Chapter 1: Why the Economy Decides Recovery¶

On January 17, 1995, at 5:46 a.m., a magnitude 7.3 earthquake struck the Kobe region of Japan. It killed 6,434 people and destroyed more than 200,000 homes.

In Nagata ward, on the coast, small workshops making synthetic leather shoes had long been clustered together. According to the Japanese sources cited by a study from the research institute of the Japan International Cooperation Agency (JICA), they formed an industrial district: about 450 manufacturers, some 1,680 related businesses, 15,000 jobs. The earthquake destroyed 90% of these businesses in whole or in part. Some of the losses came from the fires that followed the shaking: these workshops worked with products like paint thinner, which is highly flammable. The sector's losses were estimated at 300 billion yen.

One year later, according to a case study published by UN-Habitat, the city had already repaired a great deal. The three rail lines were running, the expressway and the bridges were back, the large industries had resumed, and the port was operating at 70 to 80% of its former capacity. The small manufacturing businesses, on the other hand, were still producing only half of what they had produced before the earthquake. Three years later, Nagata had lost more than 30% of its residents.

By 2004, Kobe had regained its pre-disaster population. Its output too. Seen from above, the city had recovered.

Nagata had not. The city's industrial employment never returned to its former level, and the drop was steepest in this ward. In 2010, according to the shoe industry association cited by the same JICA study, member companies sold about 45 billion yen worth of goods, against 70 billion before. They employed fewer than 3,000 people, against 6,500.

The city got its residents back. The neighborhood did not get its industry back.

What the scene teaches¶

The author of the JICA study draws an observation from Kobe that any business owner understands without explanation. After a disaster, he writes, some residents leave, settle elsewhere, and find work there; their children change schools; and the more time passes, the less likely they are to come back. "Here, the job is the key to people's movement," he goes on: in the medium- and long-term reconstruction phase, work decides where people go. "Jobs give income for people to spend, and then local stores can start to sell products." Without these two cogs, he says, no economy succeeds in its recovery.

Three lessons follow for your club.

First: an average can hide a dying neighborhood. Kobe regained its population and its output in nine years. A review report that stopped at those two curves would call it a success. Yet in one ward of the same city, a fabric of small workshops lost more than half its jobs. Recovery is judged at the level where people live: a street, a market, a trade.

Second: rebuilding the buildings is not enough to bring the activity back. Nagata's workshops did not just lose machines. They lost customers, workers who had settled elsewhere, subcontractors who had closed. A workshop rebuilt on an empty street is still a workshop with no orders.

Third: time works against the small ones. One year after the earthquake, the large industries had resumed; the small businesses were running at half speed. Every month of shutdown drains a small workshop's cash, scatters its workers, and pushes its customers toward other suppliers. A large company often has the reserves to wait; a small workshop rarely does.

These three lessons make up the thesis of this book. After a disaster, what decides whether a community recovers or empties out is not the amount of aid it receives, but how fast its own incomes, markets, and businesses start running again. The rest of this chapter shows why, based on what studies and international standards have established.

Incomes first: why a community stays or leaves¶

The official guide on employment in post-disaster needs assessments (PDNA, Volume B) states the principle bluntly: "Rapid economic reactivation is the best way to create genuine jobs, getting people out of relief as soon as possible." The same guide points out that for a household, labor is "arguably its most important asset."

When work does not come back, people leave. After the 2015 earthquake in Nepal, the International Labour Organization (ILO) office in the country wrote that without the restoration of livelihoods, migration would become families' main survival strategy. In Christchurch, New Zealand, about 65,000 people, or 17% of the population, left the city after the earthquake of February 22, 2011, most of them temporarily according to the authors; the researchers who observed the first month saw a direct risk to retail and service businesses. In Türkiye, after the February 2023 earthquakes, the official assessment counted nearly two million people who had left the region and reported it to the authorities.

Every resident who leaves is one less customer for the bakery and one less worker for the workshop, and every shop that closes gives the remaining residents one more reason to leave. That is the mechanism your club is trying to stop.

Losses last longer than damage¶

In Kobe, the damage suffered by industry was estimated at about 5 trillion yen. Half of it was direct damage to premises and equipment; the other half was indirect damage such as business closures. In other words, what the disaster prevented from being produced and sold weighed as much as what it had broken.

Chapter 3 gives this distinction its vocabulary (damage, losses, needs) and its method. For now, keep the essentials in mind: a machine can be replaced in a few weeks if you have the money; a lost customer base, a supplier gone out of business, or know-how that left with its workers takes years to rebuild, when it rebuilds at all.

