of the floods reverberate throughout the economy, altering the outlook for the future and damaging incentives:

The floods have necessitated significant revisions in the Government’s economic goals and targets for the current year. Before the floods, 6 percent overall economic growth was envisaged, with substantial increases in agricultural production (6 percent) and manufacturing (7 percent). A recovery of crop production from the disruptions created by the 1987 floods, an expansionary public expenditure policy which aimed at stimulating economic activity and raising investment levels (supported by a significant new tax effort), and a revival in demand for manufacturing production as a result of these factors were expected to provide the basis for higher growth.

It is now clear that many of these targets will not be realized. Despite the crop recovery and rehabilitation efforts, agricultural production will be substantially less this year. Income losses associated with this setback and reduction in gainful employment opportunities will have a depressing effect on demand (which is unlikely to be offset by public expenditure policy), and on the manufacturing sector, which has also been directly affected by closure of factories during the floods and damage to equipment and inventories. The stagnation and even decline in the key productive sectors will limit the overall growth of the economy to about 1-2 percent in FY89, even though reconstruction and rehabilitation activities in the public and private sectors will help increase activity levels in construction and services sectors.

The dampening effect of disasters on investment and entrepreneurial incentives alone may constrain efforts at development unless disaster prevention strategies can convince investors and entrepreneurs that enough stability exists for productive investment and activity.

Disasters particularly hurt the nonformal sector. The impact of disaster in developing countries is often felt disproportionately by people who live at the margin and subsist in the nonformal economy - activities associated with the production, consumption, and distribution of goods and services not counted in standard systems for quantifying national economic activity. In many countries the nonformal sector represents a significant portion of the economy. Losses in the nonformal sector would include the direct costs of lost equipment, houses (which serve also as business centers), supplies, and the indirect costs of lost employment and income that cannot be made up. These losses are likely to be substantial (UNDRO 1979a).

Hurricane Gilbert affected an estimated 157,000 acres of crops in Jamaica, most of them domestic (Collymore 1988). Even when relief supplies make up the shortfall of crops grown for domestic consumption, this aid may have a sharply negative impact on incentives in the nonformal market. In Bangladesh, imports of relief foods, together with the increases in postflood crops encouraged by government emergency policies, created serious disincentives for small agricultural producers (World Bank 1989a). At the same time, the price increases that result from shortages affect poorer people the most. When these involve inputs, nonformal small enterprises have an especially difficult time.

Nonformal economic activities are invisible to the analyst, so it is difficult to assess the total direct and indirect costs of disasters in countries with a large nonformal market (Peskin 1989). But add the losses in this sector to disaster costs, and costs would rise dramatically both absolutely and as a percentage of national wealth. Preventive actions taken with no regard for their impact on nonformal activities can impose significant costs. The construction of a flood control system, for example, could limit the access of fishing communities to river canals on which they depend for subsistence.

Another secondary cost of disaster, particularly in the nonformal economy, is damage to people’s sense of efficacy. When people in a developing society have a sense of their own ability to affect and manage outcomes, they will produce more with a given set of physical resources than when they do not have it. One of the highest costs of disasters in developing countries is the effective undermining of any sense people have of their ability to control and manage their environments or their lives. ⁵ When disasters are repeated, the effect is compounded.

The costs and benefits of prevention and recovery

If disasters have more serious repercussions in developing than in wealthier countries, how does this affect the benefit-cost ratio of disaster prevention and disaster recovery strategies in disaster-prone developing societies?

DISASTER PREVENTION

The direct benefits of disaster prevention, in all countries, are equivalent to the savings in losses a disaster would have brought - including lost productive assets in the nonformal and formal sectors. Of special importance in the context of development are such secondary and indirect benefits as maintaining a climate stable enough to promote investment and enterprise and maintaining a sense of efficacy among the people on whom development depends.

In all countries, the costs of disaster prevention include the direct costs of controlling or mitigating the effects of natural crises that could become disasters. These costs may be huge, as in the Thames project, or smaller, as in the construction of fuel-efficient stoves to reduce deforestation and ecological deterioration. The costs of prevention differ significantly with the types of disasters (discussed below) and with available technologies for prevention. Disasters covering large areas that involve heavy environmental degradation are the most difficult - and expensive - to prevent.

