Where SARS Stands on the Disaster Scale

A Wharton specialist says the epidemic's effect on Hong Kong's businesses is akin to a terror attack or earthquake, but with wrinkles

By Bruce Einhorn

With its hotels empty and the airport quiet, Hong Kong's economy is getting hammered by severe acute respiratory syndrome (SARS). It's so bad that many people have said SARS is to Hong Kong what September 11 was to New York -- a sudden, unexpected event causing death and economic paralysis. While the sheer number of deaths is nowhere near September 11's toll, the economic impact is all too similar.

I recently spoke to Howard Kunreuther, an expert in how companies cope with disasters, to see if Hong Kong companies can learn any lessons from how others have coped with such catastrophes. Kunreuther is a professor of decision sciences and public policy in the Operations & Information Management Dept. of the University of Pennsylvania's Wharton School, and he spends much of his time trying to understand how companies deal with terrorism and natural and technological disasters. Edited excerpts of our conversation follow:

Q: How is the impact of SARS like that of a terrorist attack?


Fear, ambiguity, and uncertainty are the kinds of things that businesses just don't like. Things come to a grinding halt [because] everyone is extraordinarily concerned that nobody knows what will happen next. After an event when there's enormous uncertainty...fear is created. September 11 had that effect. It's not all that different with respect to SARS. People will be concerned, paralyzed.

Q: What impact does that have in the short term?


The reverberations on the Asian economy will be enormous. The more uncertainty you have, the harder it is to function.

Q: And how long will that last?


As you move over time, the concerns will be dissipated. Over a period of weeks or months, there will be some feeling that one will have to go on with one's life, because it gets too costly. That happens after every kind of event. Some degree of normalcy has to be reached.

Q: Many people accuse Beijing of covering up the severity of SARS in China. What impact do you think that has on how people are reacting?


The issue on the China situation is: Are you really going to be getting correct information? When people are concerned that they're not getting correct information, that makes things worse.

Q: You look at how businesses cope with natural disasters -- for example, earthquakes -- as well as man-made ones such as terrorist attacks. How does SARS compare?


In a natural catastrophe, it's over, it's done. Prior to a disaster, people feel, "It can't happen to me." [Before the crisis, people don't pay] much attention to the possibility of a disaster.

After the event, people want protection. They buy earthquake insurance after an earthquake, when the chances [of another one] are lower. That's a real difference with terrorism. With terrorism, it's not over. After terrorism, people want reassurance, something to give a sense of security.

Q: What's different about SARS?


There's a major difference. With SARS you know exactly what [the disaster] will be: It will be people catching the virus. And with SARS, you know that things are happening -- it's a question of how quickly it will spread, or will it be contained?

Q: How does this SARS outbreak compare to other outbreaks you've seen in terms of economic impact?


I don't remember anything quite like this, at least in recent years. Not this kind of fear. I can't remember any remember any epidemic that has had the impact on business this way.

We are dealing with something new. It's rapidly spreading, unlike AIDS. And it's affecting a fairly wide region and one that has [competitive] alternatives. [Foreign companies] don't have to deal with Hong Kong. There are options here.

Einhorn covers technology from Hong Kong for BusinessWeek. Follow his weekly Online Asia column, only on BusinessWeek Online

Edited by B. Kite