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

by John C. Mutter

  Why did Fabienne steal the pictures? Why did others loot nonessential items, such as luxury goods? In most of the polite literature and reporting, stealing food and other necessities is frowned on but forgiven. After all, perishable food will go bad soon if there is no electricity for refrigeration, so why not take it? And shop owners might well be insured so they are not actually taking a loss.

  Here is what I think or, rather, speculate. Perhaps Fabienne had seen those pictures in her neighborhood before. She had walked past the store where they were sold and stopped each time to admire them and wished that she had enough money to buy just one. But she didn’t and was never likely to have the money. When the front of the store broke open or was broken into, she could not resist. She could have not just one but two or three of the pictures—unimaginable. Maybe she wanted to give them to her mother. She took the pretty things she admired so much and ran with them—into a fatal bullet.

  This never happens to the daughters of the elite in their mansions in Pétionville. Their risk of death by a policeman’s rifle shot or of rape or any other form of violence remained about the same in the wake of the disaster—near zero. In fact, by the time Fabienne was killed, they were probably long gone, jetted off the island to another home in another country. And they don’t care much about the stores being looted in Port-au-Prince; that is not where they shop, and they know their mansions will be safe because they have security guards to keep looters out.

  Most of the looters probably were motivated by the same things that might have motivated Fabienne. People took essentials first, but then they took things they knew they would never be able to afford, things the blans could always have. Some people may have vandalized for the sport of it. No doubt criminals stole luxury items for resale on the black market. But while looting for personally desired objects, as Fabienne appears to have done, is wrong, the reaction far outweighs the crime.

  In the academic literature and elsewhere, a comparison is often drawn between the earthquake in Haiti that I have just been discussing and one of much greater magnitude—8.855—that occurred on February 27, 2010, in Chile. That earthquake released 500 times the energy of the Haitian quake. The shaking lasted three minutes rather than ten seconds. The earthquake was so large that it slightly shifted the Earth’s spin axis and shortened the length of the day (the Earth now spins a little faster on its axis)—1.26 millionths of a second. The death toll, however, was much smaller: 525 dead, 25 missing and likely dead. So a hugely more powerful earthquake caused a fraction of the deaths of the smaller earthquake. Why?

  Part of the reason lies in geophysical aspects I have already described. Remember, what matters is how much the ground shakes where people live, not how much energy is released at the earthquake at the hypocenter deep underground. (The more commonly used term, epicenter, is the point at the surface of the Earth immediately above the hypocenter.) The Chilean earthquake was more massive than the Haitian quake, but it was much deeper in the planet and much farther from the nearest populated towns. In Concepción, Chile, the ground did shake more than the ground in Haiti, and for longer, but not 500 times more—only about twice as much, actually.

  Almost every scientist will give the same reason for the difference in destruction: building codes. Chile has them and enforces them; Haiti has them too but can’t enforce them. Even Haiti’s National Palace suffered massive damage because it too was poorly built.

  What Haiti has in vast supply and Chile has in much shorter supply is poverty and corruption. Only 14 countries in the world are thought to be more corrupt than Haiti, according to Transparency International. Only 21 countries are considered less corrupt than Chile as measured by the same organization. Haiti and Chile are poles apart.56

  They are polar opposites seismically as well. Almost everyone in Chile besides the very young would have experienced an earthquake before February 27, perhaps several. Everyone there is well aware of the risks.

  Haiti’s earthquake losses were greater than 120 percent of GDP in a stagnant economy; Chile’s were 0.06 percent in an economy growing at over 5 percent per annum. Chile had made a transition to democracy in 1990 after the harsh period of rule by General Augusto Pinochet, who took power in a coup d’état in 1973. Even while living under the dictatorship created by the coup, the country had begun to build many stable and well-functioning institutions of government. Chile is now a representative democratic republic and another coup is unlikely. Haiti, although nominally democratic, has almost no functioning institutions of government, and fears of another coup are constant. Chile has more seismologists per capita than any other country in the world. Educational attainment is high. Far more than building codes separate these two countries.

  And in a somewhat perverse way, experiencing a lot of earthquakes can help. This may be part of the Schumpeter creative destruction scenario. Old buildings destroyed in quakes are rebuilt to withstand future earthquakes, while at the same time, the building stock is renewed and updated. It is certainly a significant reason for the relatively low mortality rate in Chile’s 2010 quake.