DISASTER RECOVERY

Disaster recovery involves spending after a disaster has occurred. The costs of recovery include the direct, indirect, and secondary losses incurred and the costs of supporting rescue and relief operations and recovery management. These costs are significant for developing nations both as a proportion of national wealth and in their long-term effects on development.

Are there any benefits to be gained from disasters that would affect our choice - in particular, any benefits for development? Perhaps two. First, a disaster that gains international attention could attract injections of aid in the form of grants (these could have negative and positive effects). But international aid for disasters seldom exceeds an estimated 4 percent of losses (Zupka 1988), so this benefit is negligible. More important, a disaster may attract significant developmental aid focused on long-term programs to reduce disaster vulnerability and increase productive capacity.

A more important benefit of the recovery option may be the secondary, long-term, economic gain of “starting with a clean slate” (Cuny 1983). The recovery of Europe and Japan after World War II is a dramatic example. Obsolete factories and machinery destroyed by the war were replaced by entirely new installations in the recovery period. Countries that have historically produced a crop susceptible to destruction by cyclones may, when the crop is completely destroyed, decide to plant an alternative (possibly newly developed) crop that is less vulnerable to wind, a crop from which greater profits may be realized. Such recovery benefits are highly specific. They depend on special circumstances: the availability of a modem or invulnerable technology, the means to adopt it, and a pricing situation that makes the replacement of old approaches uneconomical, short of destruction. Benefits such as these could be quantified, but because of the special circumstances do not make much difference in analyzing the costs and benefits of the recovery option.

Measured cost-effectiveness of different types of disaster

The assessment of costs and benefits may vary for different types of disaster. For analysis purposes we discuss three types of disaster: predictable and unpredictable sudden-onset disasters and slow-onset environmental disasters.

Predictable sudden-onset disasters. In many disaster-prone countries, the severity of natural crises varies from year to year, but the crises are seasonal and to that extent predictable. In those circumstances, it is difficult to defend a failure to address disaster prevention when technologies are available for doing so. And often such technologies exist. Technologies exist, for example, for wind-resistant housing that prevents most hurricane and typhoon damage. Flood management and control technologies are more expensive, but they exist and are used in many parts of the world. Winds and floods are often seasonal and therefore predictable. When such crises cause frequent, significant damage, it is unreasonable to carry on with development as if they may not occur.

Unpredictable sudden-onset disasters. It is impossible to predict the time and damage potential of an earthquake but we know which areas are subject to seismic activity and can predict where a severe earthquake will eventually occur. A great deal is known about the design and construction of earthquake-resistant buildings using varied local materials. The damage from earthquakes is potentially extensive and expensive so there is a strong argument for damage prevention. It makes particular sense to factor in potential earthquake damage on development projects (such as dam construction) that could become disasters if any earthquake struck.

Slow-onset, environmentally based disasters. Increasingly, major disasters are the result of slow-onset natural events (such as droughts) combined with environmental degradation (such as deforestation) from human activity. When the causes of disasters are far-reaching - say, when environmental degradation changes patterns of land or water use - communities, even nations, are increasingly unable by themselves to effect the changes needed to avert disaster. Bangladesh, for example - as a recipient of floodwaters and silt from other upstream countries - cannot control floods through domestic programs alone. That requires an international effort using international technologies and financing.

When environmental disaster threatens, the costs and benefits of both disaster prevention and recovery change significantly. To the extent that we can predict them, the costs of not preventing ecological disaster may include the extinction of species - even of the human race. In the worst case, recovery is impossible.

The benefits of preserving life and productive capacity are assumed to be great, but the costs of prevention are equally high. Preventing or mitigating such disasters may involve a series of special, sometimes costly, actions. They involve creating what might be called the nonstructural apparatus of disaster prevention - activities that create the climate and capability for preventive action. Large-scale prevention requires:

· Data and tools for analysis. The more complicated the data, the higher the costs of collecting and analyzing it (Peskin 1989).

