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Tiny island, global impact

April 22, 2010 at midnight
Updated April 21, 2010 at 11:22 p.m.


By Ray Perryman

Few, if any, could have imagined before last week that a volcano buried underneath a glacier with an almost unpronounceable name on the tiny island nation of Iceland would cause such consternation from the eastern shores of Canada westward to Russia. Even heads of state and rock stars had to change their plans, not to mention the hundreds of thousands of travelers stranded around the world.

The 5,466-foot volcano Eyjafjallajokull spewed so much ash in the air that it caused the grounding of airplanes across much of Europe, temporarily preventing people (including more than 40,000 Americans) from reaching their desired destinations. It also stymied air deliveries of services and products ranging from food to flowers, from essentials to electives. Delivery failures negatively impacted businesses not only in Europe, but in countries that ship to and receive from that part of the world on a daily basis. Given the complex interactions of the global economy and modern practices of supply chain and inventory management, a significant disruption anywhere is generally felt everywhere.

Moreover, tens of thousands of people who work at airports cleaning, cooking, refueling aircraft, manning parking areas, etc., also saw their workloads diminish with corollary losses in pay. In other airports, personnel struggled to keep up with the needs of unusual crowds.

As the dilemma grew, travelers in England and several northern European countries spent an exhausting amount of time in long lines at airports until delays turned into cancellations. Hotels and motels then quickly filled to capacity forcing hundreds of people to camp out at airports on cots.

With air service out of commission in so many countries, travelers had to rely on other means of transportation, from railroads to ships to taxis. Sports contests were delayed or rescheduled. A private flotilla braved the waves of the English Channel to help people get back to Britain. This mission was eventually taken over by Britain's royal navy.

With apology to Winston Churchill, it seemed that never before in human history had so many people been impacted to such a large degree by a single incident of nature over which no one had control.

Although most airspace bans have now been lifted, the economic toll of this past week of disruption tallies into the hundreds of millions, perhaps even more than a billion dollars, with the majority of it falling on the wings of the airline industry.

So, is it over? No one knows. On Monday, just as many thought the situation might be contained, the volcano woke up and sent new ash toward Europe. The last time Eyjafjallajokull erupted, in December 1821, it continued to "blow its top" for some 13 months. Hopefully, it has chilled a bit since then.

Exploding volcanoes have almost become routine, but in each one lurks unique dangers. During the 1990s, more than 520,000 people were displaced and two cities were completely devastated by various volcanic eruptions around the world. Of course, most volcanoes eventually run out of steam, literally, and thereby allow nature to gradually take its course.

Brief disruptions to personal pocketbooks and national economies such as the one that has impacted much of the world over the past several days are normally manageable, though unpleasant. If the Icelandic ash were to continue to spew forth for a lengthy period, however, the economic impact would begin to compound. Though the greatest damage would likely be felt in Europe, today's interconnected economy means that no country would be exempt. Let's hope for a quick cooling period of a few centuries.

Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com). He also serves as Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.

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