ANALYSE - Natuurrampen zijn big business in Australië. Paul Frijters biedt een aantal economische perspectieven.
I remember the great bushfire in Canberra of 2003. I had only arrived with the family a week before and had just rented a nice house near the top of Mt Cook, right in the path of an enormous bushfire that ended up destroying hundreds of homes.
The heat of that day was immense: 40 degrees and strong winds. Activity was similarly frantic. Warnings on the radio of how the seemingly impossible was truly happening: fires that broke all containment lines were converging on the capital. Barbecues got cancelled as everyone returned home to prepare: people feverishly cleaning out the gutters of their house to remove anything that would easily combust; people filling up their bathtubs to be able to quickly immerse themselves if needed; the ban on using hose-pipes suddenly being lifted as the importance of water conservation gave way to survival. Our neighbour, whom we never talked to before, or afterwards, was suddenly very chummy in the face of this imminent joint danger. Indeed, there was a palpable buzz about Canberra as people went through a shared emergency.
I remember standing on top of Mt Cook, seeing the fires break more containment lines on their way to our neighbourhood. In the distance, we could see huge fire-arcs of hundreds of meters, via which whole trees, full of igniting oils, were whirled into the Southern suburbs, causing immense damage to people and property. One had to be in awe of that kind of destructive force, which simply seemed too great for humans to meaningfully oppose. One suddenly felt a bit silly, holding two hosepipes in one’s hand waiting for these huge fires to come! Luckily for my neighbourhood, the wind shifted just as the fires were about to hit us, with the cooler air streaming from the opposite direction effectively ending the tragedy. For months afterwards, family back in the Netherlands and the UK would ask whether there were any houses left in Canberra and whether we had been lucky. We had been.
Yesterday and today, there are more large bushfires running wild in Australia and fears of a repeat of the 2003 fires abound. Let us hope things don’t get that bad.
Putting on my social scientist hat, I can offer the following perspectives on these bushfires:
- I am no expert in these things, but am told such fires are often the result of heavy rains in previous years, which meant a lot more plant-growth which is currently fuelling the flames. Perhaps a lack of back-burning in previous years might also be involved. This is where economics come in: the choice to do only limited back-burning is of course a political choice that involves a trade-off between the wish to have a more natural landscape and the wish to have a less fire-prone and thereby less natural landscape. The choice of allowing lots of houses in the middle of very forested areas is also a political one.
- At a stroke, Australia is emitting huge amounts of CO2. Apparently, the 2003 Canberra bushfires released some 190 million tonnes, roughly half of what the economy goes through in a year. So forget about meeting our Kyoto targets this year. At least, if counting properly…
- They are great fraternising events. Fire-fighters are brought in from all over the country to these things, and the whole nation is gelled together as everyone has something at stake. Not only will communities share their fire-fighters, but bushfires are a real worry around the country, making everyone realise that ‘this could have been them’. There is also a kind of heroism about fighting these natural phenomena, and emergency services get a real work-out during such events, which keeps them efficient and scrutinised. Together with cyclones, floods, and droughts, bushfires are some of the most effective means of nation-hood building Australia has. This in turn means these fires are great for future tax compliance and community cohesion in general. During bushfires, new immigrants become citizens as they share in the drama and the risks with those who have been there longer. Age, skin colour, and religion cease to matter as the fires don’t care about such things. Whilst a tragedy for the victims, these emergencies have great propaganda value for the nation state.
- Natural disasters are big business in Australia. Natural disasters in the period before 1999 have been estimated to cost around 1.14 billion per year in 1999 money. Floods in particular were found to be very expensive, costing up to 1% of total GDP for a bad flood. These estimates seem to include only direct costs though via property and health effects. Indirect costs, such as when mayor floods spawn large public programs to capture flash floods in large dams, are not included, nor do the direct costs of maintaining all the emergency services seem to be included. Adding all that and realising that we had quite a few major disasters in the last 10 years (major cyclones, a major flood, a major drought, and 3 large fires) one would probably be looking at something like a 0.5-1% cost in terms of GDP per year in the last 10 years. That is a lot of business, because of course the main economic costs are in re-construction of damaged property. It is also big business for insurers.
- Invariably, bushfires raise controversies about insurers’ definitions of fire damage. It will not be new to Australians, but people living in less fire-prone areas might be amazed to know how tight one can make that definition. Damage due to fire smoke, and smouldering embers is for instance not the same as damage due to fire. One’s whole house can hence be blackened by smoke and crumpled by embers, but it is not necessarily fire damage and hence not necessarily covered by mere fire insurance. You get similar issues surrounding floods, with damage due to mould and moisture not being the same as pure flood damage. The wondrous ability to twist language so as to avoid paying out reasonable claims is on full display after such events.
- The economics of insurance-payouts surrounding natural disasters is interesting, as large private insurers essentially have much deeper pockets than their customers and so in principle could get away with paying almost nothing, simply forcing private individuals to go through endless costly legal procedures that cost more than the damages they would eventually recoup. Via such threats, insurance companies could normally manage to pay out almost nothing, whatever the actual merits of a claim. It is the wish to attract new business and to avoid the wrath of the governments, whose pockets and powers are large enough to take them on, that forms the actual reason to pay out any damages, meaning that insurance companies will be playing a waiting game oriented towards minimizing the negative media impact whilst paying out as little as possible. By waiting to pay out, insurance companies can hope that the media interest dies down as there are new disasters to cover and as claimants simply die of old age before being paid. In turn, this means that an ability to reach the media is key for a community to be able to force insurance payouts of natural disasters, raising the issue of optimal institutions that monitor insurance behaviour.
- You get the inevitable quasi-religious stories linking disasters to ‘sin’, essentially via a simple morality-play argument of ‘you have sinned, so now you are punished’. You had fruitcakes blaming the 2009 bushfires on Australia’s abortion laws. The first off the block this time round was Christina Figueres, a UN climate change marketer, wagging her finger at Australia, telling CNN reporters there was ‘absolutely’ a link between climate change and wildfires.