Abstract: Population Services International (PSI) is a leading global health organization with programs targeting malaria, child survival, HIV, reproductive health and non-communicable diseases.
Working in partnership with the public and private sectors, and harnessing market practices, PSI provides life-saving products, clinical services and behavior change communications that
empower the world’s most vulnerable populations to lead healthier lives. YouthAIDS is an education and prevention program of PSI that uses media, pop culture, music,
theater and sports to stop the spread of HIV/AIDS. YouthAIDS has reached over 600 million young people in more than 65 countries with life-saving messages, products, services and care.
Founded in 2001 by Kate Roberts, YouthAIDS grew out of her passion to make the world a better place. Operating as a fundraising and marketing mechanism for PSI’s youth-focused HIV/AIDS programs, YouthAIDS has long been a brand within a brand. This case discusses the formation of YouthAIDS, its model of combining private sector strategies with celebrity
involvement in a global health problem and the challenges and opportunities posed by the success of YouthAIDS to its parent organization, PSI. The study is divided into three parts;
questions for assignment and class discussion are proposed.

Key words: Cause-related marketing; NGO; leadership; social marketing; private sector; celebrity
engagement; value creation; health risks

Goals of the Case Study—This case has three main goals:1. Demonstrating how a cause-related marketing approach can help make an NGO
successful at creating sustainable value, attracting unrestricted funds, generating buzz
and focusing the spotlight on a cause.
2. Appreciating the challenges posed by the success of one entity or brand within an
organization to the future of the whole organization.
3. Examining an impactful personal journey.

The full case is available BY CLICKING HERE

What’s happening and what’s new? For many years we all celebrated globalization and its fantastic benefits. But we may have underappreciated its flip side: risks are becoming more global too, so that each one of the aforementioned events had major ripple effects on other parts of the world than where it originated. Managing these risks alone, as the CEO of a business and the head of state, has become a ‘mission impossible’.

What can be done? The World Economic Forum last week issued its 7th Global Risk Report (GRR). It aims at helping top decision makers better understand the perceived likelihood and severity of a number of global risks which could materialize, or become more severe, in the coming ten years. It also shed some light on the level of interdependence among those risks and what unintended consequences they could have. The GRR 2012, which will be widely discussed in Davos next week, focuses on 50 global risks and rank them based on the response gathered from a survey of nearly 500 top decision makers in the public and private sectors and experts from leading research institutions.

What tops the list this year? Income disparity. Today we have reached a 50/1-1/50 situation: the poorest 50% of the global population owns barely 1% of the global wealth, while the planet’s top 1% owns close to half of the world’s assets. If this gap continues to rapidly stark, this will have serious consequences. Indeed many governments don’t have the financial strength to support large welfare programs and counter-cyclical spending anymore.

Don’t think this is only Occupy Wall Street… A live example is China. The income disparity in China has been slowly on the rise since the late 1970s when Deng Xiaoping started his market-oriented reforms. In addition to the differentials between the rich and the poor in general, the income disparity in China also manifests itself in regional income gaps and urban-rural income gap.

For example, while the eastern/coastal provinces have always been economically more developed than the western/inland provinces, the differential has grown over the years. In 1980, the per capita GDP of the coastal provinces was about 80% higher than that of the inland provinces, and in 2008, that number grew to 144%. Similarly, data released this week by the National Bureau of Statistics of China (NBSC) indicated that the average income of a Chinese urban resident was 313% of a rural resident, compared to 186% in 1985. In the late 1970s before the reform started, very few Chinese citizens had any quantifiable personal assets, but in 2010, China had 271 known billionaires, second only to the US.

