What Happens in the Next Earthquake?

The devastation caused by Hurricane Mitch in Nicaragua and Honduras is a preview of what could happen here.

The emergency supplies being sent to Central America are only a small piece of disaster assistance. The real needs are in rebuilding the local economy, repairing the infrastructure, replanting crops and replacing homes and businesses. Here we can look at Central America and see the future.

Development there follows a familiar pattern: Trees are cut and land is overworked by large-scale agribusiness. Rural populations move to cities and live in shantytowns built on flood plains. Is this so different from U.S. patterns of resource and land management? We may build better, but not smarter.

Look at the explosive growth and development in California’s Central Valley. If we add up all the housing tracts and strip malls, there are about 750,000 people living on a 100-year flood plain behind 6,000 miles of aging earthen levees. It would only take one storm, slightly bigger than those we had in 1997, to cause utter havoc in the Central Valley. The Los Angeles and San Francisco metropolitan areas house half the population of California in places where we fully expect to have another earthquake as large or larger than the one in Northridge in 1994.

In a five-year period between 1989 and 1994, the five largest U.S. disasters caused $75 billion in damage. The 1995 Kobe earthquake totaled $150 billion and the next California disaster easily could match that. The big difference between pre-Kobe disasters and those that come after is that there will be precious little financial help for recovery.

Americans have a naive belief that the federal government will be there for them if they face disaster. In fact, all federal assistance is mostly emergency assistance and represents less than one-quarter of what it costs to recover from disasters.

In the past, the real cost of recovery has come from insurance and private investment. In California and Florida, however, private disaster insurance no longer exists. It has been replaced in each state by a quasi-governmental insurance broker selling expensive insurance with limited coverage. The California Earthquake Authority now covers only about 20% of California homeowners.

In the Northridge quake, about 200,000 homeowners received insurance settlements, 100,000 received Small Business Administration loans and almost 300,000 got assistance with small grants. In today’s world, the chance is virtually nil that such large payments would ever be made to a single metropolitan area.

If we want to know what it will be like after hurricanes, earthquakes and floods in the future, we should look to Mitch. Emergency aid might arrive a bit quicker, but the difficulties that Central Americans face in years ahead are not unique. Capital is required for recovery, whether a nation is rich or poor, industrial or underdeveloped. What happens in Nicaragua and Honduras could also happen here.