--> Gill Blog: Economic Consequences of Hurricanes Hitting Houston

Gill Blog

Tuesday, September 27, 2005

Economic Consequences of Hurricanes Hitting Houston

What a couple of weeks. It all started with a tropical depression that began to form in the Atlantic in mid-August, and after it had run its course and dissipated into a scattering of rain showers off the eastern coast of Canada, Katrina had become the costliest natural disaster to ever hit the United States. Within just a few weeks, and well before residents of the U.S. Gulf Coast had a chance to start putting back the pieces of their shattered lives, another potentially more ominous storm, Rita, began its course along a near-identical path.

So what did we all learn from this? There is a natural tendancy to play Monday morning quarterback, especially in the aftermath of such a huge disaster and unfortunately, this leads critics to look at an entire response, identify cracks and magnify them to the point that when the fix is proposed, a disproportionate amount of resources are allocated toward crack repair instead of fortification of the entire structure. There is no doubt that the economy of New Orleans has taken a huge hit given its importance in energy, shipping and tourism, but the question remains: how wisely will the relief dollars be spent?

The importance of this point cannot be overstated - now that Rita passed without delivering the knockout blow to Houston that was initially predicted, officials everywhere are playing the same old "out of sight, out of mind" game, and not thinking about the required what-ifs to move forward. The fact remains that the more significant economic issues are being given the same regard as a hot potato.

Let's compare the two cities for a moment. New Orleans has a metropolitan population base of about 1.35 million residents. Shipping is clearly the biggest industry, as the port of New Orleans is in fact one of the world's busiest seaports. In contrast, Houston's metropolitan population base is approximately 5.2 million people, and beyond the fact that Houston's port is just as prominent as New Orleans, it's economy is much more diversified:
Houston's energy industry is a world powerhouse (particularly oil), but biomedical research, aeronautics and the ship channel are also large parts of the city's industrial base. The city is the largest petrochemical manufacturing area in the world, including for synthetic rubber, insecticides and fertilizers. The area is also the world's leading center for building oilfield equipment...

Houston is second to New York City in Fortune 500 headquarters.

Indeed, there is a vast amount of knowledge capital concentrated in an area that is particularly susceptible to natural disasters such as hurricanes. Nowhere was this more vividly put on display than the unprecedented traffic jams that formed when the Mayor and Governor put out the evacuation notice for all Houstonians. What would have happened if that 100-year storm hit Houston, and more directly, how would that have affected the economy of Houston, the United States, and the world?

More than anything this shows that officials within the private and public sector really have to start addressing the issue of human concentration in large cities, especially in coastal regions. In fact, this takes us right back to basics of the proposition we have been trumpeting since our inception: organizations, whether they are cities, or corporations need to really start looking at how they can better decentralize their operations and adopt simple, yet effective strategies such as telework to address this mounting economic storm.