Private Enterprise to the Rescue
by: Craig Gurchinoff ‘10
Dr. Steven Horowitz of St. Lawrence University spoke about the response to Katrina.
Recently, Dr. Steven Horwitz came to talk about the response of private enterprise to the disaster wrought by Hurricane Katrina in 2005. When the storm subsided, a tremendous amount of media attention was paid to the clumsy rescue-operation mustered by the Federal Emergency Management Association. Nevertheless, Dr. Horwitz, a distinguished professor of Economics at St. Lawrence University in Canton, New York, travelled to Hampden-Sydney to share an underemphasized story of how on-site private enterprise spearheaded crucial relief efforts spanning the disaster area.
In some respects, leading the charge was retail-giant, Wal-Mart, which deployed 2500 supply-trucks to over one-hundred of its affected locations within a week’s time of Katrina’s landfall. In addition, Wal-Mart briskly donated upwards of thirty million dollars to various relief funds. It took a mere ten days for emergency-response teams to reopen 111 of 126 damaged stores, enabling store managers to help victims of the storm any way they saw fit. Food and emergency supplies were dispersed to the needy and some (though not all) of this was provided free-of-charge. It is notable that Wal-Mart executives do not ultimately know whether the company profited from its “on-scene initiative
Wal-Mart was not alone in providing emergency relief. Other firms had a big impact on ravaged communities as well: Home Depot mobilized some eight-hundred trucks and over one-thousand employees, McDonalds reopened eighty-percent of its stores within a week, and Proctor & Gamble’s Tide detergent company dispatched a colossal eighteen-wheel laundry machine which did over 30,000 loads of laundry for free! Although the federal government had dispatched FEMA, and many thousands of the Coast Guard mounted an “admirable” relief-effort, victims of the unexpected devastation were comforted by the rapid return of familiar businesses.
The creative efforts of private firms stood in stark contrast to the cobbled response of FEMA. It took days for the feds to respond, after-which inefficient resource mobility hampered their ability to execute on the ground. This begs the question: How was profit-focused enterprise so equipped to meet a challenge, that everyone assumed was the duty of one tax-reaping, response coordinating government agency?
Put simply, Wal-Mart and other firms negotiated unknown territory because they were prepared ahead of time. The fact is that market entrepreneurs are not concerned only with short-term profits, but also with sticking around in the long-term. Their role as residual claimants prompts firms to tend to their customers in times of need. Dr. Horwitz noted that politicians have difficulty seeing beyond the next elections.
An example of this preparedness? In 2004 Wal-Mart implemented a disaster-response policy which compels stores to freeze their prices during periods of local turmoil. Here, Wal-Mart brings some insight to the table: in general, the correct response for a firm which acts in accordance to a positive demand shock is to raise its price, so as to bid away the desired resource from other valued-uses. However, Wal-Mart’s stockpile is sufficiently high, and the mobilization of its resources so quick that the company can shift anything anywhere in the country. Talk about an economy of scale!
Jason Jackson, Director of Wal-Mart’s emergency management headquarters, stressed that reliable intelligence and efficient communication chains were vital to “business continuity” during times of crisis. Wal-Mart’s own weather-tracking system kept it hours ahead of the competition, enabling the company to requisite massive emergency stockpiles and other inventories for relocation to the south-east. Not only that, Wal-Mart’s structure is such that store managers were bestowed autonomy, and asked to delegate manpower and resources according to their judgment. On-site Wal-Mart employees were part of the very communities they served. This fact, coupled with the amount of resources at their disposal, equipped ordinary employees and entrepreneurs to make a difference.
Dr. Horwitz insisted that “wealth is the best protector of natural disasters from becoming social disasters.” But markets cannot execute flexibly whilst under the grip of those who “limit profits and subsidize loss.” He closed, half-jokingly stating that “while FEMA was busy loading their warehouses, Wal-Mart was unloading theirs.”
Each day new dangers to welfare emerge. If we, as both a nation and as a global community, hope to overcome these unexpected challenges, it may be prudent to entrust support to the men and women who share legitimate long-term interests in our welfare.
Related posts:
Loading ...