Inside World Trade

Inside World Trade: Now What?

May 2, 2011
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So much for cautious optimism and the feeling that we had finally turned the corner on the recession…most supply chain executives that I had been speaking with late last year were reporting a positive outlook for 2011, but then the geopolitical turmoil that ricocheted throughout the Arab World and the resulting whipsaw effect on oil prices and the stock market sent everyone running for cover again.

If that wasn’t enough, the catastrophic earthquake in Japan not only stoked our primal fear, it gave rise to legitimate doubt over the tenacity of the global economic recovery.

This month, longtime contributing writer April Terreri was tasked with gauging the outlook in our industry-was it as bad as we sensed, or were companies staying the course and continuing to invest in opportunities?

We’re happy to report that global trade activity remains on an upward trajectory.

Promising signs are to be found elsewhere. Notably, I was struck by James Surowiecki’s recent column in The New Yorker about how Japan’s economy may actually experience some real benefits despite the estimated $200 billion in losses that it’s likely to suffer from the earthquake.

How can this be?

“As the economists Eduardo Cavallo and Ilan Noy have recently suggested, in developed countries even major disasters ‘are unlikely to affect economic growth in the long run.’”

Furthermore, Japan’s rebuilding binge that followed the Kobe earthquake in 1995 is a prime example. Kobe was a major manufacturing hub and the world’s sixth-largest trading port. The earthquake caused more than $100 billion in damage (most of it uninsured), killed 6,400, and left over 300,000 homeless.

But, as Surowiecki points out: “Twelve months after the disaster, trade at the port had already returned to almost normal, and within fifteen months manufacturing was at ninety-eight percent of where it would have been had the quake never happened. On the national level, Japan’s industrial production rose in the months after the quake, and its G.D.P. growth in the following two years was above expectations.”

Other economists support this outcome, writes Surowiecki. Mark Skidmore and Hideki Toya found that when developed countries are hit by a disaster, they don’t just repair the damage, “they upgrade infrastructure and technology, and shift investment away from older, less productive industries.”

Economist George Horwich calls it “accelerated depreciation.” According to Surowiecki, “homeowners rebuilding after a disaster take the opportunity to upgrade, a phenomenon known as ‘the Jacuzzi effect.’ In ordinary times, inertia keeps old technologies in place; it may be easier to make dramatic changes when you have to start from scratch.”

Previous interviews in WT100 with city officials and transportation executives from New Orleans revealed the exact same thing.

Starting with a clean slate has inherent opportunities, even when that means changing the way we evaluate our own future.

Enjoy the read.


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