Bruce Schneier, the security guru at Wired’s Danger Room blog, reminds us of something important:
It’s not true that no one worries about terrorists attacking chemical plants, it’s just that our politics seem to leave us unable to deal with the threat. (Wired)
The chemical security problem is as urgent as it is obvious. Chemical plants are potentially static weapons of mass destruction: large volumes of ammonia, chlorine, highly flammables like propane, large repositories of chlorinated organic solvents and chemical feedstocks like phosgene and more. It’s not just targeting the facility for destruction. Large tanker trucks and railroad cars are constantly coming out of these plants and are vulnerable to hijack or diversion. So chemical plants invest in security, if only to reduce the loss of their own property, much less the potential loss of other people’s lives and properties. The regulatory approach, that it is the businesses themselves that have the most knowledge and biggest incentive to protect themselves, as Schneir points out, seems rational and is certainly congruent with the philosophical bias of the anti-regulatory stance of the Bush administration. But it isn’t working and Schneir explains why:
The problem of securing chemical plants against terrorism — or even accidents — is actually simple once you understand the underlying economics.
Any rational chemical plant owner will only secure the plant up to its value to him. That is, if the plant is worth $100 million, then it makes no sense to spend $200 million on securing it. If the odds of it being attacked are less than 1 percent, it doesn’t even make sense to spend $1 million on securing it.
But to society, the cost of an actual attack can be much, much greater. If a terrorist blows up a particularly toxic plant in the middle of a densely populated area, deaths could be in the tens of thousands and damage could be in the hundreds of millions. Indirect economic damage could be in the billions. The owner of the chlorine plant would pay none of these potential costs. Sure, the owner could be sued. But he’s not at risk for more than the value of his company, and — in any case — he’d probably be smarter to take the chance. Expensive lawyers can work wonders, courts can be fickle, and the government could step in and bail him out (as it did with airlines after Sept. 11). And a smart company can often protect itself by spinning off the risky asset in a subsidiary company, or selling it off completely. The overall result is that our nation’s chemical plants are secured to a much smaller degree than the risk warrants.
This is an old and difficult problem in environmental and occupation economics, the fact that many of the costs in the production and use of a product are not included in the product: they are external costs not borne by the producer so not directly subject to the market mechanism. Thus, either we pay for the protection publicly, via tax supported police, fire and intelligence services; we subsidize the owners to do it themselves; we force the owners to do it via regulation (which of course must be enforced). Only the last of these internalizes the cost, making the products subject to “the market.” The idea that “regulation” and “the market” are somehow incompatible is not only untrue, but this example (and many others we could give) show that it is only via regulation that the market has a possibility of working. In the security area, anti-regulation combined with anti-tax is a recipe for leaving major security concerns unaddressed.