We've all known for some time that Haiti's economical statistics are very frightening. And now a super massive 7.0 magnitude natural earthquake disaster that has basically destroyed the small country makes these figures even scarier to evaluate. This is no laughing matter (seriously). According to the Latin Business Chronicle, Haiti is ranked as the poorest country in the entire Western Hemisphere (FYI: that means out of one half of the ENTIRE GLOBE…this is EXTREMELY BAD people.)
To illustrate the severity of Haiti's current situation, we must look at the (grim, pre-earthquake) figures provided by the U. S. Central Intelligence Agency. Haiti's total reported population for 2008 was 9,780,064 people (just so you know how small this is, compare it to Los Angeles' total pop. for 2008 of 9,862,049 people!) Statistics show, that out of that total population, the unemployment rate is 80%. (No, sadly this is not a typo, nor an exaggeration…but wait that's not all!) Out of the total population, the available labor force is only around 4,000,000 people and 70% of them do not have "formal employment" (whatever that's supposed to mean).
Taking the above figures into consideration, in addition to Haiti's reputation for having an unstable social climate rampant with illegal drug trade (thugs running wild), very poor infrastructure (crappy buildings and shot roads) and a government overly dependent on raising international donations to sustain itself (pushing any chance of social reform wayyyy to the back of the line), this type of natural disaster is THE LAST THING they needed…….
(or is it???)
The question we are faced with (being face-to-face with a natural disaster and all…) is whether such a devastating earthquake striking Haiti and causing its subpar socio-economical climate to finally collapse will actually evoke an eventual positive reform? (In the words of a not-so-Caucasian United States President…CHANGE!)
(Aside from religious beliefs regarding "the afterlife"…) At first glance, it may seem unfathomable that any event causing fatalities can be viewed in a positive light. Before we continue, I must provide a disclaimer: the following discussion is applicable strictly when referring to the long-term effects of rebuilding efforts and the reconstruction of an inflicted location. (Please don't hurt me:::holds arms up to block punches:: LOL). However, I digress, (<-- I've always wanted to say that! Haha), moving forward.
Economist Joseph Schumpeter defined the classical economic theory of Creative Destruction as "a process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one." To gain a thorough understanding of his proposed theory (or maybe even confuse you even more LOL) we will examine this excerpt found here from Schumpeter's famous book published in 1942 which popularized Creative Destruction:
"Capitalism, then, is by nature a form or method of economic change and not only never is, but never can be stationary. And this evolutionary character of the capitalist process is not merely due to the fact that economic life goes on in a social and natural environment which changes and by its change alters the data of economic action; this fact is important and these changes (wars, revolutions and so on) often condition industrial change, but they are not its prime movers. Nor is this evolutionary character due to a quasi-automatic increase in population and capital or to the vagaries of monetary systems, of which exactly the same thing holds true. The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers, goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates."
-Capitalism, Socialism and Democracy (New York: Harper, 1975) [orig. pub. 1942], pp. 82
(Plain English for those of you who didn't quite catch that: "Out with the Old & In with the New"…make sense? Good! LOL)
This economic theory can be a very controversial and widely-debated hot topic (sounds like an episode of The View, yea?… just with a bunch of nerds instead of old women. LOL) requiring both sides to show empirical analyses (or lack thereof) to support their position.
Out of Chaos Comes Order:
Since its inception, Creative Destruction theory has been evaluated & proven for natural disasters occurring many years ago. It has also been successfully used in forecasting recent events of natural disasters similar to that of Haiti. These events included The Alaskan Earthquake of 1964, Hurricane Andrew in Florida of 1992, the Chinese Sichuan Province earthquake of May 2008 (among many others)…with Hurricane Katrina of 2005 as the one exception to the group (so many residents left the area, because government aid was slow to arrive and with insurance payouts so low, the area did not experience an economic renewal) all of which events are explained in this NY Times Article. A quote from that same article provides us with an interesting perspective of natural disasters and their varying effects:
"In the case of climatic disasters like hurricanes and cyclones, as opposed to earthquakes and volcanic eruptions, the more the better, Skidmore and Toya found. Nations with more climatic disasters grew faster over the long run than the less disaster-prone. Why only climatic disasters? The authors suggest that, as we have gotten better at forecasting weather, its human costs have been easier to mitigate than with geological disasters. Those still take us by surprise."
(Haiti's recent quake is definitely a testament to this. AMEN?)
Wrapping things up, let's turn to our favorite economist for advice once again...
WHAT WOULD ADAM SMITH DO?
A quote from an article found at wired.com best illustrates the intersection of Adam Smith's "Invisible Hand Theory" & Joseph Schumpeter's "Creative Destruction":
"[Adam] Smith was a conceptual breakthrough for Europe, but he didn't say much about bone-jarring technological shifts or the crucial role of entrepreneurship."It's not difficult to be for Adam Smith and Joseph Schumpeter at the same time," maintains House majority leader Dick Armey. "The market must clean itself out by taking resources away from the losers, so it creatively destroys the losing companies and reallocates resources to the winning companies. That's really what's going on."
(Let us all say a prayer that Haiti's citizens receive adequate assistance and resources required for a "Creative RECONSTRUCTION" allowing them a swift recovery, coming out on top as TRUE WINNERS!)