This multi-faceted income disparity has far-reaching implications to the Chinese economic, social and political dynamics, and presents a serious risk. The most obvious example is related to migrant workers. NBSC estimated this week that, in addition to about 100 million rural laborers who work in nearby cities, there are currently 150 million migrant workers in localities far from their rural homes. These rural labors migrate to other cities or provinces in search of better economic prospects. In their new urban homes, however, they frequently face long work hours, substandard work conditions, severe restrictions about what types of jobs they can do and where they are allowed to live, lack of education opportunities for their kids, and lack of credible mechanisms for labor disputes, among other problems. The widely reported 18 attempted suicides during a ten-month period in 2010 at Foxconn, a primary manufacturer of iPad and other products for Apple, Dell, HP, Motorola, Nintendo and Sony, highlighted the level of despair migrant workers might have been facing.

These risks have not gone unnoticed by the ruling Communist Party. As early as 2005, the Party started to list ‘harmonious society’ as a strategic objective. The Twelfth Five-year Plan that was launched last year placed a heavier focus on the quality of life and resident income over GDP growth.

In the long term, how these measures would reduce the risks in China, and impact the rest of us, remain to be seen. In the short term for China, the 2011 economic data that was just released yesterday by NBSC offered some ground for cautious optimism. For the first time in China’s thousands of years of history, more Chinese people live in cities than in rural areas, reflecting a continued urbanization process through which more people move to cities with better living standards. The urban-rural income differential dropped slightly from 333% two years ago to 313% for 2011. NBSC data also showed that, after two years of various policy measures, the housing prices in most Chinese cities start to drop, making housing more affordable to the Chinese.

In Davos next week, several panel sessions are set up to discuss global risks. Many crises in the past were triggered by stand-alone and disruptive catastrophes. In the crisis-fatigued, just-in-time and interdependent world today, what risks are more likely to cause the next shock to the world? Would they be the risks you manage everyday that you think could destabilize your organization or your country, or would they be those you decide to ignore, conscientiously or not, because you believe they do not matter much? Would they be stand-alone, sudden and disruptive traditional risk events as we saw in the past, or would they be interconnecting and slow-building trends that people take for granted, for a long time until the time they actually cause a crisis?

Is income disparity slowly bleeding the world into the next crisis?

This op-ed was published by the Wall Street Journal on Januray 21, 2012, four days before the opening of the EWorld Economic Forum’s Annual Meeting in Davos. About the authors: Erwann Michel-Kerjan is Managing Director of the Center for Risk Management at the Wharton Business School and a contributor to the GRR 2012. Kevin Lu is Director of the Multilateral Investment Guarantee Agency (MIGA), the private sector investment guarantee arm of the World Bank Group, and a Council Member of the Emerging Markets Advisory Council at the Institute of International Finance (IIF) based in Washington, DC. This column focuses on policy issues related to international finance and political economy, especially those relevant to the emerging economies. It also examines many fundamental changes that are occurring in the advanced economies, in the context of the significant shifts of economic weight towards emerging markets.The opinions are their own.

What are the top 50 risks this year?

CLICK HERE TO WATCH FOR A RECENT INTERVIEW AT THE WEF HQ IN NEW YORK:

Access the interactive website: click here

Full report is accessible here: WEF_GlobalRisks_Report_2012

What are the top 50 risks this year?

CLICK HERE TO WATCH FOR A RECENT INTERVIEW AT THE WEF HQ IN NEW YORK:

Access the interactive website: click here

Full report is accessible here: WEF_GlobalRisks_Report_2012

“After everything falls apart, the failures to act become obvious: Why didn’t somebody at Penn State do more to pursue allegations that former assistant football coach Jerry Sandusky was sexually abusing young boys? Didn’t anybody at MF Global Holdings notice that something was wrong before $1.2 billion in customer cash disappeared? Why, decade after decade, didn’t anyone at Olympus protest $1.7 billion in accounting irregularities?

“Why was there almost a conspiracy of silence?” John R. Kimberly, a Wharton management professor, asks of these scandals and others like them. “Why do we behave in ways that are inconsistent with our articulated beliefs?” He wonders why people with integrity behave differently within an organization than they would on their own.