Who loses first¶

Losses do not fall at random. They hit first those who have no guaranteed wage, no reserves, and no insurance.

The self-employed and the informal sector. In Haiti, the 2010 official assessment notes that independent artisans, 44% of the production sector, were the hardest hit. In Türkiye, in 2023, undeclared employment accounted for about 39% of employment in the affected region; the official assessment estimated that about 700,000 undeclared workers in the five hardest-hit provinces could remain out of work for two quarters, beyond the reach of job protection measures.
The smallest businesses and women. In Beira, Mozambique, after Cyclone Idai in 2019, a study of manufacturing businesses found that microenterprises, women-owned businesses, and tailors were among the hardest hit, while construction businesses saw no significant drop in revenue.
Small neighborhood shops. They live off customers who live within walking distance. When the neighborhood empties, they lose their market before they have even been able to reopen.

Chapter 3 explains how to find these people in your area. Here, one consequence is enough: a club that helps "the local economy" in general will mostly help those who already know how to ask for help. The others have no storefront sign and no address in any register.

People restart before the aid arrives¶

One common belief that the sources contradict concerns the affected people themselves. We picture them waiting for aid. Many do not wait.

The official damage and needs assessment carried out in Haiti after the earthquake of January 12, 2010 says it in so many words about trade and small-scale craft production, "made up of a myriad of self-employed workers who, because of the meager means with which they normally operate, were in a position to restart their activities after a stoppage of a few days" (our translation). The introduction to this book showed the market women coming back down to the capital's markets in the very first days. The focus groups later organized by Fonkoze, the country's leading microfinance institution, report the same thing: many clients had already restarted a small business in the days and weeks that followed, because they urgently needed income (Chapter 6).

International standards draw a rule from this. The 2008 guidance note on early recovery, published by the working group of humanitarian agencies, gives recovery three objectives; the second is to "support spontaneous recovery initiatives by affected communities."

For your club, the consequence is practical. Before designing a project, look at what has already restarted, and ask what is keeping the rest from following. The most useful aid supports momentum that already exists; the most harmful short-circuits it, for example by handing out for free what the merchants who have reopened are trying to sell (Chapter 5).

What closes a shop: its surroundings¶

When a shop does not reopen, people first think of the destroyed premises. The surveys say something else: often, what surrounds the shop is what keeps it from working.

In Puerto Rico, after Hurricanes Irma and Maria in 2017, the Federal Reserve Bank of New York surveyed small businesses from March to May 2018. Among those that had suffered losses, 51% named the lack of electricity among their main difficulties. Most had resumed: 73% were fully operating, 25% had closed temporarily, 2% permanently. And among those that had closed, temporarily or not, 71% had done so for lack of electricity, water, or transportation; damage to the building came next (42%), then a lack of customers (38%). The bank itself acknowledges a limit: businesses that disappeared rarely answer surveys, so its results very likely understate the impact of the hurricanes.

In Christchurch, the university team that observed the first month after the earthquake of February 22, 2011 found the same thing. More than forty roads, road sections, and bridges stayed closed for more than two weeks; access to some coastal neighborhoods was restricted to residents, "making it impossible for many customers to reach businesses that were attempting to remain open." Very few small businesses were equipped to cope with power outages; where the power was out for several days, cafés, restaurants, and corner stores threw away thousands of dollars' worth of stock. Hair salons, with no water, could not serve their customers.

The lesson is simple to state. For a shop, the first asset lost is sometimes a service: power, water, the road, the customer who can no longer get there. A grant does not fix a power outage. Chapter 3 teaches your club to record, for each business visited, "the main obstacle"; Chapter 9 shows what a club can do when that obstacle is collective.

One caveat is in order. Puerto Rico, Christchurch, New Orleans, and Japan are formal economies, widely insured, with a strong state. Their surveys are the most precise we have, but their figures do not transfer as is to a Port-au-Prince slum or a village in Sindh. The mechanism, however, does transfer: no one reopens a shop that nobody can reach.

A business reopens if its neighbors reopen¶

The most useful finding for a club comes from New Orleans after Hurricane Katrina in 2005. A team of researchers recorded every week, for a year, the status of 673 businesses along three major streets in the city: closed, open, partially open, relocated. They were thus able to measure the effect of the neighbors' decisions on each business's own decision.