  Chile and Haiti are also more alike than you might imagine. The Pinochet dictatorship, like those of the Duvaliers, was cruel and repressive, characterized by human rights abuses and brutal suppression of opposition. But the Pinochet government led open-market economic reforms that saved the economy from collapse and started robust growth. With robust aggregate economic growth came a widening income gap between the rich and the poor—not as wide as in Haiti, but wide nevertheless. The Gini measure of inequality places Chile 124th out of 147 ranked countries.57 Chile does better in the Human Development Index rankings, coming in at number 41 out of 187, but it loses 20 percent of its score when HDI is adjusted for inequality, causing it to drop to number 52 in overall rank.58

  The elites of Chile are not as small in number as they are in Haiti, but income distribution is highly skewed and highly problematic. There were student protests from 2011 to 2013 over these inequalities. Similar to Haiti, there are really two Chiles, one that profits from the fruits of growth and one that doesn’t. Seventy-five percent of Chile’s growth in 2011 went to the wealthiest 10 percent of Chileans.59 The small, wealthy elite is made up of the family owners of major businesses, such as banks, the media, and mining. Gonzalo Duran, an economist at Chile’s Universidad Católica and director of the nonprofit Fundación SOL, puts it even more strongly: “They are the owners of Chile, the elite that configure and decide day to day the nation’s economy.” Journalist Fernando Paulsen said that Chile is “hijacked by 3,000 or 4,000 people.”60 Chile’s population is over 17 million.61 The country’s export revenues, mainly from copper, helped to create a large reserve that the government was able to use in the reconstruction after the earthquake. In fact, President Michelle Bachelet said that Chile would be able to manage reconstruction without the need for external aid.62 But in the end, Chile did have to appeal to the World Bank and others for loans to cover rebuilding.

  Another thing that happened in Chile is in many ways similar to what happened in Haiti—looting and other criminal and antisocial behaviors broke out soon after the earthquake, particularly in the southern region around Concepción, which had been hardest hit. The earthquake generated a tsunami that caused most of the damage in that area as well as the majority of deaths. Concepción is no stranger to earthquakes and tsunamis, having been devastated five times since its founding in the mid-sixteenth century. Because of this, the town was moved inland from its original coastal location and reestablished on the shores of the Bío Bío River. The 2010 tsunami ran up the river, gaining in height from the river’s funneling, and inundated the new Concepción.

  Bachelet has been criticized for her response to the quake on two counts. One is that coastal and island communities did not receive timely warnings of the tsunami. The first waves from the tsunami reached the coast 34 minutes after the quake; the tsunamigenic nature of the earthquake was
known only a few minutes after the quake occurred. The Chilean navy has acknowledged that the warnings it put out could have been clearer and more timely, and might have saved lives. The officer in charge of the emergency warning unit was fired. The new president, Sebastián Piñera, who took office only two weeks after the earthquake, vowed to examine the warning system and improve it.

  The second and probably more important criticism is that Bachelet failed to quickly deploy the military to quell the crime that erupted in the southern towns.63 Although she had clear reports of criminal behavior, including television coverage that, like coverage of other similar situations worldwide, very likely exaggerated the severity of the situation, she did not deploy troops for 48 hours. There has been speculation that she was mistrustful of the military. She had been a political prisoner during the Pinochet military regime and had been tortured while in prison. She may have been reluctant to unleash the power of the army, which is quite strong in Chile and remains a largely independent institution even today. Perhaps she hoped the situation would calm down and the local police response would be sufficient. She ended up sending 14,000 troops who helped keep order but also were engaged in rescue and other activities not related to law enforcement. That might sound like a lot of soldiers, but it’s insignificant compared to the 70,000 soldiers sent to New Orleans just to restore order after Hurricane Katrina.64

  People were said to have come from nearby villages that experienced little or no damage just to take part in the looting, to get something for themselves before the troops arrived.65 People in the towns where looting was reported were afraid, as their text messages and tweets reveal—they were pleading for help. Looted buildings were set on fire as a blatant act of aggression against store owners. Chileans outside the affected areas watched television, listened to news broadcasts, and read newspaper accounts in horror and dismay as their fellow citizens appeared to be plunging further and further into anarchy. There were, however, no reports of rape or murder.

  The citizens of Concepción were slowly but inexorably descending into hunger and thirst as food ran out and the water supply failed, and into the cold and dark because there was no electricity. The city was essentially cut off from the outside, and it was difficult to get relief assistance in. The main road is the Pan-American Highway, which begins in Mexico, crosses through Central America, then stretches along the coasts of Ecuador, Peru, and Chile. In many regions it is the only road that can accept motor vehicle traffic. It had been made impassable by the earthquake. Anyone who did not have supplies of canned food and bottled water was in trouble.

  Surely that is part of the reason that looting broke out in this region. Tired and worried residents of Concepción expressed relief when the troops finally arrived. But not everyone was pleased at the troop deployment, and many saw very different signals in it. Jose Aylwyn, codirector of a Chilean human rights group, said, “These lootings, at least in some cases, are explained by the perception of injustice that exists in segments of the population that, in moments of emergency such as this one, consider it legitimate to empty the shelves of superstores and supermarkets that, with the backing of the State, have accumulated wealth at their expense, while they remain poor.”66 Andrés Schuschny, a blogger, posted an article that read, in part:

  It is terrible how a natural catastrophe unmasks the face of inequality in a country whose officials refuse to acknowledge it. Because, for example, if 10% of copper revenues had been, long ago, destined to public education and social services (debts always outstanding in the region) and not to increase military budgets, the purchase of sophisticated weaponry, and a passport to a life of luxury for high-rank militiamen, maybe history would be different and the communicators of the system would not be referring to the LUMPEN (lowest social group) as a horde of loose aliens that surfaced with no reason.67