In hindsight, especially to observers, it is clear what should have been done. Yet in case after case, companies overlook internal problems that at best impede performance, and at worst could bring down an entire organization.

Exposing such problems is more complicated than telling right from wrong, say experts at Wharton and elsewhere. Sometimes people within the organization can’t see the problem clearly — or if they do, they are afraid to voice it. Those who do speak up may be ignored or misunderstood. If one group within an organization is more powerful than another, it may escape careful scrutiny. And if leaders themselves cannot face taboo problems, it makes it harder for an organization to change.

People find many ways to distance themselves from the moral implications of their behavior, says Kristin Smith-Crowe, a management professor at the University of Utah’s David Eccles School of Business who studies ethics within organizations. Sometimes, people decide not to speak up about a problem by convincing themselves that it is someone else’s job to solve. Others rationalize their inaction by believing that the problem will resolve itself or nothing negative will result. “It’s not that they see it … [and] they just don’t care,” she notes. Instead, “they don’t necessarily see it” clearly or completely.

Compounding the problem further, people who do speak up may second-guess themselves if they get a negative reaction from leadership — a rebuke for disloyalty, questioning authority or causing problems, for example. “You start off trying to do the right thing, but the response you get is that you are doing something wrong,” Smith-Crowe notes. “People may get confused.”

‘Super-moral, Superhuman’

Problems that surface within an organization are rarely clear-cut, says Cristina Bicchieri, a philosophy professor at the University of Pennsylvania who also teaches in Wharton’s legal studies and business ethics department. “It’s very rare that you observe something that is really bad and somebody does it in front of you.” With limited information, people may question their own understanding of a problem. “You hesitate…. It’s normal,” she says. “You cannot ask people to be super-moral, superhuman. You have to work with what you have.”

Group dynamics also come into play, especially in small groups. “The cozier and the more close-knit the group, the less incentive you have to stir the waters,” she points out. “If you are strongly motivated by the sense of not wanting to ruin the group, you might form a false belief about what happened, especially if the situation is ambiguous.”

Group loyalty may also lead members to protect each other when things clearly go wrong. In her article, “Failures to Punish,” Wharton professor of legal studies and business ethics Amy Sepinwall tells of a U.S. army commander in Iraq who failed to report that troops under his command had thrown several Iraqi civilians off a bridge, killing one of them. When army investigators raised questions, the commander covered up details about the incident, seeming to place a higher priority on protecting his soldiers than making sure they were punished. “Loyalty is really important to us,” says Sepinwall. “It’s important for productivity, and just as a matter of virtue. And yet it has this very insidious side [that can] lead to overprotection.”

Sometimes, people simply don’t notice problems forming, says Erwann Michel-Kerjan, managing director of the Wharton Risk Management and Decision Process Center. Signs of trouble can be subtle and may not stand out on their own. For example, a chemical processing plant might receive a citation during an audit for a dirty floor, and another later for a truck driver who fails to wear a seatbelt. Taken alone, neither event raises alarms. Only after an explosion at the plant kills several workers do such “weak signals” become evidence that the company ignored safety standards. “After the fact, it’s always easy to go back in history and say, ‘You should have seen that.’”

Time, too, can be an issue. Silent witnesses may quit or retire, taking knowledge of a problem with them. Replacements may not understand the company well enough at first to realize that something is amiss. Scandals “don’t happen overnight,” Michel-Kerjan points out. “These risks are built over a long time.”

‘Is It Worth It?’

Even when the problem is clear, knowing how to bring it up may not be.

Secrets of some sort exist in nearly every organization, and it takes “incredible courage” to expose them, says Sue Thompson, a management consultant and executive coach in San Francisco who worked for 21 years as director of human resource development for Levi Strauss & Company. It’s especially difficult if the person causing problems holds power. “I may be willing to rat on someone who is my peer, but if it’s my boss or the peer of my boss, I’m probably going to weigh — is it worth it?”

