Risk Management

1
Risk Management

• Presented by Emily Rademacher and Emily
  Shamburger

2
The New Face of Hunger

• The Economist
• April 19th, 2008

3
Global food shortages have taken everyone by
surprise. What is to be done?

• World agriculture has entered a new
  unsustainable and politically risky period.
• Riots have erupted for food and hunger in
  countries all along the equator.
• Last year, in 2007, wheat prices rose 77 and
  rice 16 which is the sharpest rises in food
  prices ever.
• This year the speed of change has accelerated
  with rice prices soaring 141 and the price of
  one variety of wheat rising 25 in one day!
• The prices mainly reflect changes in demand not
  a problem of supply like harvest failure.
• People in China and India eating more grain and
  meat
• Western biofuels programs - convert cereal into
  fuel.

4
Farmers Cant Respond

• It takes time for farmers to respond.
• Governments softening the impact of the prices on
  domestic markets
• This muffles the signals that would have
  encouraged the farmers to grow more food

5
Broader Problem

• The surge in food prices has ended a period of 30
  years in which the price of food was cheap.
• Farming was subsidized in rich countries and
  international food markets were wildly distorted.
  
• Soon, farmers will respond with higher prices by
  growing more.
• The transition to the new equilibrium of farming
  is proving costlier, more prolonged, and much
  more painful than anyone has expected.

6
Different Problem than the Past

• Usually food crises are clear and localized, but
  this crisis is different - appearing in many
  countries simultaneous
• For the middle classes, this crisis means cutting
  out medical care, for those on 2 a day, it means
  taking the kids out of school and cutting out
  meat, for those on 1 a day it means eating only
  cereals, and for those on .50 it means total
  disaster.
• In El Salvador, the poor are eating only half as
  much food as they were a year ago.
• Bob Zoellick, the president of the World Bank,
  reckons that food inflation could push at least
  100 million people into poverty, wiping out all
  the gains the poorest billions have made during
  almost a decade of economic growth

7
Where does the world get more food from?

• Extra supplies come mainly from large farmers in
  America and Europe,
• If this happens the new equilibrium may end up
  looking much like the old
• Farmers in large countries have responded with
  American winter wheat plantings are up 4 with
  more in the spring and Europe to increase 13.
• In an ideal world, the supply response would be
  provided from the worlds 450 million
  smallholders in developing countries who farm
  just a few acres because of three reasons
• The farming would help in reducing poverty
• This might help the environment.
• And it should be efficient in terms of return on
  investment.

8
Smallholders Not Responding

• Cannot afford the fertilizers
• Farming in emerging markets is riddled with
  market failures
• Always takes a season to grow more food
• The quickest way to increase your crop is to
  plant more but in the short run, there is only a
  limited amount of fallow land is easily
  available.
• Higher yields also need better irrigation and
  fancier seed time lag of 10 15 years
• Most agricultural research in developing
  countries is financed by governments, but
  government have reduced their green revolutionary
  spending.
• The supermarket chains are growing more important
  to farmers because they are purchasing more than
  half or more of the food sales for farmers.
• With supermarkets regulations smallholders are
  not wealthy enough to follow those standards.
• smallholders are fragmenting in many countries
  making it harder to obtain loans, new seed and
  other innovations

9
The New Powers in Giving

• The Economist
• July 1st, 2006

10
The Investment

• On June 26, 2006, Warren Buffet pledged to donate
  the bulk of his estimated 44 billion fortune to
  the charitable foundation created by the only man
  richer than himself, Bill Gates.
• Mr Buffetts donation worth some 37 billion is
  the largest investment ever.
• By comparison, two earlier giants of American
  philanthropy John D Rockefeller gave 7.6 billion
  and Andrew Carnegie gave away 4.1 billion in 2006
  dollars
• Yet Mr Buffett is also breaking new ground by
  outsourcing his philanthropy.
• He says he is applying the same strategy to
  giving away his money as he did to making it by
  finding good organizations with talented managers
  and backing them

11
Mr. Mrs. Gates Foundation

• The Gates Foundation will eventually be able to
  count on assets of around 60 billion which makes
  it the worlds biggest charitable foundations.
• The Gates Foundations ambitions include
  eradicating disease and poverty in the developing
  countries.
• Mr Gates and Mr Buffett know that many billions
  of dollars have been squandered over the years by
  philanthropists so they want to make their money
  work hard for them.

