Right now, rescuers are working to help the hundreds of thousands of victims of the earthquake that hit Haiti Tuesday. And, around the world, governments and charitable organizations are mobilizing aid to help in disaster relief. But the truth is Haiti was struggling long before the earthquake. The nation is the poorest in the Western Hemisphere and had only meager economic growth over the last several years based largely on textile exports and tourism.
Economists agree that if the country is going to right itself, it’s going to take more than a disaster response. SmartMoney asked five economists how they would go about repairing the Haitian economy. Here’s what they said.
Mike Feroli, economist for JP Morgan
I think you have to repair the physical infrastructure first, getting roads and bridges and ports and so forth operating again. You have to make sure basic needs are met. It’s a long way from here to there. You are probably going to have a lot of health issues that will need to be addressed before anything else. And those are the most important steps. You’re not damaging things like institutional capital or things like that. That’s secondary.
Richard Ebling, economics professor at Northwood University in Midland, Mich., and former president of the Foundation for Economic Education
After the emergency aid to just help people who are without running water and food, clearing up and saving bodies out of the wreckage, the next step has to be thinking what needs to be done, what reforms need to be introduced for recovery so that these people – like other nations, in Asia or Latin America – can start rising out of poverty. That means institutional reform, such as private property rights, clearly defined and impartially enforced. Civil liberties, which must include freedom of association, where freedom of association also means the right to freely enter a business, start a profession or occupation and openly compete in a transparent marketplace.
It also means reducing wasteful government expenditure, not emergency spending because that has to be done for the immediate issues of today. I’m thinking, "What is it that government spends on that wastes the scarce resources of society and makes it difficult for budding Haitian entrepreneurs and private business to be starting jobs, investing, creating employment, helping the economy to grow, supplying the goods and services that the ordinary people of Haiti desperately need?"
They desperately need infusions of the types of savings and capital that foreign investors can provide and their economy can’t. But [the money] needs to be market-based foreign investment, not the type that’s drawn in with a deal with the government and that ends up in a Swiss bank account.
There’s nothing inherent that prevents them from escaping poverty. They come here, get jobs, work hard, to the extent that they can do it as immigrants. They start businesses and make their lives better. So with the right institutional change, they just need the opportunity to be hard-working, creative and see that there’s reward at the end of the tunnel.
Robert Dye, vice president and senior economist for the PNC Financial Services Group
In the best of circumstances, rebuilding can actually stimulate an economy. We see that in the case of hurricanes going through Florida, and the final impact of the earthquake in [Sichuan] China, that will be a long-run benefit ironically to these regions. And the construction money and new facilities have a positive impact on economy.
I would not expect that in the case of Haiti, because the rebuilding effort will be dependent on donations. In some ways it compares more to Katrina than it does to China, because it was such a difficult, slow and plodding rebuilding effort with Katrina. What we saw with Katrina was a third of the population moved out of the area, and slowly as the area has comeback over the course of a couple years, some people come back, but many do not. So there’s a permanent displacement of population, and I expect a similar thing to happen in Haiti. Port-au-Prince will have a permanent outflow as a result. It will take much longer for the local and national economy to recover from this.
Christopher Cotton, economics professor, University of Miami School of Business
One of the reasons [the quake] might not have a large affect on economies outside of the region is because they already have such a small business sector or trade sector as it is. It has been growing since 2005, and this might be a temporary setback to that growth.
One of the things that’s important of them to consider is that with hurricanes last year, earthquake this year -- these could all be things that put off additional international investment beyond aid. In addition to building up to where they were, it’s going to be difficult for them keep to moving at the same rate because risk-averse investments tend to be harder to come by.
John Canally, economist at LPL Financial
It comes down to political stability and political will in Haiti, and it’s not been a very stable government. The first step in a stable market-based economy is having a stable political backdrop, and they obviously didn’t’ have that, and now it’s likely to get worse. The model is to get political and social stability before you try to get an economy that can move beyond exporting textiles and tourism. It will take years.
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