Most people do not want to jeopardize their own position in the company, and are more likely to remain quiet if there is no safe place to air concerns. “In organizations where the HR [Human Resources] department or the legal department is effective, you can go to those places. But in many organizations, HR is not held in high esteem,” Thompson notes. “It’s a challenge, even if you want to surface something, to know where, who and how.”

Don Rossmore, a consultant in Los Angeles who has worked with companies such as MasterCard, Hewlett-Packard, Taco Bell, Apple and AIG to root out problems and improve performance, says it comes down to leadership. “When leaders do not want an issue discussed, it is not discussed,” he says. “When an issue is undiscussable, it cannot be managed rationally.” Rossmore has found that people who try to raise an “undiscussable” issue usually make one of two mistakes. Either they express blame or judgment, which increases stress and conflict, or they use ambiguous language, which enables people to avoid the problem.

In the Penn State scandal, assistant coach Mike McQueary testified that he never used the explicit terms “sodomy or anal sex” when reporting to then-football coach Joe Paterno an assault he allegedly witnessed in 2002. McQueary said he failed to be more explicit “out of respect” for Paterno. Paterno testified that he “didn’t push Mike to describe it because he was already upset,” and waited several days to tell his superiors. Former athletic director Tim Curley, now on trial for perjury along with former vice president of finance Gary Schultz, testified that he didn’t call police about the incident because he did not think it was a crime.

Penn State’s trustees fired Paterno and university president Graham Spanier in November after the university came under fire for how it handled the sex abuse allegations. Former defensive coordinator Sandusky has since been charged with more than 50 counts of child sexual abuse.

Speaking out about a difficult problem can be especially uncomfortable if it involves a group or individual held in high esteem. Penn State “deified” coach Paterno, says Scott Rosner, associate director of the Wharton Sports Business Initiative. Over the coach’s 45-year career, the football team’s success helped transform Penn State from an agricultural backwater to a nationally known university. Intercollegiate athletic departments usually generate between 4% to 5% of university revenues, Rosner notes. At Penn State, however, the athletic department took on an importance beyond the money it brought in. It came to operate in a “cocoon” with different standards and controls than the rest of the university, according to Rosner. “Theoretically, they were checked, but practically they were not…. They weren’t really answering to anybody.”

Fear of Taboos

The Penn State scandal seems to involve two conflicting taboos: damaging the Penn State football program and condoning child abuse, says Paul J.H. Schoemaker, research director of Wharton’s Mack Center for Technological Innovation. “It should be self-evident that protecting a boy from a sexual predator far outweighs protecting the school, and the more leaders seem confused about this, the more they would be deemed to have failed morally.”

Yet leaders often ignore signals they should heed because of unwillingness “to confront ‘repugnant’ ideas,” writes Schoemaker and co-author Philip E. Tetlock, a professor of management and psychology at Wharton and the University of Pennsylvania, in a forthcoming article in California Management Review titled, “Taboo Scenarios: How to Think About the Unthinkable.” “Fear can blind us,” they write. “It is often impossible for an organization to acknowledge the biggest risks it faces, including extinction or criminal indictments against multiple leaders.”

The key for leaders is to be very clear about which values rank highest and how conflicting taboos should be handled, Schoemaker says. “Without such moral guidance, those lower in the organization may be unsure what to do, even if it seems clear from the outside. The process of denial can be very subtle and afflict entire organizations or communities, and indeed even entire nations — for example, genocides in the former Yugoslavia or the internment of U.S. citizens of Japanese descent during World War II.”

Most experts agree that leaders must set the tone for the entire organization, work to elicit discussion about taboo topics and maintain transparency about how they respond to any concerns.