12
Gates Foundation Inspiration

• Mr Gates and Mr Buffett were also inspired by the
  philanthropists of the first golden age -
  Rockefeller Carnegie.
• Having made their fortunes in the industrial
  revolution they formed the first big foundations
  and set about modernizing American society.
• Rockefeller had a huge impact on the two areas
  that have been at the center of attention for the
  Gates Foundation, education and health.
• Today, the Gates Foundation is trying to tackle
  the huge problems in Americas schools.
• The Gates foundation has got off to an impressive
  start not least by raising public awareness about
  AIDS and poverty in developing countries
• The foundation has become known as one of the
  leading practitioners of philanthrocapitalism -
  an approach that draws on modern business
  practices and an entrepreneurial spirit to get
  more from its money.

13
Opponents of Gates Foundation

• Some experts in philanthropy reckon Mr Buffets
  money greatly increases opportunities it also
  carries risk.
• In particular, the foundation faces two huge
  tests
• How to operate at a much larger scale
• sheer complexity of the problems
• Mr Gates says that Mr Buffetts money will double
  the foundations annual giving to around 3
  billion that still represents only 1 for each
  person in the poorer half of the worlds
  population
• Increasing their payout adequately will be an
  issue, unless the foundation moves away from the
  sharp focus it has had which has been one of its
  strengths.
• A lack of focus has been one of the biggest
  failings of many American foundations
• Another issue facing the foundation is finding
  companies willing to accept these large donations

14
Resisting Opposition

• Resisted the urge to hire lots of in house
  experts and using advisory committees of outside
  academics - finding the best people and projects
• Foundation is using partnerships something that
  is unfortunately done rarely by other
  foundations.
• The Gates Foundation has provided incentives to
  pharmaceutical companies to develop drugs for
  poor people that would otherwise not have been
  considered worth it.
• It is easy to tell if you are succeeding in
  business you make money measuring
  philanthropy performance can be fiendishly tricky
  and take a lot longer
• Gates Foundation has built performance
  measurements into all its projects and
  importantly is prepared to axe those projects
  that do not measure up.

15
Managing Risk in an Unstable World

• Ian Bremmer
• From Harvard Business Review, June 2005

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Economic Risk Vs. Political Risk

• Basing global investments decisions on economic
  data without understanding the political context
  is like basing nutrition decisions on calorie
  counts without examining the list of ingredients.
• Reassuring data on countries per capita income
  growth and inflation the bread and butter of
  economic risk analysis often obscures potential
  threats from other sources.
• Political risks broadly defined as the impact of
  politics on market.
• Political risk is influenced by the passage of
  laws the influence of leaders and the rise of
  popular movements in short, all the factors
  that might politically stabilize or destabilize.

17
Political Risk Significance

• The significance of any given risk depends on the
  investment.
• A hedge fund manager worries about developments
  that could move markets tomorrow while the leader
  of a corporation building an overseas chemical
  plant needs a longer view
• Strategists evaluating emerging markets must be
  especially vigilant
• These markets can be described as a state in
  which politics matters at least as much as
  economics.
• Political risks analysis is more subjective than
  its economic counterpart
• The analysis deals with not only the broad easily
  observable trends but also with nuances of
  society and even quirks of personality