· Systems and institutions for coordinated decisionmaking. To the costs of arranging and holding the meetings at which decisions to create systems are made must be added the costs of setting up and maintaining institutions.

· Public education and political lobbying.

The costs of nonstructural apparatus, which apply in some degree to disaster prevention and recovery, are most significant in preventing massive systemic environmental disasters - because prevention is ineffective without broad collaboration. Prevention of environmental disasters is not too costly to be justified - and there may be opportunities for economies of scale. The same data and communication systems developed to address one large-scale disaster, for example, may be used to prevent other types of disasters. We cannot accurately estimate the economic return on investments in the prevention of large-scale environmental disasters. We do know that the physical and social outcomes of prevention are infinitely preferable to the losses such disasters would entail.

Lessons learned

Disasters occur most often in poor countries and cause the most suffering among poor people. These are precisely the societies for whom development is most urgently needed. Yet by ignoring likely disasters, many development efforts do nothing to decrease the likelihood of disasters, and many actually increase vulnerability to them.

Development planners sometimes call disaster prevention efforts “unaffordable extras” as they design development projects and programs. This attitude is unsound. Development spending and disaster spending are not tradeoffs. In a disaster-prone country every decision made about the allocation of resources to development affects the likelihood of damage from future disasters. And every decision about disaster response strategies - by which we mean actions that acknowledge and respond to the likelihood of disasters - has an impact on a country’s potential development.

Anderson and Woodrow (1989) define development as “the process by which a nation’s capacities are increased and its vulnerabilities reduced.” That definition makes explicit the link between development and disasters. Spending on development and disaster prevention are different investments in the same goal of development, linked and at times identical. Capacities and vulnerabilities involve more than physical assets or a disaster-prone environment; equally important are social, organizational, and motivational factors. A materially underendowed society with a strong, effective political system may be “more developed” in the sense of being able to cope with a natural hazard than one with more wealth but great social barriers. People can energetically engage in enterprise or resign themselves to fate, passively accepting whatever comes. When people have a strong sense of their ability to change and manage their society, they are better able to produce national wealth and cope with natural crises.

Development investment should never increase disaster vulnerability and should include measures that improve the nation’s ability to cope with disasters. Physical planning should include an analysis of disaster vulnerability, to avoid increasing the potential for disasters and to reduce environmental and other vulnerabilities. Development planning should also take into account the ways alternative actions may promote, or undermine, society’s attitudes about what is possible in terms of growth. All development efforts should provide for disaster prevention. Not to do so is economically irrational and politically unwise.

Even the most efficiently managed disaster recovery operation leaves a society vulnerable to natural hazards. Prevention not only minimizes damage but promotes a stable environment, incentives for investment and enterprise, and the sense that people can control their own economic destiny. These are crucial for sustainable long-term development.

Endnotes

1. A disastrous flood was a mathematical “certainty” every 2,000 years, according to the mathematician (subsequently knighted) who calculated the benefit-cost ratio for the project. But the environment of the Thames was changing, so by the year 2030 the probability of disastrous flooding would be every 1,000 years.

2. Private conversation with James Polshek (1989), architect and designer of earthquake-resistant buildings.

3. Marginal economic analysis has also been used, of course, as the basis for decisions not to undertake major investments for disaster prevention. See, for example, Holden and others 1989.

4. Jovel 1989, Funaro-Curtis 1982, UNDRO 1979a. Some writers argue that better cost-assessment methods are needed to avoid the double-counting involved in these three categories, which include both “stock” and “flow” concepts. For accounting purposes this is true, but for the purposes of this paper, the distinctions call attention to both the immediate and long-term negative effects of disaster losses (see Milliman 1984).

5. This concept is similar to David McClelland’s “achievement motivation” but we do not limit it to entrepreneurs. In the broader population, it is the opposite of a dependancy syndrome or the malaise of victimization. Lamentably, relief assistance often adds to a sense of victimization on the part of those who have experienced a disaster. Too often relief is completely “managed” by outsiders who wrongly assume that disaster victims are no longer competent.