Companies should also establish metrics, routines, audits and incentives to help identify problems and suggest areas of change, says Wharton management professor Lawrence G. Hrebiniak, who has acted as a consultant to dozens of companies such as General Electric, AT&T, Microsoft and DuPont. When top management diligently works to measure performance, elicit feedback and respond openly to problems when raised, it can usually make progress, Hrebiniak has found. “Control systems are important to implementing strategy and identifying problems,” he says.

The caveat, of course, is that leaders need to pay attention to the facts. “In two cases, I’ve reported data to top management and they disinvited me from a strategic session,” Hrebiniak recalls. “Some of the problems that were identified seemed to suggest poor leadership from the top…. They didn’t want it to come out on their watch.”

When companies have a culture in which managers are “more interested in hiding things than solving problems,” there is little anyone can do to help, Hrebiniak says. “You need top management to react strongly. If they bury the stuff, they’re dead.”–END of K@W article

Take natural disasters. Hundreds of thousands of people lost their lives; millions were displaced; billions were severely economically affected. Direct physical losses from natural disasters between 2000 and 2010 were more than $1 trillion. Whether they hit some of the richest (Japan) or poorest (Haiti) countries, these disasters had severe and enduring social, economic and political impacts.

Our vulnerability to future catastrophes is not slowing down, but rather growing very fast. Why? Increasing population, concentration of asset and interdependence are to blame here. This year we reached 7 billion people on planet Earth, a billion more than we were in 1999. In the next 10 or 15 years, we will be 8 billion. A large portion of this massive increase lives in large cities, many of which are located in vulnerable areas. Unmanaged concentration of individuals and assets over a few kilometer-squares will be prone to large concentrated loss (think of a pandemic for instance). Finally, we continue to push for always more social and economic globalization such that we have now reached a degree of interdependence not seen before in human history. But in doing so we might have forgotten that there is flip side: risks are becoming more global, too. A catastrophe occurring today in one continent will likely have ripple effects on the others tomorrow.

So, unless we undertake concrete actions with measurable output to collectively make our countries more resilient to extreme events, many more will come, and soon to follow. More firms around the world have now recognized the importance of addressing the challenges associated with better assessing, preventing and managing such extreme events. Most governments have not, however. In the best case, risks continue to be managed in silo (when they are at all), each ministry feeling in charge of “its” risks, but not necessarily getting the big picture of more global interdependent risks, nor the impact that their decision in how manage one type of risk can impact others. This is surprising because governments’ exposure to catastrophes over the coming decades is in trillions USD, a worrying figure if your country is already running a large deficit or is virtually on the edge of bankruptcy. That’s precisely the worst possible time to have to manage another disaster. Moreover, the mismanagement of these risks has already proven to impact election results, too, which should be of concern for political leaders.
But it does not have to be that way. Every year, working with the World Economic Forum and several colleagues we prioritize 30-to-40 global risks with the potential to cause major human suffering and upwards of at least US$10bn in economic damage. We discuss these risks in the now widely disseminated WEF Global Risks Report, which has correctly identified the risks arising from an asset price collapse (January 2007) and from food crises (January 2008) before these events materialized, demonstrating that it is possible to think strategically about global risks.
Could the G20 have a constructive role to play here? I think it has. So what can be done? Along with several fellow Young Global Leaders we have proposed two concrete steps which could be implemented in the next 2 years if supported by enough political will.

Proposal 1: Establish a new National Risk Officer (NRO) within each G20 government.
This role would be similar to the Chief Risk Officer in the private sector. The office of the NRO would coordinate country-wide for forward-looking and comprehensive risk management. Specifically, the role spans:

• Identifying potential risks, particularly those that affect multiple government departments, in collaboration with experts and the private sector.
• Creating a National Risk Map that quantifies and prioritizes risks according to severity, uncertainty and inter-connectedness with other domestic and global risks.
• Facilitating dialogue between government entities and the public at national and international levels to ensure that major risks and the trade-offs between them are understood and appropriately incorporated into decision-making and policy.
• Making CEOs of top companies accountable for identifying risks and proposing solutions, facilitating exchange of information and people between the public and private sector.
• Fostering innovations from business and academia in order to develop solutions to reduce the probability of those global risks and their consequences.
• Coordinating governmental response in the event of a major catastrophe whose impact straddles the responsibilities of multiple departments.
• Develop ex ante a national strategy for catastrophe financing.