18
Politics Is Everyones Business

• Some of the business worlds best political risk
  analysis has come from multinational corporations
  like Royal Dutch/Shell and American International
  Group (AIG) that have entire departments
  dedicated to the subject.
• But today, any company with exposure in foreign
  markets needs early accurate information on
  political developments, there are four simple
  principles
• First, international markets are more
  interconnected than ever before.
• For example, as Chinas rapidly growing economy
  overshoots a soft landing and crashes into
  recession, the impact on Chile, Russia, India,
  and the United States will be measurable within
  hours.
• Second, for good or ill the United States is
  making the world a more volatile place and that
  has changed risk calculations everywhere.
• The attacks on the World Trade Center in NY put
  foreign affairs and security from and center of
  federal government policy.
• Third, the offshoring trend is growing.
  Businesses shift some operations to countries
  where labor is cheap but the labor is cheap for
  a reason.
• In countries such as India, living conditions for
  the working classes can be harsh and there is
  greater threat of unrest than in developed
  countries with their large relatively prosperous
  middle class.
• Fourth, the world is increasingly dependent for
  energy on states troubled by considerable
  political risk
• As global supply struggles to keep pace with
  rising demand, political instability in these oil
  producing states can quickly produce shocks all
  over the world.

19
What Economics Cant Tell You

• Economic risk analysis and politial risk analysis
  address two fundamentally different questions.
• Economic risk analysis tells corporate leaders
  whether a particular country can pay its debt.
• Political risk analysis tells them whether that
  all country will pay its debt.

20
Strength Against Shocks

• A nations stability is determined by two things
• Political leaders capacity to implement the
  policies they want even amidst shocks
• Their ability to avoid generating shocks of their
  own.
• Countries with neither are the most vulnerable to
  political risk.
• Shocks themselves are another important concept
  in political risk.
• Shocks can be either
• Internal
• which would be a transition of power in Cuba
• External
• thousands of refugees fleeing from North Korea
  into China
• The presence of shocks alone is not a sign of
  instability.
• Two countries will react differently to similar
  shocks, depending on how stable they are.

21
Stability and Openness

• Another complicating factor in political risk is
  the relationship between stability and openness.
• The US is stable because it is open meaning
  information flows widely.
• But other countries such as Korea and Cuba are
  stable because they are closed.
• Twenty minutes exposure to CNN would reveal North
  Korean citizens how outrageously their government
  lies to them about life outside the result
  might be significant unrest.
• Corporate executives however generally focus on
  more immediate concerns when assessing a
  countrys ripeness for investment. Decision
  makers must know 3 things
• How likely is it that a shock will occur?
• If likely, when will it probably occur?
• And how high are the stakes if it does?
• The greatest risk is when shocks are likely,
  imminent, and have widespread consequences.

22
Risk by the Numbers

• Companies can either buy political risk services
  from consultants or like Shell and AIG or develop
  the capacity in house.
• The Analysts
• politics never stops moving and risk analysts
  must be able to follow a nations story as it
  develops and this means the analysts must be on
  the ground in that country.
• Analysts will gather most of their intelligence
  from primary sources
• Companies should bear in mind that political
  analysis is more subjective and consequently more
  vulnerable to bias than its economic counterpart.

23
Risk By Numbers

• The Data
• Because of their vary nature political risk
  variables are more difficult to measure than
  economic variables.
• Politics after all is influenced by human
  behavior and the sudden confluence of events.
• To accurately quantify political risk the
  analysts need proxies for their variables.
• Political risk analysts study
• Percentage of children who regularly attend
  school
• How police and military salaries compare with
  criminal opportunities
• Unemployment rate for people between the ages of
  18 and 29
• Taken together, this information reveals much
  about a countrys underlying sources of strength
  or vulnerability.

24
The Framework

• Different companies and consults will have
  different methods for measuring and presenting
  stability data.
• At Eurasia
• They have developed a tool that incorporates 20
  composite indicators of risk in emerging markets.
  
• They score risk variables according to both their
  structural and temporal components. These scores
  highlight long term underlying conditions that
  affect stability and serve as a baseline for
  temporal scores
• The indicators are organized into four equally
  weighted subcategories
• Government
• society
• security
• economy
• Grouped together and a composite rate is derived.

