Crisis, Safety, and Standards

It is often only after the horrific event that the standards and regulatory systems necessary to create a resilient safe society finally fall into place.

So some standards emerge out of post-crisis analysis. My favorite is the standards for bricks after Boston had a fire. Another classic example was a fire in Baltimore that lead to the adoption of national standards after the neighboring communities arrived only to discover that their hoses couldn’t hook up with the fire hydrants in Baltimore. After a series of recessions showed how brittle the US car industry was the Society of Automotive Engineers was able to introduce standardized parts so the supply chain had more redundancy built into it.

This story about how the San Francisco earthquake set in motion a series of events that lead to a worldwide recession and finally the creation of the Federal Reserve can be added to my collection.

… London fire-houses insured San Francisco during this period. The payment of claims by British insurance companies following the quake and fire produced a large capital outflow in the fall of 1906, forcing the Bank of England to nearly double interest rates and discriminate against US trade bills. These actions pushed the US into a recession and made markets vulnerable to shocks that otherwise would have been transitory in nature. World financial markets crashed in October 1907 …

There is what appears to be a precursor of that paper here, outside the peer reviewed journal garden walls.

The quake triggered some significant capital flows. Money flowed into the city from insurance claims, yes. But money also flowed in because the quake destroyed capital investments and created an green field that was inherently attractive to fresh capital. Presumably there are some very attractive investment opportunities left behind by Katrina. Finally these capital flows created new connections (knowledge, relationships, etc) and additional capital flowed into the region; what the paper calls sympathy capital.

Some firms left San Francisco entirely; which was good for Los Angeles. I’ve been wonder what New Orleans institutions other cities might now be courting.

0 thoughts on “Crisis, Safety, and Standards

  1. Mark A. Hershberger

    I’m not sure New Orleans has much left to give. The Oil and oil services companies left in the 80s and 90s. MMS is still in the NOLA area, but even they’ve been shrinking. (Oil refineries might stick around, though, since they have a lot of pipes already laid.)

    Warehouses could go. Coffee importing, for example, has been moving slowly from NOLA to Houston.

    If the Quarter survived relatively unscathed, I’m sure they’ll still have Tourism, but, really, that should just die.

    There’s a number of lawyers (LA Supreme Court as well as a Federal Court are in NOLA) and a number of doctors (some of the best hospitals in LA, which isn’t saying too much).

    There’s a couple of large payroll operations that could probably be moved pretty easily.

    If Los Angelos benefited from San Francisco’s loss, then maybe Baton Rouge (whose population has doubled) will benefit from NOLA’s loss.

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