The role of National Risk Officer could initially be assumed by a senior staff member within a country’s finance ministry or in the president or prime minister’s cabinet. The NRO should have direct access to the leader of the government, potentially assuming a cabinet member position in the future. Several countries are currently considering this concept. We also suggest that 20 NROs formally meet as part of the G20 Summit process.
Proposal 2: Incorporate National Risk Mapping into the IMF’s Mutual Assessment Process.
The IMF‟s Mutual Assessment Process focuses primarily on economic and financial policies. As other global risks need to be addressed, a holistic approach to policy measures needed to better anticipate and manage those risks will become increasingly important for both national governments and the G20. The G20 can play a central role in sharing good practices, which could then be used in many other countries as well.
The Cannes summit has the potential to be remembered as an important one, not only by what is actually achieved there, but also by what novel ideas are introduced there. No question that it will also be seen by many top leaders in the government and industry alike, and by civil society, as a test for our capacity to redesign global governance, step by step. Not one single initiative will be able to achieve this, but the combination of several good ones could. Establishing NROs and building on the IMF mutual assessment process should help.

The idea can be further developed this coming year in collaboration with the government of Mexico, which will then assume the G20 presidency. 2012 will likely see important changes in the international political landscape, with national elections in China, France, India, Mexico, the US, and Russia, all members of the G20. But the clock is ticking. I predict that several other large-scale disasters will likely have hit us by the autumn of 2012.

* * *

NROs for Global Risk Management is one of the nine proposals that were developed for the French presidency, this year’s G20 Chair, by the ‘G20 Paris Initiative Task Force’ of the World Economic Forum’s Young Global Leaders community. Jill Otto (JP Morgan) and Kevin Lu (World Bank Group) also contributed to the proposal.

This column focuses on the emergence of large-scale catastrophes and crises and some of the policy issues related to how better manage them collectively. It proposes the creation of national risk officer positions in G20 governments to help coordinate national and international management of global risks.

Dealing with Extreme Disruptions
- Are We Ready for Anything? -

This edition of Asian Voices comes to you from a meeting of the World Economic Forum in Dalian, China. The disaster in Japan this past March had a great impact not only on Japan, but across the entire world. Disruptions in global supply chains reminded us again of just how connected global business has become. The incident at the Japanese nuclear power plants has compelled countries around the world to review their energy policies. Today, with the advance of globalization, we face the high risk that natural disasters, financial emergencies, and political instabilities in one part of the world can spark global crises. What can be done to prevent such crises? And what is the best way to respond quickly and appropriately when they do happen, while minimizing the risks? We have a panel of global business leaders and risk management experts ready to discuss these issues.

Guests:

Klaus Kleinfeld, Chairman and CEO, Alcoa, USA
Yorihiko Kojima, Chairman of the Board, Mitsubishi Corporation, Japan
Erwann Michel-Kerjan, Managing Director, Wharton Risk Center, The Wharton School, University of Pennsylvania, USA
Wang Feng Director, Brookings-Tsinghua Center for Public Policy, China

Presenter
Aiko Doden, NHK Senior Commentator

CLICK HERE FOR ACCESS

Conference Theme
In recent years, a series of extreme events have caused large economic shocks, created substantial political and social challenges, and raised the prospect of higher risk and potential dislocation in the future. The recent financial crisis, natural disasters, terrorist acts, technological accidents, outbreaks of contagious diseases, medical
advances impacting longevity are salient examples. The direct and indirect consequences of these extreme events depend critically on private and public sector actions, policies, and incentives that are in place before and after these events occur.

