VOLCANOES AND ECONOMICS

I am not a vulcanologist, but I suspect that the Icelandic volcano with the unpronounceable name has already put a spanner in the world's post-financial crisis economic recovery.

By that, I don't just mean the immediate economic cost, which has been severe. To give but one example, my son was in the U.K. last week, due to fly home to Denmark on Sunday on a 90-minute, £50 Ryanair flight. Starting at 6am, he and a couple of others took a bus to Brussels, a train to Cologne, and then a train to Hannover, arriving in the evening. There they were picked up by car, and driven up to Jutland. He then took a train to Odense, where I fetched him at 6.30am. Magnify the extra costs of that trip by thousands, perhaps hundreds of thousands, of people in a similar situation, and you get a big number. The Danish airlines SAS and Cimber, financially weak to start with, have already asked for Government help. Tour operators, or their insurers, are also suffering. The only people with smiles on their faces seem to be taxi drivers, willing to drive from Denmark to Paris, or Brussels to Moscow.

Everybody is of course hoping that the volcano will eventually settle down, and life can go back to normal. However, I don't believe that it will or can. The whole underlying theme of globalisation is that goods are produced where it is cheapest to do so and consumed where they are most wanted. That idea, ratcheted upwards by just-in-time inventory management, puts a huge premium on efficient logistics. Most of those goods travel by sea; but a surprising proportion goes by air. The whole development model for East Africa, for instance, depends on air freight. Natural energy, cheap labour and (ironically) good-quality volcanic soil give the region a comparative advantage in growing flowers, beans and other high-value horticulture, that rich Europeans are willing to eat/look at, but poor Africans cannot - yet - afford. Horticulture already represents 20% of Kenya's economy; without air links out of Nairobi, the value of that produce is virtually nil. It is possible, of course, that the volcano in question will never erupt again and that air travel will continue its hitherto relentless upward rise. But even if that prognosis is correct, what entrepreneur would want to bet on it?

On a more philosophical note, the events of the past week have brought home once again the fragility of our existence on this planet. Whether it be tsunamis in South East Asia, earthquakes in Haiti and China, volcanoes in Iceland or even flooding in Western France, mankind seems to be just as helpless in the face of natural forces as it was in the time of Noah.

Walter Blotscher