Crisis in Japan: What Will the Costs Be?

It may be years before the costs -- human and economic -- of the devastating earthquake and tsunami on March 11 in Japan are fully known, but they will be enormous. With thousands feared dead throughout the northeastern part of the country and officials scrambling to contain a nuclear disaster, there are now more questions than answers. Knowledge at Wharton asked four experts to share their thoughts about the impact of the disaster.

It may be years before the costs — human and economic — of the devastating earthquake and tsunami on March 11 in Japan are fully known, but they will be enormous. With thousands feared dead throughout the northeastern part of the country and officials scrambling to contain a nuclear disaster, there are now more questions than answers. Three days after the major earthquake hit, Knowledge at Wharton asked four experts to share their thoughts about the impact of the disaster and how the grief-stricken country can begin to pick up the pieces.

In the days and weeks before March 11, Prime Minister Naoto Kan and his governing Democratic Party — in power for less than year — were already juggling a multiplicity of challenges. No longer the world’s super economy that it was some 20 years ago, Japan was confronting the harsh reality of a country losing its competitive edge. Having been in and out of recession several times since the beginning of the 1990s, it has been struggling to leave behind a decade of morale-sapping deflation. The sense of malaise had a number of other components, including a weak consumer economy, a workforce struggling to find secure employment and a political system chronically failing to achieve reform. There was also the reality of an aging population and a demographic decline.

In this special package of interviews, Wharton experts explore where Japan — and indeed, the world — goes from here. First, finance professor Franklin Allen offers his thoughts on the key factors that could affect Japan’s business and economic recovery. Next, Howard Kunreuther, professor of decision sciences and business and public policy, is joined by Erwann Michel-Kerjan, managing director of Wharton’s Risk Management and Decision Processes Center, to size up the lessons risk managers and other corporate executives need to take away from the earthquake and its aftermath. Finally, Jean Lemaire, professor of insurance and actuarial science, discusses what he sees as the disaster’s global impact on the insurance industry and its ability to protect policy holders when future disasters strike.