Every catastrophe has a silver lining

Call it a Keynesian perversion, but ecological disasters can be good for business

Analysis Hervé Kempf

(Translated by Peter Graham. World copyright by © Le Monde, Paris. All rights strictly reserved. [This information appeared only in the print version.])

One of the more surprising aspects of the oil spill that has polluted France's Atlantic coastline and the gales that have devastated the countryside is that they will have no great macroeconomic impact. The prime minister, Lionel Jospin, and the finance minister, Christian Sautter, have announced with relief that growth will not be affected. And Denis Kessler, president of the French Insurance Companies' Federation, has even gone so far as to argue that the disasters will be "rather a good thing for GDP".

Paradoxically, environmental damage is a source of growth because it prompts people to spend money on repairs. The many negative effects of the gales and the oil spill will be offset by the additional activity caused by repairs. Thus, while oyster growers may suffer a loss of income, building contractors have been snowed under with orders.

The renovation that comes in the wake of destruction can even have a modernising effect: Electricité de France will now put many more power lines underground than was planned, the forestry sector will be restructured, and there will probably be international pressure for oil tankers to be replaced. This analysis does not, of course, take into account the damage these disasters wreak on our heritage, or their effect on people's well-being. As for ecological damage, such as the death of thousands of birds, it is negligible from a strictly economic point of view. Even though it may be, in the words of one economist, "a Keynesian perversion" to say so, the overall impact on growth of such a disaster in a developed country is probably positive.

This paradox explains another paradox: despite the recent increase in the number of earthquakes and climatic disturbances such as floods and hurricanes, the developed countries, particularly the United States, have not really committed themselves to the fight against climate change.

This is because the financial cost of these disturbances is low: in 1992 Hurricane Andrew, one of the most devastating to hit the US, cost the equivalent of only 0.5% of GDP. And the developed countries are increasingly prepared for disasters: many buildings are earthquake-resistant, areas liable to flooding can be evacuated quickly, and early-warning systems have been widely installed. The loss of human life is limited and the material cost bearable.

In the developing countries, on the other hand, the impact of such climatic disasters is appalling: the cyclone that hit Orissa, in India, last November killed more than 10,000 people, and the floods in Venezuela a month later more than 20,000.

But, seen from the perspective of the dominant countries, such phenomena have virtually no effect on the world economy in regions that are not fully integrated into the global trade network. Venezuela's flood victims counted for little economically in so far as the country's oil output remained unaffected.

It looks as though the world's economic decision-makers have decided to do nothing about climate change on the basis that if no change happens, we shall take advantage of a form of growth that continues to intensify the greenhouse effect; and if it does happen, we shall be able to protect ourselves from it - and it may even have a favourable effect of the global economy.

Although rarely expressed, that argument has gained quite a following. Peter Huber contended in the Wall Street Journal last year that the wealth and power with which technology endows us is the best defence against natural disasters. Last October a World Trade Organisation report argued that increased trade produces a higher standard of living, which in turn produces a cleaner environment.

It is easy to see the fallacy in such arguments. They rely on an accounting method of measuring the economy that does not take into account people's real activities, their joys or their suffering. One death is worth either nothing or a fortune, depending on where it occurs. For Western politicians and public opinion, the rate at which GDP increases remains the yardstick by which economic policy is assessed.

There is no obvious answer to the increase in climatic disorders. There remains a considerable degree of scientific uncertainty, which, within the dominant economic framework, offers powerful arguments to those who want to do, if not nothing, then no more than the minimum.

It is clearly absurd to applaud a high growth rate while at the same time claiming to be fighting climate change.

The issue of climate requires our society to ask itself where it is going. It will have to decide whether it wants to persist in its espousal of the dominant economic model, its obsession with consumption and its neglect of the countries of the developing world, or to work for a fairer and more responsible global economy, even if that means the developed countries will have to accept a lower level of material consumption.