This conference will highlight the most recent research on a range of issues related to insurance markets and catastrophic risks.
Suitable themes for the meeting include:

Organizers
Ken Froot (Harvard Business School and NBER)
Howard Kunreuther (The Wharton School, University of Pennsylvania and NBER)
Erwann Michel-Kerjan (The Wharton School, University of Pennsylvania)

Emails: kfroot@hbs.edu; kunreuther@wharton.upenn.edu; erwannmk@wharton.upenn.edu

Selection Process and Audience
NBER Universities’ Research Conferences aim at presenting the best research on a given topic. In keeping with the NBER’s tradition, priority will be given to empirical research and theoretical work with empirical applications. We encourage submissions from researchers early in their careers and also from non-NBER affiliates. We also encourage practitioners in the industry and in government to submit papers or volunteer as possible discussants. Papers will be selected on the basis of abstract of about 500 words or a draft paper. Any research that will not be published at the time of the conference may be submitted.

The deadline for submissions is November 1, 2011. Authors chosen to present papers will be notified by December 1, 2011. There will be a possibility for the selected papers to be published in a special issue of a journal with an interest in this topic or in an edited volume. The conference will also be summarized in the NBER Reporter. Final drafts of the papers will be due at the NBER on April 13, 2012. The NBER will pay the domestic travel and hotel expenses for one author per paper, and for conference discussants.
To submit an abstract or draft paper, please go to:

http://www.nber.org/confsubmit/backend/cfp?id=URCs12

About the NBER
Founded in 1920, the National Bureau of Economic Research (NBER) is a private, nonprofit, nonpartisan
research organization dedicated to promoting a greater understanding of how the economy works. It is committed to undertaking and disseminating unbiased economic research among public policymakers, business professionals, and the academic community.
The NBER is the nation’s leading nonprofit economic research organization. Eighteen Nobel Prize winners in Economics and twelve past chairs of the President’s Council of Economic Advisers have been researchers at the NBER. The more than 1,100 professors of economics and business now teaching at colleges and universities in North America who are NBER researchers are the leading scholars in their fields. These Bureau associates concentrate on four types of empirical research: developing new
statistical measurements, estimating quantitative models of economic behavior, assessing the economic effects of public policies, and projecting the effects of alternative policy proposals.

“The world has entered a new era of catastrophes. Economic losses from hurricanes, earthquakes and resulting tsunamis, floods, wildfires and other natural disasters increased from $528 billion (1981-1990) to more than $1.2 trillion over the period 2001-2010. The 9.0 earthquake and massive tsunami in Japan this past spring caused hundreds of billions of dollars of direct and indirect costs. It has affected the Japanese macroeconomic forecast and resulted in the departure of the then-prime minister. And before this, massive earthquakes in Haiti, Chile and New Zealand inflicted record human and financial losses as well.

Despite being the richest country in the world, America is still highly vulnerable to natural disasters. Two principal socioeconomic factors directly influence the level of economic losses due to catastrophic events: exposed population and value at risk. Florida, for example, has seen its population grow from 2.8 million inhabitants in 1950 to 18.8 million in 2010 (+570%). Increased population and development means an increased likelihood of severe economic and insured losses in Florida and other hurricane-prone regions unless cost-effective mitigation measures are implemented and the risk properly hedged.

So, when an unexpected earthquake was felt on the East Coast, followed by Hurricane Irene, those of us who have been tracking extreme events for years knew what would likely happen.

First, the Administration in Washington would have learned the lessons from the 2005 Hurricane Katrina debacle. Evacuation would have to be required and enforced. The president, the heads of FEMA and DHS, along with local, state and federal officials in charge of disaster management would have to be on the front line very early. The presence of true professionals would matter a great deal. Furthermore, this effort and a well-articulated crisis management strategy would have to be relayed and clearly explained by leading media outlets.

That is the way it happened…..”

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