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| Opportunities & Exposures: Policy |
Fortress America
Stephen E. Flynn
07/01/2005
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The premise for our war on terror is that we can prevent future domestic attacks
with overseas military campaigns. This year the Bush administration requested
$500 billion to fund the Department of Defense and the wars in Iraq and
Afghanistan. At the same time, Bush asked for just $600 million for grants to
protect the nation’s 361 seaports, our national rail and metropolitan mass
transit systems and our vast energy and chemical infrastructures. These vital
sectors remain nearly as vulnerable today to attacks by terrorist organizations
as the passenger aviation system was on 9/11.
The July 2002 National Homeland Security Strategy holds that the jobof the
federal government is to provide for national defense and border security. When
it comes to protecting critical infrastructure, however, “sufficient incentives
exist in the private market to supply protection.”
 Yet when it comes to domestic security, the private sector is incapacitated for
three primary reasons. First, government officials keep their intelligence cards
close to the vest. This leaves CEOs at a loss when it comes to sizing up the
threats they should try to address with finite company resources.
Second, security investments could place a private sector company at a
competitive disadvantage. Consider, for example, the dilemma of a CEO of a
company that manages a container port terminal on finding that adding security
measures will raise handling costs by $10 per container. The management of an
adjacent terminal might skip the safeguards to offer its services at a lower
price. A determined terrorist is likely to figure out where the security is
weakest, but if he attacks, the entire seaport is likely to be affected; the
security-conscious company would suffer the consequences along with its
spendthrift neighbor.
Then there is the liability issue. Security always involves a decision about how
much is enough. If a company’s efforts prove to be insufficient when an act of
terror occurs, in the aftermath, the families of victims might accuse the
company of having acknowledged the threat but electing to set its security bar
too low. Without some kind of indemnity by the public sector for having made a
good-faith effort, a company that voluntarily invests in extra security measures
may end up only elevating its risk of lawsuits.
The only way to jumpstart the security agenda at home is to require an active
federal partner to work with the private sector. Corporate leaders should insist
on an institutional arrangement that gives them equal standing in receiving and
assessing threat information and developing appropriate security protocols.
One innovative approach might be to organize a Federal Security Reserve System
(FSRS) modeled roughly on the Federal Reserve, which was created in 1913 to
lessen the risks of serious disruptions to financial markets. The Fed is
organized around the notion that effective oversight of the financial sector
requires drawing on the expertise of private representatives within that
sector.
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