So Secretary Chertoff has finally lost patience with the pace at which the chemical industry is protecting its plants — and the people who live around them — from terrorism.
The fact of the matter is, we are four years after 9/11, and the time to wait on volunteerism as the sole solution I think has begun to pass. The fact of the matter is that although large numbers of the chemical companies that operate in this country have been very responsible in taking steps to make sure that they are elevating their own security, we have to recognize that not all chemical companies have done that. And all the industry, in fact the whole country, is hostage to those few who do not undertake the responsibility that they have to make sure security is at an appropriate level.
Of course, all of this was perfectly predictable four years ago when the industry’s lobbyists beat back the Corzine bill. As a legal matter (so Prof. Bainbridge reminds us) and as a moral matter (according to such luminaries as Milton Friedman) company managers work for the shareholders, not for the public; they will naturally invest in security only up to the point where it stops paying, as a purely business matter.
Smaller companies in particular have less capacity and less incentive to provide first-class security than their larger rivals, though the threat their operations pose to the public may be just as great. Both Chertoff and the American Chemistry Council, the lobby for the big chemical companies, made it clear that the big companies want regulation, as a way of forcing the smaller fry into line, thus preventing them from gaining a competitive cost advantage by scanting on security.
So, much as it no doubt pains the libertarians, regulation is necessary. (It would be less necessary in a world in which managers were expected, as individuals are, to take some account of the interests of others even when not required to do so by statute or contract, but even in that world the temptation to gain competitive advantage by skimping would be strong.)
Secretary Chertoff is clear that the work of security needs to be done by the people who manage the assets:
The reality is, in this country, the private sector owns and operates the vast majority of our nation’s infrastructure, and that’s certainly true with respect to chemicals. So the idea that the federal government can own and operate all the security for all this infrastructure is simply misguided. What we do has to be done in partnership with the people who actually have direct control over the assets and who employ the people who work at these facilities.
Of course, that’s not what the Administration was saying about the Dubai Ports World deal — back then, it didn’t matter who ran the business of the ports as long as the Coast Guard was in charge of security — but the current view is the better view. And the idea of setting performance standards and requiring the companies to meet them rather than specifying security measures in detail seems to be a reasonable one. So does requiring more security for plants using more dangerous processes or producing more dangerous products.
But the notion of allowing companies to contract for their own monitors, as they do for their own auditors, is borderline insane. In the audit case, the individual auditors are members of a proud profession with valuable licenses to lose, the Final Four (down from Big Eight) accounting firms have both legal liability and strong business reasons to maintain their credibility with Wall Street as well as a cozy oligopoly that limits the competitive pressures they face. On the other side of the table, while the managers press the auditors to sign fudged books, the shareholders and underwriters have a strong incentive to make sure that the audit is a serious one. Even so, the scandals of the last half-decade have made it clear what weak reeds some of the accounting firms were when their clients started to lean on them to certify the books without asking too many rude questions.
Mr. Chertoff expects a new industry of chemical-plant security monitors to spring into existence. But those firms will have none of the incentives the big accounting outfits have to blow the whistle when they see a foul. They will be new, with no very substantial reputational assets to lose. They will be in a fiercely competitive market, where a firm that develops a reputation for doing tough work may find its services not in much demand, since the companies don’t face demands from shareholders and underwriters to hire a monitor with a reputation for integrity. Their employees won’t have valuable professional licenses on the line. And, unless there’s an actual terrorist attack on one of the plants, there will be no way for outsiders to know which firms are appropriately tough and which ones are just going through the motions.
So it seems to me that the Chertoff proposal is for a sort of homeopathic regulation of chemical-plant security, diluted down to near-nullity. At the same time, he flatly rejects the option of requiring firms to use substitute products or processes that impose lesser risks to the neighbors and are thus less attractive to terrorists.
On this point Chertoff was perhaps unintentionally frank about his department’s decision criteria:
…as we go forward and talk about how we increase our security, we have to do so in a way that is constantly engaged with the private sector so that we can exchange ideas, so that we can figure out what works, and so we can go about the objective of raising our security in a way that doesn’t destroy the businesses we’re trying to protect.
Note that it is the businesses, and not the tens or hundreds of thousands of neighbors whose lives might be at risk, that Mr. Chertoff thinks he’s in business to protect. “The business of America is business”: or, at least, the business of the Bush Administration is pandering to business, and the public interest be damned. (And yes, if you were wondering, Karl Rove, at the behest of the petrochemical industry, put the kibosh on a plant-security proposal developed by Chertoff’s predecessor Tom Ridge and then-EPA Administrator Christine Todd Whittman.)
But it’s Chertoff’s next paragraph that dances along the edge of self-parody:
It’s very easy to put all of the weight on one side of the balance, but if the consequence of that is we stifle our economy, we throw workers out of work, we make it difficult to make our way of life, then we will actually have succeeded in doing what the enemy has not, which is causing our own loss of prosperity and our own loss of freedom.
Right. If we require tight security at chemical plants, the terrorists will have won.
Unlike Prof. Bainbridge, I think business executives have moral responsibilities other than maximizing shareholder value. So I’m not at all reluctant to say that the chemical-company bosses who are skimping on security and fighting off regulation are acting anti-socially and unpatriotically. But managers certainly are responsible for taking care of their shareholders, so that condemnation ought to be tempered by a recognition that they face opposing duties.
But what are we to say of Secretary Chertoff, and Mr. Bush, and the Republican leaders in Congress, who have done the industry’s bidding while leaving the citizens dangerously vulnerable? Certainly it would be wrong to say that they are sympathetic with terrorists, or even that they are soft on terrorism. But it would be accurate to say that they lack (if I recall the phrase correctly) “the courage to lead.”
Hat tip: Kevin Drum