Wednesday, 10 February 2010

Seismic economics

Three massive calculations caught my attention in the past few days. First up, Jean-Max Bellerive, Prime Minister of Haiti, who says more than 200,000 people died in the catastrophic earthquake that devastated the Caribbean island on 12 January. Bellerive also says 300,000 were injured and 4,000 lost one or more limbs. Over 250,000 houses and 30,000 businesses were destroyed. 

Worse still, the earthquake devastated a country with a population three times larger than Jamaica but with less than half of Jamaica's economic output. Bellerive didn't put a cash figure on the destruction. "In terms of figures, it is disaster on a planetary scale," said Bellerive.

The second calculation comes from Los Angeles' money men who have calculated that California earns $100 billion every year from agriculture, oil and tourism that are the by-products of its earthquake prone geology. "California gets struck by a hugely destructive seismic shake every 100 to 150 years," says geologist Iain Stewart. The number crunchers in Los Angeles, Stewart adds, have calculated that "a major earthquake would cause up to $250 billion worth of damage, a huge sum. But averaged out over a century, they're still in profit, with $100 billion coming in every year versus a one-off hit of $250 billlion. That's a gain of forty to one. Any economist will tell you, that's a pretty decent return."

A smaller but similarly mammoth calculation has been attempted to analyse the cost benefits of Crossrail, the east-west rail link that will tunnel under London with a budget ceiling of £15.9 billion and which is scheduled to start operating trains in 2017.  Joe Weiss, transport projects director for the Corporation of London, (that's the local authority for the area known as the City of London, not the wider city of London), has calculated that Crossrail's costs could be outweighed by profit for the Treasury accrued from tax revenues generated by the new railway.

Weiss assumes Crossrail's enhancement of London's transport links will enable businesses to create 150,000 new jobs across London and south-eastern England. "That produces an extra two billion per year in tax revenues for the Treasury," says Weiss. Each of Crossrail's estimated 200m passenger journeys per year will generate a £1 per profit once operating costs are taken out. After ten years, Weiss goes on, Crossrail will have generated £2 billion in taxable fare revenue profits. 

Income from the sale and leasing of new offices being built in Canary Wharf, largely as result of Crossrail radically improving transport links to the area, will also be be taxed. "It's not unreasonable to expect over ten years an annual £0.6 billion from taxes on rentals alone and another £0.4 billion from the non-domestic business rate," Weiss continues. 

Hey Joe! Just give us the bottom line? "So in ten years, in real money, the government might see £23 billion back from the maximum of £15.9 billion committed to Crossrail," concludes Weiss.

Top photo: Haiti street scene (Courtesy of New York Times).
Middle: Designer's section impression of Crossrail station at Canary Wharf, east London (Courtesy of Crossrail).
Below: Blue line shows Crossrail route through central London on model of city.

Paul Coleman, London, February 2010.

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