  Another wrote: “Can we expect something different in a system that generates segregation and social exclusion? Is it a product of a society that forces competition and to fix things oneself?” And another: “Our bubble burst and the truth hurts. Now we ought to understand it, accept it and work for the reconstruction of our buildings and society.”68

  These quotes suggest that the looters—not all of them, perhaps, but many—were marginalized people who had been left behind in the Chilean boom. When they got their chance to even the score, even just a bit, with the 3,000 to 4,000 families that Fernando Paulsen claims have “hijacked the country,” they took it. They took luxury items—that is, items that to them are luxuries beyond their economic reach.69

  But when looting goes beyond just taking things—necessities or luxuries—and includes acts of personal aggression against targeted groups or the property owned by those groups, the public mind views the actions as rioting, not looting, and that’s very different. That pits one group squarely against another and threatens the established power structure.

  The actions of those in authority and especially the statements they make publicly can have a profound influence on a volatile situation. Concepción’s mayor, Jacqueline van Rysselberghe, appealed frequently for more military personnel, sending the strong message that the situation was out of control. She entreated the minister of the interior to take responsibility. Many Chileans felt her reaction was detrimental to both the relief efforts and security. One commented, “I feel that Jacqueline Van Rysselberghe scares people more than helps them.” Some leftist organizations, including the Chilean Communist Party, were blunt in criticizing the deployment of the army: “We reject the distortion encouraged by the media with regard to the prioritization of emergencies. [The media] has placed an emphasis on the protection of the right to private property of the supermarkets and the mobilization of the armed forces under the pretext to maintain public security, instead of pressuring for an effective and efficient response in the restitution of connectivity, public services, and nutrition of our affected fellow countrymen.”70

  So, different as Chile and Haiti are in so many ways, in the immediate aftermath of the earthquakes, some dramatic and tragic events took place in both. Marginalized groups form majorities in Haiti and Chile. Because they believe they are held in poverty by a political and economic elite, they pounced on the opportunity to take what they believed they deserve. They knew they might not have another chance. The elite panicked and overreacted, inflaming the situation and criminalizing the victims, transforming them from survivors to thieves.

  The one extraordinary aspect of the Chilean earthquake is the outstanding positive way in which economic recovery was achieved. Using numerous on-site interviews and access to government documents, Michael Urseem, Howard Kunreuther and Erwan-Michael Kerjan explain clearly and in detail in Leadership Dispatches71 how the incoming government of President Sebastián Piñera, which took office only ten days after the quake, acted without delay and set out an uncompromising, all-encompassing plan for recovery, involving all levels of government, the private sector, and the affected citizens. The fast recovery—just a year—can be attributed to strong leadership that understood delegation as well as strong institution that benefited from extremely sound fiscal management. For countries at the development level of Chile, the process of recovery is exemplary.

  How has Haiti recovered, and who has benefited? First of all, it is extremely difficult to answer such a question based on standard figures like GDP for reasons already discussed. It also is difficult to come up with something like an average wage.

  Before the earthquake, there was a plan for Haiti’s economic revival. Its author was Paul Collier, professor of economics and public policy at Oxford, but after a time it might have been thought of as the Clinton plan because Bill Clinton embraced it so completely when he became the UN special envoy to Haiti. Collier is an expert on development issues in Africa (not the Caribbean) and has served as director of research development for the World Bank. He has written several books, the most popular being The Bottom Billion.72 The tit
le is now an oft-repeated and very appropriate phrase to describe the poorest of all the world’s people.

  The core of Collier’s 19-page report73 was fairly simple and not a new idea in developmental economics. It involved securing foreign investment to develop a vigorous garment industry that would produce export earnings and create tens of thousands of low-skill jobs. Inducements would include low taxes and a special economic zone. Haiti has a large, able, young workforce with low wage expectations. The formula had worked well elsewhere, particularly in Asia; in fact, it wasn’t so very different from a plan crafted earlier by Papa Doc Duvalier with assistance from the US government. Haiti had about 30 garment factories already. It also had in place a special trade relationship with the United States under the HOPE II agreement (Haitian Hemisphere Opportunity through Partnership Encouragement Act), which allowed Haitian-made garments to enter the US duty free until 2018.

  After the earthquake, the Collier/Clinton plan became the guiding light for rebuilding Haiti’s economy. Clinton, appointed head of the recovery commission, spoke enthusiastically about prospects for recovery and overall economic revitalization rolled into one. The best thing about it was that so much money had been donated to Haitian relief that there was less need to encourage foreign investors; some of the aid money could be used for economic development instead. And used it was.

  Not everyone was pleased about how these relief funds were used. A widely cited 2011 report from the Center for Economic Policy and Research (CEPR) showed that since December 2010, no contracts had been awarded to Haitian companies. Of the 1,490 contracts awarded prior to that time, only 23 had gone to Haitian companies. Their total share of the $195 million awarded was only 2.5 percent. A large fraction of these contracts were no-bid contracts, which were justified, as is typical, by the need for urgency.74