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Disaster protection

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The terrible devastation caused by the earthquake in Sichuan reminds us of the randomness of nature, the uncertainty of life and the compassion people have for those who suffer. But there is a more important, if less understood, lesson: countries with well-developed markets, private property rights and a vibrant civil society are much more able to withstand and recover from natural disasters.

Price and profit controls, and the lack of private property rights, increase the duration and magnitude of natural disasters. Market-led development provides the best insurance against disasters by increasing wealth and allowing the economic system to quickly adapt to shocks. The now-retired Purdue University economist George Horwich showed how countries that adhered to market-liberal principles weathered natural disasters more readily than those that suppressed economic freedom.

In 1988, 25,000 people died when an earthquake hit Soviet Armenia. The following year, an earthquake of the same magnitude struck San Francisco, and only 67 lives were lost.

In an extensive study of the 1995 Kobe earthquake, Mr Horwich found that Japan's mainly market-driven economy, which had created tremendous wealth in the post-war era, along with a strong civil society, allowed Japan to recover quickly without any lasting damage to the overall economy. Kobe's well-built schools provided shelter for about one-third of the 300,000 homeless.

Mr Horwich's study of natural disasters shows how losses are minimised to the extent that there is a free flow of information, resilient private markets and a government that protects property rights and allows civil society to function. Market-led development can mitigate natural disasters by fostering economic freedom, creating wealth and cultivating individual responsibility.

To see the importance of market liberalism in lessening the damage from natural disasters, one need only compare the slow response of Myanmar, a centrally planned and rigidly controlled country, to the rapid response of China, which has liberalised its economy since 1978 and opened itself to trade with the outside world. Moreover, China learned from the severe acute respiratory syndrome crisis that the best policy in dealing with disaster is to allow the free flow of information, which has been improved by people's access to modern communications technology occasioned by the market reforms.

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