Calamities and the economy

With the series of calamities that hit us lately, both man-made (the Zamboanga City violence) and natural (the Bohol earthquake), I’ve been asked what impact these would have on our economy. The question is usually posed in terms of impact on gross domestic product (GDP), especially in the context of the stellar economic growth we have been experiencing this year so far. I see the question as misplaced because GDP is hardly the right measure to assess the cost of disasters, even if one defines “cost” in its purely economic dimension—and we all know that costs go well beyond economic. To be sure, the economic costs would be substantial. Infrastructure damage inflicted by the Bohol earthquake will run into hundreds of millions (possibly billions) of pesos, and damage to lives and property, while defying accurate measurement, is likely to be well over that. In Zamboanga City, damage to lives and property has no doubt been staggering, not counting the tremendous damage to the social fabric itself. Indeed, economic costs are a mere fraction of the total negative impact that such calamities pose on people’s well-being.

Even then, the true extent of  the economic costs alone cannot be readily seen in the GDP data that will be reported later in official statistics.  This is because the GDP data will count the remedial economic activities that will be spurred by the calamities along with those that will be curtailed by it. It is not inconceivable—in fact, it’s quite likely—that the former can more than offset the latter, leading to a net outcome where GDP could actually be positively affected by the calamities.

I checked the data for the periods corresponding to weather disturbances “Ondoy” (September 2009) and “Sendong” (December 2011), and the “habagat” (August 2012). Guess what: GDP growth actually speeded up in the aftermath of those calamities. Obviously, such GDP improvement following such calamities was no cause for celebration. This only underscores the point that GDP performance cannot provide a reliable picture of well-being.  But GDP and gross national product were never meant to do that, a point I have stressed in this column time and again.

Much of the economic activities spurred by disasters lie within the sector of the economy known as the “underground economy,” or what is technically termed the “informal sector.” In the midst of such calamities and in their aftermath, a lot of such economic activities not seen in more normal times tend to flourish. In the middle of prolonged flooding, for example, “water taxis” and toll footbridges sprout all over. In the aftermath of “Ondoy” in 2009, I remember seeing ads for inflatable boats and rafts coming out in the papers, hinting the emergence of a growing industry in small-scale water transport—over floodwaters, of course.  Carpenters and construction workers suddenly find themselves in great demand for home repairs. Enterprising groups and individuals have also offered home-flood cleanup and recovery services for hire. I’ve noted ads for restoration of precious photographs damaged by floodwaters. Vehicle repair services in formal or informal sectors suddenly find great demand for the thousands of motor vehicles submerged in floodwaters. There’s a similar surge in economic activities associated with more diseases and deaths, from sales of common medicines to funeral services. The list can go on and on.

Contrary to what one might expect, our government statisticians actually find a way to account for such “underground” or informal sector economic activities, and include them in the reported GDP figures. Statisticians can be very resourceful in making do with available data and finding ways to indirectly measure what would otherwise be unmeasurable. Our government statisticians have been doing this for many years, and have been constantly improving their craft in doing so. The key is the data from the quarterly Labor Force Survey of the National Statistics Office, taken together with regular surveys on firms, farms, establishments and households. As the labor data cover the totality of jobs (formal and informal), this can be used with estimates of average output per worker in different types of jobs to estimate the total value of all production, both formal and informal. Thus, as I noted from data showing that our economy actually grew faster in the aftermath of recent years’ disasters, such growth counted informal sector production along with that in the formal sector.

There will be a similar surge in remedial economic activities in the formal sector, through large-scale repair and rehabilitation work on damaged structures and facilities, among others. Already, offers are coming in to restore the collapsed historic churches in Bohol. Government is already spending substantial amounts for relief assistance, and will spend much more to restore infrastructure like roads and bridges. Overall, disrupted production activities, especially in agriculture and tourism, will be offset by new production activities prompted by the need for relief, repair, rehabilitation and restoration amid all the physical damage. Without meaning to discount the suffering of the calamities’ direct victims, the offsetting economic activities are likely to have broader benefits than the usual growth-propelling activities that prevail in more normal times.

Ironic as it may sound, it might yet be said that our economy will have the fortune of growing fastest among our neighbors this year partly because we had the misfortune of being buffeted by a series of calamities. And as noted earlier in this piece, much of it would be inclusive growth.

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