Private Sector Leaders to Congress: Fences and Firewalls Fail

WASHINGTON—Five years after the terrorist attacks of September 11, 2001, the national focus on homeland security must expand to emphasize economic resilience—the anticipation of a range of threats and preparation to quickly bounce back from disruptions—according to a group of private sector executives meeting today on Capitol Hill and at the U.S. Department of Commerce.

The gathering coincided with the release of a new report by the Council on Competitiveness called Transform. The Resilient Economy: Integrating Competitiveness and Security. The report calls for policymakers and private sector leaders to tackle threats strategically in order to achieve economic competitiveness, not just homeland security. Too much emphasis is being placed on catastrophic events like terrorist attacks and Category 5 hurricanes, when in reality a variety of emerging hazards could cause a harmful ripple effect on the U.S. economy, according to the report.

“Anticipating risk, limiting impact and rebounding rapidly is a shared objective of economic security and private sector competitiveness,” said Deborah L. Wince-Smith, president of the Council on Competitiveness. “Public and private sector leaders must partner to tackle emerging risks in a way that is mutually beneficial and supportive of American productivity and prosperity.”

The report reflects five years of analyses of private sector risk management and the impact of homeland security policies on businesses. With much of the U.S. economic infrastructure owned or operated by the private sector, the ability to ensure homeland security is tightly intertwined with the activities of the private sector, according to the report, and any workable strategy must come from the private sector, not imposed from the outside.

Based on private sector interviews and case studies, the report concluded that it is very difficult to make a business case for security to protect from low-probability events. However, it is much easier to make a business case for ensuring continuity of operations, regardless of the type or magnitude of threat.

For example, Wal-Mart’s investment in a high-tech and sophisticated process to stock products on its shelves was done principally to keep customers supplied with what they need. The investment also provided key side benefits for Wal-Mart and the nation. During Hurricane Katrina, Wal-Mart was able to bring 66 percent of its stores in the affected region back into operation within 48 hours, and almost all stores in the region within a week. People depended on Wal-Mart for essential products ranging from bottled-water to water filtration systems, and meeting customer needs during the crisis meant building and maintaining loyalty for the future—and keeping the bottom line strong.

Researchers evaluated risk management practices in five business sectors: chemical, electrical power, financial services, oil and pharmaceutical, and identified several emerging economic vulnerabilities. First, U.S. companies are exposed to a wider range of business disruptions because of their expansion across the globe. Second, data breaches and cyber attacks associated with new technology incur major capital and productivity costs. Third, litigation costs and regulatory risks depress investment in the research and development of high-value products and services, which are the foundation of U.S economic strength. Fourth, emerging global risks, particularly energy volatility and pandemics, present the potential for far-reaching economic calamity, yet too little is being done to address either. Finally, despite general acceptance of the growing list of risks, most private sector leaders are doing too little to manage risk dynamically across their institutions.

Based on this research, the report made a series of recommendations for policy makers and private sector leaders. Topping the list of policy recommendations, the federal government should make resilience planning criteria for securing federal contracts. This would leverage the government’s purchasing power—$400 billion annually on goods and services—to meet national security goals while enhancing the resiliency of the private sector. The report also recommended that public and private sector leaders work together to enhance communication outside of the beltway. Creating regional collaborative centers to promote information and intelligence linkages would be useful in the event of emergencies, but would also support strategic work to prepare for a spectrum of risks and contingencies.

The research was conducted with the support of three federal agencies: The Department of Energy, Department of Commerce Technology Administration and Department of Defense Threat Reduction Agency. Senior representatives from more than 25 private sector entities, including corporations, universities and labor organizations, contributed to the project. The project was co-chaired by Charles O. Holliday, Jr., chairman and CEO of DuPont, and Dr. Jared Cohon, president of Carnegie Mellon University. The principal author of the report was Debra van Opstal, senior vice president for programs and policy at the Council on Competitiveness.