25
Once You Know the Odds

• How companies apply such analysis obviously
  depends upon their industry, strategy, and risk
  tolerance profile.
• Companies making extended commitments in unstable
  nations must give top priority to long term risk
  issues related to demographics and natural
  resources when making decisions.
• Once companies have determined that a particular
  investment is worth the danger, they can use
  traditional techniques to mitigate the risk.
• Recruiting local partners
• Limiting R D in nations with leaky intellectual
  property rights
• A growing number of commercial and government
  organizations now offer insurance against
  political risks.
• Finally it is worth remembering that though
  instability translates into greater risk, risk is
  not always a bad thing.

26
The New Geography of Conflict

• Michael T. Osterbolm
• From Foreign Affairs, Vol. 80, No. 3

27
A Transformation of Strategic Thinking

• US strategic thinking is in transformation since
  the end of the Cold War, with primary target
  being confronters of the US to protecting the US
  natural resources.
• In October of 1999, there was a rare alteration
  of the US military geography the Dept of Defense
  reassigned its senior command authority over
  American forces in Central Asia from the Pacific
  command to Central command.
• This reassignment was due to the fact that this
  region has now become a major strategic prize
  because of the vast reserves of oil and natural
  gas believed to be under the soil.
• Other new regions obtaining attention from the
  Pentagon include Persian Gulf, the Caspian Sea
  basin, and the South China Sea.
• Behind this shift in strategic geography is a new
  emphasis on the protection of supplies of vital
  resources especially oil and natural gas

28
Not a New Fear

• Protecting our natural gas and oil suppliers is
  key due to the fear of an interruption in the
  supply would create severe economic consequences.
• Global energy consumption rising by an estimated
  2 annually
• The White Houses 1999 annual report of US
  security policy stated, the United States will
  continue to have a vital interest in ensuring
  access to foreign oil supplies we must continue
  to be mindful of the need for regional stability
  and security in key producing areas to ensure our
  access to, and the free flow of, these
  resources.
• This concern is not a new concern, it has been
  long been an important theme in US security
  policy.
• In the 1890s, the nations preeminent naval
  strategist, Captain Alfred Thayer Mahan, won
  support for his argument that the US required a
  large and capable navy in order to bolster its
  status as a global trading power
• Also, this concern of protecting our natural
  resources shaped the geopolitical thinking of
  Presidents Theodore Roosevelt and Franklin D
  Roosevelt.

29
Other Countries Reactions Are Similar

• Another similar focus on the acquisition or
  protection of energy supplies is evident in the
  strategic thinking of other powers.
• Large energy importers such as China, Japan, and
  the major European powers have made ensuring the
  stability of their supplies a top priority.
• Russia is placing greater foreign policy emphasis
  on energy producing areas of Central Asia
• The Chinese military has shifted its
  concentration to protecting their offshore areas
  where there is potential oil production
• Sufficient supplies of oil and gas is also a
  great concern of newly industrializing nations of
  the developing world in countries such as Brazil,
  Israel, Malaysia, and Thailand

30
Concerns Over Water Supply

• The pursuit of adequate water will be the central
  focus of others.
• Water supplies are already insufficient in many
  parts of the Middle East and Southwest Asia
• population growth
• drought from global warming
• Further complicating issue is that water supplies
  do not obey political boundaries and many regions
  share a limited number of major water sources
• The danger of conflict over competition for these
  shared supplies will inevitably grow

31
Concerns Over Valuable Materials

• Localized conflicts have broken out for control
  of valuable timber and minerals.
• These are conflicts over income derived from
  commodity exports.
• Example - Angola and Sierra Leone -diamond
  fields
• Deomocratic Republic of the Congo - copper and
  diamonds
• Southeast Asia various groups are fighting over
  the valuable stands of timber

