Natural disasters have always been one of mankind’s major fears and fascinations, due to their associated human and economic losses. Natural disasters such as the Kobe Earthquake, Hurricane Katrina, the Indian Ocean Tsunami, the Haitian Earthquake, and the Japanese Tsunami have been able to grab the attention of man towards the act of examining the impact and consequences of these events, as they have instilled fear in him that such large-scale devastating events are becoming more frequent and severe.
The United Nations Office for Disaster Risk Reduction (UNISDR) has defined a natural disaster from an economic perspective as, ‘an event that causes serious disruption to the functioning of a community or a society involving widespread human, material, economic or environmental losses and impacts, which exceeds the ability of the affected community or society to cope using its own resources’ю
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Natural disasters despite being a huge menace to the economy, also act as a stimulator for the businesses. They help boost production, re-establish the overall supply-demand chain of various businesses, and also provides them with an opportunity to stand out in the market. This paper will discuss 2011 Tohoku earthquake and tsunami, as an example of how natural disasters can create situations for the development of available businesses or otherwise destroying some of them.
The Tohoku earthquake and tsunami, followed by a nuclear crisis, was a severe natural disaster that occurred in the northeastern region of Japan on March 11, 2011. It started with a 9.0 magnitude earthquake, which initiated a series of large tsunami waves, that devastated the coastal areas of Japan. This, in turn, instigated a major nuclear incident at Fukushima Daiichi nuclear power plant. This series of devastating events were called as the ‘triple disaster’. Not only did it cause a huge physical and human capital loss, but it devasted the country’s economy. The estimated physical damage was from $195 billion to as much as $305 billion. In addition to that, 27,000 people had been killed, and extensive damage was done to the infrastructure, homes, manufacturing plants, and other buildings. The whole situation was made worse due to radioactive contamination and aftershocks.
Although apparently, it seemed like the disastrous earthquake and tsunami that struck Japan, left behind scenes of almost apocalyptic devastation, but in reality, it did something else as well: it helped the Japanese economy in the long run. The initial economic impact of the disaster was that it caused huge uncertainty in the atmosphere, with loads of predictions coming in that Japan’s economy will soon collapse or it will go into recession. Factories and offices were being shut down, and renowned companies like Nissan, Honda and Toyota were halting production at all of their factories. Other manufacturers and businesses like Fuji Heavy Industries, GlaxoSmithKline and Nestlé also reported major damage to their factories and suspended the production process as well. In addition to this, all ports and six of the nuclear reactor units had been closed due to extreme damage. As a result, Japan was unable to generate an adequate amount of electricity which made the overall demand rise. The country was in a huge financial and economic crisis, with no electricity, running water, and the estimated economic losses of more than $100 billion. The Japanese government realized that this would require an immediate action. Massive rebuilding efforts by the Japanese government provided a short-term boost by attracting resources to the country. One such effort was the pumping of billions of yen, by the Bank of Japan, in order to help the country’s fragile economy to recover faster. The earthquake and tsunami destroyed old roads. factories, bridges and, airports but they spurred economic growth in Japan. They allowed new and more efficient infrastructure to be built and new businesses to be established. This helped the transition become more smoother and the economy to be more productive in the long term. The Japanese government set a 10 years period for recovery in July 2011 and put forward specific targets for infrastructure restoration, debris clearing and housing. The government was able to act upon the recovery plan and in the coming years, all the debris from the disaster had been removed, infrastructure including airports, bridges, roads had been rebuilt, and houses had been reconstructed. The nuclear effects and radiations made the recovery process quite difficult, but the government was able to effectively monitor the agriculture, food production and safety.
Natural disasters are considered to be a form of creative destruction. Taking the example of the Tohoku incident, it can be said that such disasters do help enhance corporate productivity as those firms which survive such disasters, implement new and better strategies, and adopt new technologies. Such firms show a higher employment growth and higher assets as compared to those which are unaffected. It is generally observed that there is an increase in the productivity level of such firms as well, as they try to overcome their losses. Japan’s economy was just starting to recover from years of recession and deflation. The Tohoku incident in turn raised commodity prices and added to the country’s economic challenges. Businesses and firms that survived the disaster observed an even more increase in their value. They received enormous amount of public aids which helped them overcome the loss and damages, and also prevented them from going into bankruptcy. Initially, a decline was observed in the domestic economy which later transitioned into an exponential rise. This proved beneficial for Japan’s economy as much of their businesses had aging employees, so such businesses would sooner or later cease to exist. More opportunities gave rise to more businesses and new ventures.
The devastating 2011 Tohoku earthquake and tsunami, left many lessons to be learned by all. It proved to be a turning point in the Japan’s economic progression. Furthermore, it made people realize that natural hazards are unpredictable to some extent, and so they need to develop some strategies for their businesses, to deal with the losses when such unfortunate events occur. Life and property cannot always be protected by the coastal infrastructure; thus, communities should not only rely on such measures. Japan acted sensibly and not only did it implemented effective disaster management but also set up a design policy of coastal defense.
There is a trend in the global economy that businesses die down during such unfortunate incidents, but they flourish once the event is over. Such disasters cripple firms and businesses. But on the other hand, they provide market liquidity to ensure the stability of financial markets. Rebuilding requires effort and money, but it also opens new doors for more businesses and innovations. Creativity blooms in such situations and prosperity becomes the fate of the country. The same was the case with the Tohoku earthquake and tsunami, as it allowed for inefficient firms to expel out giving space for new efficient firms to enter the market, thus increasing corporate productivity and enhancing the economy. This helped the country to soon acquire new market equilibrium and stability. Although disasters cannot be viewed as a positive phenomenon even if they increase the overall GDP of the country, they do have a good impact on new businesses by allowing them to establish. The loss that occurs is humongous and thus, requires a lot of time and patience for its recovery. But it is important to consider the ‘growth follows the disaster’ line of thinking. In the words of Mark Skidmore, an economics professor at Michigan State University, “When something is destroyed you don't necessarily rebuild the same thing that you had, you might use updated technology, you might do things more efficiently”.
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