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Economics & Finance

Perfect Storms?

Jurgita Balaisyte, Research Associate and Luk N. Van Wassenhove, Professor of Technology and Operations Management, The Henry Ford Chaired Professor of Manufacturing and Director of the INSEAD Humanitarian Research Group. |

Flooded coastal cities, shattered infrastructure, and blown-out power: this is the forecast for the near future, based on the increase in number, scale and cost of recent natural disasters in urban areas over the past decade. In the wake of the damage, some ugly truths are coming to light...

Tropical storm Sandy left more than 90 casualties, millions without electricity, created  a number of logistical challenges, and could cost the U.S. economy as much as US$50 billion, according to some estimates. Supplies of water, fuel and food were disrupted as a result of damaged infrastructure and a crippled power grid.

The recent history of U.S. utility companies does not show a good record in responding to storms.  For example, in August 2011 Hurricane Irene left 7 million people with no power and in more remote areas it took weeks to restore it[i]. Sandy tested the infrastructure and its economy again. Despite efforts by utility companies to mitigate the impact of the storm by trimming trees near the power lines, damaged power stations and electricity networks affected more than 8.5 million residents along the East Coast[ii]. Two weeks later more than 130,000 citizens remained in the dark[iii].

Sandy revealed flaws in the structure and regulation of power utilities and brought into question the effectiveness of an electricity system built in the 1950s. Increasingly this has been an issue of concern as the worst six power outages have occurred since 2006[iv]. Solutions to the current issues may require considerable investments. For example, burying power lines in vulnerable areas is an often discussed solution. Opponents argue that it is a very costly yet still susceptible to extreme weather conditions, and cite the fact that the underground power infrastructure in New Orleans was destroyed by Hurricane Katrina.

Improving the condition and efficiency of the power grid is critical to improve the resilience of the system as whole. The Congressional Research Service in their latest report states the following: “Improving the overall condition and efficiency of the power delivery system can only serve to improve the resiliency of the system, and help hasten recovery from weather-related outages[v].

Another aspect unique to urban disasters is the reliance on public transportation infrastructure. New York’s 108-year-old subway system was not built to face an event of Sandy’s magnitude.  Despite preventive shut-downs and measures to limit flooding, New York’s transit system was crippled. Issues related to poor maintenance, old equipment, and a lack of protective mechanisms against floods became evident. The entire system was stranded; even Wall Street shut down for two days.

It Didn’t Have to Be This Way

The devastating damage could have been prevented. As suggested by the New York Governor Andrew Cuomo, a mix of traditional fixes and engineering solutions are needed[vi]. During Hurricane Isaac the re-engineered levees in New Orleans drastically improved city resilience[vii]. Solutions exist; not all of them are expensive, but they do require initiative before the disaster occurs. Long-term, it could require rethinking the role of the transport system in the city and the impact – financial and otherwise - when the city’s transportation system is disabled.

To-date some steps have been taken by the U.S. government. In the aftermath of Hurricane Katrina the immediate Bush administration’s response was criticised for several reasons. The Federal Emergency Management Agency (FEMA) was accused of an uncoordinated and untargeted response. The high number of federal programmes involved in the post-disaster recovery created enormous difficulty for local leaders and resulted in confusion and delays[viii]. The response effort revealed a systemic problem with the U.S. government’s ability to handle large scale urban natural disasters.

In the aftermath of Sandy, the Obama administration released a National Disaster Recovery Framework in order to provide clearer guidance on recovery efforts. Also, as a result of the Post-Katrina Emergency Management Reform Act (2006) FEMA responded with a new National Response Framework (NRF). The intention was to ensure a more coordinated response by clarifying roles and responsibilities among the agencies and government bodies[ix].

While these initiatives are laudable, their effectiveness will always be limited and efforts duplicated, unless roles and responsibilities are clearly defined ahead of time. Collaboration in disaster response requires information sharing on the needs and capacities of the different stakeholders. Technology should be used to preparedness advantage. Databases such as EM-DAT providing information on disasters since 1900 and satellite technologies can be used to predict upcoming events and estimate their needs.

U.S. Lagging

While the preparedness and response to Sandy were an order of magnitude better than the Katrina devastation, Sandy is a reminder of just how far the U.S. lags behind in terms of modern and robust infrastructure. This holds for electricity and water (distribution) systems as well as road networks including tunnels and bridges. For the vast majority of the country, public transportation is poorly developed which leads to an over-reliance on motor vehicles. While multiple countries have efficient high-speed train networks, these are almost non-existent in the U.S. which struggles with a saturated and vulnerable airline system. Even modern telecom systems (phone, internet) are better, faster, certainly newer and even cheaper for the end-user in many developing or emerging economies. It is clear, therefore, that investments in infrastructure must go hand in hand with recent efforts to improve preparedness and response. The economic costs of Sandy alone are more than double the Federal Disaster Relief Fund’s annual budget (estimated at US$18 billion), and the human suffering incalculable. Sandy has left no doubt about the impact of increased intensity storms on densely populated areas, and investments in infrastructure have the potential to play an enormous mitigating role in extreme weather events to come.

Perhaps it is not so much about perfect storms or even global warming, but rather about creating solid infrastructure as part of better preparedness…

The INSEAD Humanitarian Research Group has conducted research for over a decade in close collaboration with humanitarian organisations worldwide. Click here for more information.


[i] Hurricane Sandy Will Put a Rickety Power Grid to the

[ii] Sandy’s Blackouts Pressure Utilities to Bury Power Lines


[iii] Cuomo Launches Panel to Probe Utilities’ Response to Storm

[iv] Sandy’s Blackouts Pressure Utilities to Bury Power Lines: Energy

[v] Hurricane Sandy: proof the US needs a smarter grid?

[vi]New York governor blasts utilities for Sandy outages

[viii] Feds, States, Cities — The All of the Above Disaster Response

[ix] Feds, States, Cities — The All of the Above Disaster Response


Luk N. Van Wassenhove is Professor of Technology and Operations Management, and The Henry Ford Chaired Professor of Manufacturing at INSEAD. He is also the Director of the INSEAD Humanitarian Research Group.

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