32
A New Analysis in the International System

• The analysis would begin with a map showing all
  major deposits of oil and natural gas lying in
  contested or unstable areas.
• Then trace the pipelines and tanker routes used
  to carry oil and natural gas from their points of
  supply to markets in the West.
• All major water systems shared by two or more
  countries in arid or semi arid areas.
• Underground aquifers that similarly cross borders
• Major concentrations of gems, minerals, and
  old-growth timber in the developing world
• diamond fields,
• emerald mines
• copper and gold mines
• forests.
• Such a map would truly show the places where
  armed combat is most likely to erupt in the years
  ahead.
• Other factors, including the relative stability
  of the countries or regions, involved the history
  of relations between them, and the local military
  balance, must also be considered.
• Conflict over valuable materials is a significant
  feature in this and most other conflicts around
  the world today so a map of the contested
  resource zones is a more reliable indicator of
  potential violence than any other single factor

33
Where Do These Pressures Come From?

• The pressure derives from a number of sources
  beginning with the basic mechanics of supply and
  demand
• As populations rise and economic activity expands
  in many parts of the world, the appetite for
  vital materials will swell faster than the worlds
  exports can accommodate.

34
Where Do These Pressures Come From?

• According to the US Dept of Energy global oil
  consumption is expected to rise from about 77
  million barrels per day in 2000 to 110 million in
  2020 which is an increase of 43.
• If these estimates are correct, the world will
  consume approx two thirds of the worlds known
  supply of the petroleum reserves between 2000 and
  2020.
• We use about half the amount of the amount of
  replaceable water that is available for humans.
• Drinking, bathing, food production,
  manufacturing, navigation, and water treatment.
• The amount of countries experience persistent
  water scarcity is expected to double over the
  next 25 years.
• By 2050, demand for water could approach 100 of
  the available supply, causing intense competition
• Environmental trends such as global warming will
  affect the water supply too.
• Higher temperatures - prolonged drought and
  increased rate of evaporation

35
Why Worry?

• What makes this trend so worrisome is the fact
  that many important sources of vital materials
  are located in contested or chronically unstable
  areas.
• Future availability of these supplies cannot be
  taken for granted political and social unrest
  may endanger the supplies.
• Threats to the water supply is very similar - it
  is essential that these states reach mutually
  acceptable agreements for the allocation of the
  available supplies which they have not done.
• Many governments have resource-protection
  policies that are very aggressive.

36
Recommendations

• Resource shortages and conflicts often tie into
  other problems of international policymakers such
  as environmental degradation, economic disorder,
  population growth, and transnational crime.
• Governments must devote greater effort to the
  development of alternative fuels and
  transportation systems.
• More money should go toward exploring more
  efficient crop irrigation.
• More efforts are needed to negotiate protection
  of tropical forests

37
Preparing for the Next PandemicMichael T.
OsterholmFrom Foreign Affairs, July/August
2005Unprepared for a PandemicMichael T.
OsterholmFrom Foreign Affairs, March/April 2007
38
The Next Pandemic

• A number of recent events and factors have
  significantly heightened concern that a specific
  near-term pandemic may be imminent.
• No one can predict when, what or how severe the
  pandemic will be.
• With the interdependence of the global economy
  today, its implications will reach far beyond its
  toll on human health.
• The arrival of a pandemic would trigger a
  reaction that could change the world overnight.
• Even a "mild" pandemic could kill many millions
  of people.

39
The Next Pandemic

• Infectious diseases remain the number one killer
  of humans worldwide.
• HIV, AIDS , tuberculosis (TB), malaria, newly
  emerging infections, diarrheal and other
  vector-borne diseases, and agents resistant to
  antibiotics
• More than 1,500 microbes known to cause disease
  in humans, influenza continues to be the king in
  terms of overall mortality.
• It could be caused by H5N1, the avian influenza
  strain currently circulating in Asia.

40
SARS

• The Severe Acute Respiratory Syndrome (SARS)
  crisis of 2003 is the closest the world has come
  to a pandemic in modern times.
• It demonstrated how quickly an infectious agent
  can circle the globe.
• It spread to five countries within 24 hours and
  to 30 countries on six continents within several
  months.
• Over a period of five months, about 8,000 people
  were infected .
• About ten percent of the infected people died.

