Five Economic Lessons from Haiti

What economic lessons can be learned from the Haiti earthquake recovery?

Below are five lessons drawn from economist Robert Murphy, based on his article for the Ludwig von Mises Institute about the week he spent in April volunteering with Hands On Disaster Response in Leogane, Haiti. (His blog post on his motives for volunteering is also worth reading.)

1. Economies of scale can have a large impact even on micro-entrepreneurs. A small-scale currency exchanger found it worthwhile to offer foreigners a significantly more favorable exchange rate. He could afford to offer a rate more favorable than that charged by retailers because his rate attracted a comparatively large number of customers. His margin was slim, but he made up for it in volume.

2. Markets outperform governments in the delivery of services. Murphy writes: “…if we set aside the issue of law enforcement and focus on more conventional services, then I definitely did observe the impotence of government and the vitality of the market. Any service that was nominally supplied by the government — including electricity, water, and garbage removal — was basically nonexistent. Moreover, it wasn’t simply a matter of the earthquake; I got the sense that many, perhaps most, of the locals hadn’t had electricity beforehand, either.”

3. Economic growth is the fundamental requirement for safe and affordable buildings. Given Haiti’s extreme poverty, strict building codes would have pushed up construction costs and created more homelessness. (Many engineers Murphy spoke with in Haiti overlooked that point.) “In summary, I think the explanation for Haiti’s vulnerability to a major earthquake is that they are very poor, and couldn’t afford safer buildings,” writes Murphy.

4. Cultural attitudes can help or hinder post-disaster recovery — and economic growth in general. Many Haitians regarded volunteer workers with suspicion, according to Murphy. They believed the volunteers were actually paid workers who were “stealing their jobs.” The locals, he writes, “thought they should be getting paid to remove the rubble from their collapsed homes…. If this is the predominant mindset, how could anyone start a successful business? I would imagine the jealousy and gossip of his neighbors would be unbearable.”

5. Non-profit disaster relief organizations can offer impressive strengths — and a few weaknesses. Among the strengths, Murphy describes the dedication, stamina, and fearlessness of many of his co-volunteers, who took sledgehammers to rubble all day, often in temperatures above 100 degrees Fahrenheit. Among the weaknesses, Murphy cites the difficulty of allocating resources in the absence of a price system. In the case that he witnessed, the organization for which he volunteered had trouble establishing clear guidelines for prioritizing tasks and putting volunteer labor to its best use. Murphy came up with a few ideas for improving the allocation of labor, but given the tremendous constraints that his organization faced, he wasn’t sure his ideas would have made much of a difference.

Murphy’s conclusions:

“In my brief time in Haiti, I saw the laws of economics at work. Entrepreneurs rushed to satisfy customers, as proven by the owners of motorcycles who suddenly became taxi drivers after the roads were filled with rubble. Government, in contrast, completely failed to deliver promised services to the people. I was pleasantly surprised to see that the ‘nongovernmental organizations,’ at least the one I worked for, were filled with some of the most interesting people I have ever met.

“Although outsiders can definitely provide emergency relief, and even long-term advice, ultimately Haiti will remain mired in poverty so long as the majority retains their current hostility to open competition and commerce.”