The effect is clear. In the first three months, each foot of water (about 30 centimeters) in the premises reduced the probability that a business would reopen by 4.8%. But, the authors write, "if you had a foot of flooding and none of your neighbours had reopened, the probability that you will decide to reopen decreases not by 4.8% but by 7.8%." The decisions of merchants on the same street are not independent. Each one watches what the others do.

The same study finds that sole proprietorships, often family businesses, were 16% more likely to reopen in the first three months than national chains, and that they raised their neighbors' probability by about 10%: a total effect of about 26%. The authors explain it by family labor, pride, and the fact that the business is often the family's only income. After twelve months, 478 of the 673 businesses had reopened.

A second study, of 1,358 businesses in the same city, confirms the phenomenon and sums it up in a phrase: "Do what your neighbors do" appears to be a decisive factor in the decision to reopen, especially during the first nine months. Its authors recall why: after a disaster, businesses suffer from fewer customers because people are displaced, from lower purchasing power, and from a shortage of labor. They draw a recommendation from it: business assistance policies must take into account both this neighborhood effect and the return of residents. Chapter 3 comes back to the time window this study brings out.

Japan offers the same lesson in one sentence. About the shopping streets destroyed by the 2011 tsunami, the JICA study on Kobe notes: "There is no point in opening a store that is isolated from other stores."

For your club, this changes how you choose whom to help. Helping ten shops scattered across ten neighborhoods has less effect than helping ten shops on the same street, which send customers to one another. Reopening the first shops on a street sends the others a signal their owners are waiting for. Chapter 9 turns this observation into a method.

When reconstruction becomes the economy¶

One last dynamic often traps disaster-affected communities. Reconstruction itself creates activity: building sites, hiring, purchases of materials. For two or three years, it can create the illusion of recovery. Then it stops.

In December 2007, three years after the tsunami, the Multi Donor Fund for Aceh and Nias, in Indonesia, warned in its progress report that the economy of the two regions risked stagnating, and unemployment rising, once reconstruction was no longer driving it, unless economic recovery received strong support right away. Chapter 14 cites this warning and shows what it means for a project's exit. For now, remember that a building site is temporary activity, which must leave behind businesses, skills, and markets able to run on their own.

The principle: restarting incomes on three tracks¶

International organizations have put these findings into a framework. The most useful one for a club is the three-track model, designed originally by the United Nations for post-conflict employment, then carried over to disasters by the ILO in its Employment and Decent Work for Peace and Resilience Recommendation, 2017 (No. 205), adopted on June 16, 2017. Paragraph 8 of its official text asks Member States to adopt strategies that include:

"(a) stabilizing livelihoods and income through immediate social protection and employment measures";
"(b) promoting local economic recovery for employment and decent work opportunities and socio-economic reintegration";
"(c) promoting sustainable employment and decent work, social protection and social inclusion, sustainable development, the creation of sustainable enterprises, in particular small and medium-sized enterprises, the transition from the informal to the formal economy."

Stabilize incomes, restart the local economy, build lasting employment: the three tracks start together, but their intensity shifts over time. Chapter 2 shows how, and who carries each one.

Two clarifications prevent misunderstandings. First, the Recommendation is addressed to states; it creates no obligation for a club. It provides a common framework in which your project can fit and be understood by the authorities and the agencies. Second, the framework is young for disasters: in 2016, the ILO still acknowledged that the United Nations system had no common framework for post-disaster employment comparable to the one that existed for post-conflict settings. The 2017 Recommendation partly fills that gap.

A club almost never acts on the third track, which belongs to national policy. It can contribute to the first, through partners (Chapters 6 and 7). Its real place is in the second: recovery of the local economy, at the scale of a neighborhood, a trade, a town. That is the subject of Part III.

flowchart LR
    AV["BEFORE<br/>know your risks<br/>prepare the community<br/>(the disaster guide)"]
    PE["DURING<br/>relief, shelter,<br/>first days<br/>(the disaster guide)"]
    AP["AFTER<br/>restart incomes,<br/>markets, businesses<br/>(this book)"]
    TO["ALWAYS<br/>economic development<br/>in normal times<br/>(the CED guide)"]
    AV --> PE --> AP --> TO
    TO -->|"next disaster"| AV

This diagram places this book within the trilogy. The disaster guide covers before and during; the CED guide covers economic development in normal times; this book covers the after, from the end of relief to two or three years later. The return arrow matters: a club that practices economic development in calm times already knows the merchants, lenders, and cooperatives it will need the day everything stops (Chapter 15).

