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Thailand floods disrupt global supply chains

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Damir Sagoli/Reuters

(Read caption) Anusorn Adirekkittikun's eight-year-old son, Korn, climbs on the tricycle he designed and built to move through water in a flooded neighborhood near Chao Phraya river in central Bangkok October 28, 2011. Traffic clogged roads out of the Thai capital Friday as tens of thousands of people fled ahead of a high tide expected to worsen floods that have inundated factories and prompted foreign governments to warn their citizens to stay away.

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People are well aware of the Thailand floods. The WSJ is reporting that a consequence of such floods is that global supply chains are being disrupted. For profit firms have strong incentives to sign contracts with intermediate input suppliers who are not risky in terms of delivering promised products.

Why does this matter? Suppose that you are a political leader of Thailand and you gain if your nation's firms sign more international agreements to participate in global supply chains. If you know that damage from natural disasters endangers these contracts (as Multinational Western corporations seek out safer locations to purchase inputs from), then you have strong incentives to adapt to natural disasters.

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This is the logic of Climatopolis! Self interest, not green ideology, guides the urge to adapt. I predict that Thailand's firms and governments will make a series of self protective investments to reduce flood risk exposure. What will be the net effect of these investments? How much flood risk can be offset? We will see.


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