Capitalism saves lives in Canterbury

The fact no one died when a massive earthquake struck a city of more than 300,000 people has been hailed as a miracle but luck was only a small part of it.

The timing of the quake, which hit at 4:35am when most people were indoors asleep, certainly played a part but most of the credit can be given to New Zealand’s (relatively) capitalist, free-market economy.

Geoffrey Lean, environmental correspondent for the Daily Telegraph, wrote of the fatality-free disaster: “Mammon may have had more to do with it than God.”

He said the main difference between Christchurch, where no one died, and Haiti, where 230,000 people died after a slightly smaller quake, was that New Zealand is a relatively wealthy country while Haiti is among the poorest of the poor.

“Eighty per cent of earthquake deaths are caused by collapsing buildings and so properly built ones save lives in even the fiercest shocks, while poorly constructed ones become killers.

“Eighty six per cent of the people of Haiti live in tightly packed slums, and – besides those killed – two million were made homeless when buildings collapsed.”

Good buildings, bad buildings

Following the quake a number of statists have been quick to give credit to New Zealand’s building code for preventing further catastrophe.

What they don’t mention is that New Zealand first has to be wealthy enough for people to actually afford to build to the code’s specifications.

A code requiring, say, reinforced titanium framing would be useless if we could only afford mud huts.

Government mandates don’t offer magical protection against problems, as owners of leaky buildings can attest.

One of the pleasing aspects post-quake has been the government’s intention to sideline the resource consent process to allow the city to be re-built quickly.

The responsibility for assessing the safety of structures should be moved from local bureaucrats to building owners and their insurers, with the ability for people to sue if poorly constructed buildings cause loss of life or damage to other buildings.

Broken windows aplenty in quake aftermath

Shattered panes of glass weren’t the only types of broken windows on show after this week’s devastating Christchurch earthquake.

The broken window fallacy, debunked by French political economist Frederic Bastiat more than 150 years ago, refers to the mistaken idea that breaking things is good for the economy.

How, you might ask, could anyone think something so stupid?

Well, the thinking (if you can call it that) is that if a young hooligan goes and smashes the local butcher’s window this “stimulates” the economy because the butcher pays the glazier to fix the window.

The glazier in turn spends his windfall buying shoes from the cobbler, who uses the money to buy a cake from the baker, and so on and so forth.

Those who applaud this money-go-round ignore the opportunity cost to the butcher, who could have used the money on something else if he hadn’t had to pay for window repair.

Economic ignorance

The point of the broken window fallacy is that while destruction of resources may benefit certain people and sectors of the economy, it can never benefit the economy overall.

Someone should try telling Prime Minister John Key that – not long after the quake he was touting the economic stimulus the quake would provide.

Even left-wing blog site The Standard pulled him up on it; unfortunately its authors are in favour of “real (read: government) stimulus”, which they don’t seem to realise is also subject to the broken window fallacy.

However, New Zealand Herald business editor Liam Dann has provided perhaps the best example this week of failing to do as Mr Bastiat exhorted and look beyond what is seen and think of what is unseen.

“But between the man-made disaster that was South Canterbury Finance and this earthquake, we are going to see billions of Government dollars injected into the southern economy,” he wrote.

“With any luck, that may kick-start strong economic growth for the whole nation.”

Off to remedial economics class Mr Dann, and take Mr Key and Dr Brash with you.

A city devastated

While it’s wonderful no one was killed directly by the earthquake it is still a massive tragedy for the people of Christchurch and the other parts of the region struck by it.

Already the forecast repair bill has jumped from $2 billion to more than $4 billion and the cost to local businesses from having to shut up shop will be enormous.

A New World supermarket in Kaiapoi was damaged beyond repair, costing more than 80 workers their jobs.

There will probably be plenty of examples of other businesses failing as a result of the quake and its aftermath.

A psychological blow

While the economic impact will be lessened by the wonderful market invention of insurance (not to mention re-insurance), there is no way to blunt the psychological damage the quake has done to the people in Canterbury.

Already there are reports that some people, particularly older residents, are at risk of suffering heart attacks as a result of the stress the disaster caused.

Even if your house is insured, seeing it cracked down the middle by the furious battle between the Earth’s tectonic plates will still cause emotional harm.

For business and economic-minded people it can be easy to look at the bottom line and forget the human cost of an event that hopefully will prove to be a once in a lifetime experience.