What the club does: why a Rotary club is well placed¶

After Katrina, a 2008 survey of small businesses in New Orleans and Biloxi asked their owners which organization had had a positive effect on their recovery. The most frequent answer, 47%, was "none." 13% named an association or a charity, 8% the Federal Emergency Management Agency, and public bodies at all levels together accounted for 32% of responses. Three years after the disaster, in one of the richest countries in the world, nearly half of small business owners saw no one who had helped them.

There is a place here, and a Rotary club has what it takes to fill it.

Club asset	What it makes possible after the disaster
Network of business owners and professionals	knowing who sold what, to whom, before
Management skills	reading accounts, judging a restart plan
Knowledge of the area	spotting forgotten streets, trades, and people
Lasting presence	staying when the agencies leave
Access to Rotary	district, Rotary Foundation, action groups

The last asset is not the least. An international humanitarian organization arrives with the disaster and leaves when its funding ends. The club was there before and will be there after, even if the disaster hits it too: some of its members are affected, others leave along with part of the population. The club is the one that can sustain a project over two or three years, provided it organizes itself to get through the annual change of club president (Chapter 11).

International standards also explicitly open the door to this kind of actor. ILO Recommendation 205, in Paragraph 25, asks states to recognize the role of employers' and workers' organizations in crisis response, in particular in helping sustainable enterprises, especially small and medium-sized ones, to plan business continuity and get through the crisis through training, advice, and material support, and in facilitating their access to finance (clause (a)). A Rotary club is not an employers' organization in the sense of the text. But it brings employers together, and the role described is exactly the one it can play locally. In Christchurch, it was the Canterbury Employers' Chamber of Commerce that appointed a coordinator to find vacant commercial premises and help businesses relocate.

What the club is not¶

Knowing your strengths means knowing your limits. Three confusions are costly.

The club is not a bank. It does not lend itself. It funds, checks, and supports a professional lender who knows its clients (Chapter 6; this is already the rule in the CED guide).
The club is not a humanitarian agency. It does not run relief, which belongs to the emergency services and specialized organizations; the disaster guide covers what your club does during that period.
The club is not the reconstruction authority. It decides neither urban plans nor public aid. It fits into what the authorities lead (Chapter 2).

What the club is, on the other hand, comes down to one verb: it reconnects. It puts a merchant back in touch with a supplier, a cooperative with a buyer, a seamstress with a lender, a street with its customers. It does not replace the existing economy; it helps it get moving again.

The pitfalls¶

Pitfall	Why it happens	Remedy
Judging recovery by citywide averages	overall figures are published first	look at streets, trades, neighborhoods
Rebuilding premises without restarting activity	the building is visible, the customers are not	check customers, suppliers, workers, services
Helping scattered shops	requests are answered one by one	concentrate aid on one street or trade
Ignoring what has already restarted	you arrive with a ready-made project	start from the existing momentum
Forgetting the informal sector and women	they appear in no register	look for them on the ground (Chapter 3)
Mistaking the building site for an economy	reconstruction hires and buys	prepare what will remain after (Chapter 14)
Transferring a rich-country figure	the big surveys come from insured countries	keep the mechanism, not the figure
Replacing instead of reconnecting	giving seems faster	first ask who did it before

A subtler pitfall lies in vocabulary. A club will readily say it "helps disaster survivors rebuild." That phrase puts the club at the center and the survivors in a waiting position. The cases in this chapter show the opposite: people restart on their own, merchants watch one another, and aid matters when it arrives in the right place, at the right time, to remove what is blocking.

What your club takes away¶

This chapter does not yet add a piece to the recovery file: it sets out the reason the file exists. Every piece that follows, from the assessment form to the exit plan, serves a single goal: that the incomes, markets, and businesses of your area start running again fast enough for people to stay.

Nagata was rebuilt. Its workshops did not regain their place, and Kobe recovered without them. For things to go differently where you are, you first need to know who does what, and when, among the relief services, the authorities, the agencies, and your club: that is the question of the next chapter.

Checklist¶

The club knows what has already restarted in its area, and what is keeping the rest from following
Collective obstacles (electricity, water, access, customers) have been distinguished from each business's own needs
The self-employed, the informal sector, women, and the smallest businesses have been sought out, not waited for
The planned aid is concentrated on one street, market, or trade rather than scattered
The club has checked that it is not replacing an existing local actor
The club has identified what its members bring (network, management, knowledge of the area, staying power)
The club has written down what it will not do (lend itself, run relief, lead reconstruction)
The project is planned over two or three years, beyond the end of the building work