Calculating the cost of disaster vs. the price of resilience

By June 2012, many had forgotten the devastation Hurricane Katrina wrought on New Orleans some seven years earlier. Few had the foresight to predict Sandy and the crises it would cause New York City and environs.

In the super-storm’s aftermath, most have been concerned with “getting back to normal.” A few are calling for resilient new ways to handle what’s now being dubbed the “new normal” weather pattern.

And a very few are trying to calculate the real costs of the disaster.

One of those is Prof. John Mutter, the Columbia University scientist and economist, who shared his prescient insights with me on the price of climate related disaster last spring. In the wake of Sandy, which occurred right in Mutter’s backyard (full disclosure: mine, too), he with me shared some more recent lessons learned and potential ways forward.

What is striking about Mutter’s viewpoint is his focus on the longer-term economic and business costs of such climate-related disasters—versus an immediate fix—and his suggestions of opportunities to be reaped. Instead of reconstructing what was lost, he advocates taking a longer view to understand what the often lagging and lasting costs of such disasters are.

That approach often means looking not at current losses and rebuilding what was destroyed, but rather at the costs—over time—to business and society, in the long aftermath of the event, including productivity gains that might have occurred without a disaster.

It also means looking at any current destruction less as loss but rather as opportunity to create something completely different, perhaps elsewhere, with more wisdom, foresight, practical insight and technological know-how.

In short, Mutter’s approach suggests a new and different way of calculating the costs of disaster, pointing out that the biggest loss to the economy—the chain of production, consumption and everything that goes into it—doesn’t happen in the moment of crisis but actually begins afterwards “with losses that go beyond the value of the built structures trashed at the time, beyond the capital asset loss, to a deeper economic loss that happens over time.”

He adds that a climate-related—or other—disaster is a process with three key parts: build-up, event and recovery. The recovery period is where the risk of cost builds most—and where the opportunity for genuine correction also occurs, including boosting economic growth after the initial trauma.

The post-disaster period is when we start to understand the “true impacts,” he says, adding that they will be “highly variable, and the length of time it takes to get back to where you were is uneven” for different businesses.

Who loses what, when and how?

One reason we need to look at the longer-term horizon to understand the price of disaster is that how much may be lost by whom and at what point takes some time to sort through. In the immediate term, the losses may hit one business—or kind of business—harder than others.

“The disaster affects different businesses in different ways at different times,” says Mutter. “What this speaks to is the inequality in the effects. Some will cope, some will be set back, some will lose business in a way not recoverable.”

Next page: Is there opportunity in disaster?