Saturday 21 Jul 2018 | 16:13 | SYDNEY
Saturday 21 Jul 2018 | 16:13 | SYDNEY

Megadisasters: Cash aid can work

20 January 2010 13:08

Peter McCawley is a Visiting Fellow at the Indonesia Project, ANU, and author of a forthcoming book on the economics of post-disaster reconstruction (an earlier summary paper can be found here).

In discussing the megadisaster in Haiti, Sam has picked up an issue I mentioned during the disaster relief program for last September's Padang earthquake, about the use of cash and markets to provide aid in the wake of a disaster. Sam points to problems reported in the media from Haiti, and wonders whether the idea of relying on cash and markets in this sort of situation would work.

The overwhelming knee-jerk international response to megadisasters relies on Big Government approaches. The US has sent in an aircraft carrier and troops (and Hillary Clinton, with Bill Clinton soon to follow). A whole gamut of other Big Government international agencies are gearing up to plan for programs of assistance, some of which will be delivered as soon as convenient, and others in due course and in the fullness of time.

In principle, greater use of cash-based forms of aid has two great advantages. First, the cash gets the local economy in the disaster zone moving again. Second, the cash serves to stimulate the rapid inflow of much-needed emergency goods from nearby less-affected areas.

Essentially, two conditions need to be satisfied for local markets to work — demand and supply. Usually, in megadisasters, there is a collapse of demand. Suddenly, huge numbers of people are dramatically poor, having lost both income and assets. This certainly seems to have occurred in Haiti.

But as Sam says, one also needs supply of goods. Is it true in Haiti there would be no supply if demand was stimulated? I don't know. But consider the following: (a) maps of the disaster zone show areas perhaps 5-10 km away that are relatively little affected, and (b) across the border, not far away by land transport, there is a relatively unaffected economy. Both of these areas are potential sources of supply of food, water, clothing, etc. However, goods will not flow from these areas through markets unless somebody buys them.

Sam wonders how effective a cash-based approach might be. But we also need to wonder how effective a Big Government response will be in Haiti. After all, having an aircraft carrier cruising 20 km offshore is good TV material but it may provide little real help to mothers and children who need water rather than helicopters.

Photo by Flickr user United Nations Photo, used under a Creative Commons license.