41
The Bird Flu

• In 2003, H5N1 avian influenza appeared in
  domestic poultry farms in Asia.
• H5N1 is believed to spread geographically through
  the movement of domestic poultry and wild
  migratory birds.
• There has been no documented spread of H5N1 to
  migratory birds or poultry in the Americas.
• The importation of poultry and other birds from
  Asia and Europe into any American country could
  result in the infection of indigenous bird
  populations.
• The current strain of the virus can survive in
  the environment for several days longer than
  earlier strains.
• The virus is transmitted from wild birds to
  domesticated birds such as chickens then
  undergoes genetic changes to allow it to infect
  humans, pigs, and other mammals.

42
The Bird Flu

• The range of mammalian hosts appears to be
  expanding.
• The H5N1 virus has been spreading more to humans.
• H5N1 infection typically involves progressive
  primary viral pneumonia, acute respiratory
  distress, liver and kidney damage.
• The virus might be disseminated throughout the
  body and affect multiple organs due to a
  condition of the immune system known as cytokine
  storm.
• The mortality rate of humans has remained stable
  at roughly 60.

43
Vaccines

• A protective vaccine could be made available to
  everyone and be administered before the
  appearance of a pandemic.
• A vaccine that provides the maximum protection is
  one that is made with the virus that is causing
  the illness.
• It takes years of research and clinical trials
  before vaccines are approved and years after that
  before they can widely be produced.
• Many drug companies are researching new vaccines.
• The vaccines are currently being produced in
  Australia, Canada, France, Germany, Italy, Japan,
  the Netherlands, the United Kingdom, and the
  United States.
• The vaccine is being produced in very limited
  quantity.
• The H5N1 Virus is rapidly changing, and it is
  unclear if the vaccines being developed today
  will be effective in protecting against new
  strains of the virus .
• This could mean that production cannot start
  until after the pandemic has begun.

44
Antiviral Medicine

• Another weapon that could be used to fight a
  pandemic.
• Has prevented individuals from becoming ill.
• They have also reduced the severity and
  subsequent complications when taken within 48
  hours of onset.
• It remains unclear if these drugs will be as
  effective against the bird flu as it is with the
  common cold.

45
US Healthcare System

• Effects of a pandemic would likely be compounded
  by the United States ailing health-care system.
• It would only take a mild pandemic to overwhelm
  the US Health-Care System.
• 80 of all prescription drugs come from other
  countries and are delivered just hours before
  they are dispensed.
• Many US hospitals now receive 3 deliveries of
  drugs and supplies a day to meet their needs.

46
Worldwide Community

• No one has thought of the effects that a pandemic
  may have on the global economy.
• The interconnectedness of the global economy
  today could make the effects of the next
  influenza pandemic more devastating than ever
  before.
• The global economy could shut down.
• It would test the resiliency of the global
  community.
• In the past, relief supplies have been
  transported from unaffected to impacted areas.
• A pandemic would affect the whole world and the
  worlds resources would be strained everywhere.

47
What Could Happen

• Foreign trade and travel could be reduced or even
  ended in an attempt to stop the virus from
  entering new countries.
• There would be no guarantee that this would
  prevent the spread of the illness.
• Global, regional, and national economies would
  come to an abrupt halt.
• Widespread infection and economic collapse could
  destabilize governments.
• The public would panic.

48
What Could Happen

• Starting Today
• There would be an immediate effort to try to sort
  out disparate disease-surveillance data.
• Borders would be closed.
• Border security would be made a priority,
  especially to protect supplies.
• Military leaders would have to develop strategies
  to defend the country and also protect against
  domestic insurgency.
• Fear, panic, and chaos would spread.
• The global economy would shut down.
• There would be major shortages in all countries
  of a wide range of resources.
• Health-care workers could get sick and die at a
  higher rate than the general public.

