Who Plans Best for Natural Disasters?

September 10, 2012

As Hurricane Isaac touched down on the U.S. Gulf Coast, Americans were reminded of the devastating effects that natural disasters have on local communities. Hurricane Katrina still remains in the national consciousness of what happens when the federal government is not prepared in the event of such natural disasters, says Steven Horwitz, the Charles A. Dana Professor of Economics at St. Lawrence University.

In the case of Hurricane Isaac, it is worth reminding people the best planners for natural disaster are private firms, not the federal government. The victims of a natural disaster need crucial resources such as food, water, supplies and fuel. The government is generally slower and ill prepared to offer these resources whereas private firms are quicker, closer and have an abundance of resources.

Private companies' response during Hurricane Katrina illustrates why they are better suited to handle disaster planning.

  • Walmart shipped 2,500 truckloads of merchandise to the Gulf Coast.
  • After the storm hit, Walmart had 126 stores and two distribution centers closed.
  • However, in just 10 days, Walmart had reopened all but 15 stores.

There are several reasons why the private sector is better able to handle natural disasters.

  • First, companies like Walmart have forecasters that predicted Katrina's strength before the National Weather Service did.
  • Second, the private sector can quickly move supplies because they have decentralized and local knowledge. This gives employees a lot of discretion on how best to respond.
  • Finally, there are built-in incentives to disaster preparedness that force companies to be quick and efficient in fixing the situation after a natural disaster occurs.

The Coast Guard is one example of a government agency that has a lot of discretion and localized knowledge because they have relationships with local boat owners. But aside from that, government agencies such as the Federal Emergency Management Agency are often slow and inefficient in providing the best disaster relief.

Source: Steven Horwitz, "Who Plans Best for Natural Disasters?" The Freeman, August 30, 2012.

 

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