The UK economy could financially withhold a major natural disaster or terrorist attack for just one week, a Clatham House study suggests.
After this time the economy would begin to crumble, with rapid inflation and businesses failing. The report, titled ‘Preparing for High-impact, Low-probability Events: Lessons from Eyjafjallajökull’ said that if businesses want to change this situation they face a drop in short-term profitability.
In the report Clatham refers to the under prepared economy as a ‘just-in-time’ mentality.
Bernice Lee, one of the authors of the report, said, “The frequency of high-impact, low-probability (HILP) events in the last decade such as Hurricane Katrina, the Deepwater Horizon oil disaster and the nuclear crisis and tsunami in Japan signals the emergence of a new ‘normal’ – the beginning of a crisis trend. Industries – especially high-value manufacturing – may need to re-consider their just-in-time business model in an interdependent world.
“Contingency and business planning often assumes the return of status quo ante post-crisis. But this approach will be inadequate in a world of complex economic and social risks, when there is no return to business-as-usual practices.
“Slow-motion crises like climate change and water scarcity will also bring additional risks and vulnerabilities, and experts agree this trend is only set to continue.”
Chatham House interviewed key business leaders and experts while also undertaking an in depth case study of the 2012 Iceland volcano eruption, drawing out critical lessons in order to better prepare and respond to other crisis events.
When asked about the event, which cost the EU between 5 and 10 billion Euros, 50% of those companies that faced a significant problem due to the closure of airspace did not have this risk on their register in advance – and for those that did, one week was generally the longest period that had been considered during planning.
The report also looked at how governments and businesses could become more resilient in the face of HILP events, covering areas such as communication, transparency, insurance, investment, training, cost and impact analysis.
A copy of the report is available on the Clatham House website.