49
What Course to Take

• Major campaigns must be started to prepare the
  nonmedical and medical sectors.
• the plan should take into account officials from
  public health, law enforcement, and emergency
  management at the international, federal, state,
  and local levels.
• the plan must coordinate the responses of the
  medical community, medical suppliers, food
  providers, and the transportation system.
• Heath-care, consumer products and commodities
  must be stockpiled.
• Health professionals must be educated to help
  better prepare themselves and the public for a
  possible pandemic.
• Priority should be placed on early intervention
  and risk assessment.

50
What Course to Take

• Studies must be started to find out about the
  ecology and biology of the influenza virus and
  how the virus would affect different species.
• Create a vaccine that would work on all subtypes
  of influenza and could be made available quickly
  to all of the people in the world.
• Use current vaccines to increase the supply of
  vaccine available.
• Develop an international plan of how the vaccine
  would be allocated.

51
What Course to Take

• Business continuity planning
• The biggest challenge they face is anticipating
  how workers, suppliers, buyers, infrastructure
  providers, and the government would respond to a
  crisis
• Planning for a pandemic is so different from
  anything weve done in business before that were
  writing the book as we go- and it wont be
  finished until the virus is finished.
• Individuals
• People should plan now and learn to depend on
  themselves, their families, their neighbors, and
  their co-workers.

52
What is Being Done

• In November of 2005, President George W. Bush
  issued the National Strategy for Pandemic
  Influenza, setting out measures to prepare the US
  for a pandemic.
• In May 2006, the White House released the
  Implementation Plan for the National Strategy for
  the Pandemic Influenza
• Had more than 300 recommendations to coordinate
  the federal governments response to the threat
  of pandemic influenza
• In June 2006, Congress passed a 2.3 billion
  allowance for implementing the next phase of the
  Bush Administrations Pandemic of preparedness
  strategy.
• Australia, Canada, France, Israel, Japan, New
  Zealand, Singapore, Switzerland, and the UK have
  announced similar plans.

53
America the ResilientDefying Terrorism and
Mitigating Natural Disasters

• Stephen E. Flynn
• From Foreign Affairs, March/April 2008

54
Americas Deteriorating Infrastructure

• The overwhelming majority of Americans live in
  places where the occurrence of a natural disaster
  is a matter of when, not if.
• The United States' aging infrastructure compounds
  the risk of destruction and disruption.
• Public Works Departments construct "temporary"
  patches for dams.
• Bridges are outfitted with the civil engineering
  equivalent of diapers.
• The national power grid, dams, canal locks, and
  seven other infrastructure sectors received Ds
  the best grade, a C, went to bridges.

55
Lessons Unlearned

• Resilience has historically been one of the
  United States' great national strengths.
• Much of official Washington currently treats
  citizens as helpless targets or potential
  victims.
• Most people think about the planes that crashed
  into the World Trade Center and the Pentagon on
  September 11.
• The story of United Airlines Flight 93, the
  fourth plane, which crashed in a Pennsylvania
  field, should be what is remembered about
  September 11
• The plane's passengers foiled al Qaeda without
  any help
• Could the passengers on the other three planes
  have reacted, too, if they had known the
  hijackers' plans?

56
The Best Defense

• Washington should prepare Americans with greater
  confidence in their ability to prepare for and
  recover from terrorist attacks and disasters of
  all types.
• Resilience results from a sustained commitment to
  four factors.
• Robustness
• The ability to keep operating or to stay standing
  in the face of disaster.
• Resourcefulness
• Skillfully managing a disaster once it unfolds
• Identifying options
• Prioritizing what should be done both to control
  damage and to begin mitigating it
• Communicating decisions to the people who will
  implement them
• Rapid recovery
• The capacity to get things back to normal as
  quickly as possible after a disaster.
• Having the means to absorb the new lessons that
  can be drawn from a catastrophe.

57
What People can do to Prepare

• What people can do at the individual level to
  prepare themselves, their families, and their
  employees is relatively easy.
• Purchase a three-day emergency kit
• Develop a family emergency contact plan
• Visit web sites maintained by the Red Cross and
  other organizations that provide instructive
  what-to-do lists.