Risk Management Reports

September, 2004
Volume 31, No. 9
A Letter to My Readers

It’s been three years since September 11, 2001, forever enshrined as 9/11, and six months since March 11, 2004, the train bombing in Madrid. After these events, nothing is quite the same. Those of us who deal daily with the management of risk face new uncertainties and the need to construct new responses. This is a personal commentary, my observations on how we have changed post 9/11. As more than half of my readers live outside the United States, it is also a candid appraisal of the actions of this country.

9/11 and its subsequent events crushed the euphoria surrounding the demise of communism. In our innocence we thought that we had embarked on a long period of peace, freedom and economic advancement for everyone, one in which the overwhelming military power of one country would support this advance and throttle the petty ambitions of minor tyrants. That innocence is gone, replaced by two cancerous growths that increase uncertainty and threaten global stability. One is a mounting antipathy to the United States and everything it stands for. The other is a loss of trust in institutions, public and private. How the world reacts to these two challenges will dictate the course of history in the next two to three decades.

First, the growing antipathy to the US and its culture is based on both recent actions and lack of action. This country is accused of acting preemptively and unilaterally, without global support, and acting precipitously, without adequate information or intelligence. We are also accused of failing to act where conditions otherwise warrant action. These are fair accusations but they must be considered in the circumstances of the times. Leaders, like executives and risk managers, must make decisions under uncertainty, collecting available data but always being pressed by time and conditions to act. Did Al Qaeda have further acts of terrorism in the works after 9/11? Would others extremists follow suit, perhaps with weapons far more damaging than four aircraft? Would others be emboldened by the Al Qaeda success to attempt similar acts of terrorism? In its prompt and powerful responses in both Afghanistan and Iraq, the US crushed two obnoxious regimes, but, in so doing, it also risked raising the specter of an arrogant and abrasive super-power acting arbitrarily anywhere in the world where it thought that its interests were being challenged, and, in an ironic twist, it probably increased the animosity of those prone to terrorist acts.

At the same time as the world recoiled at what it believed to be an excessive use of power, it began to find flaws in the economics, culture and politics of the US. The US, they pointed out, is the home of excess. It compensates private-sector executives excessively, far beyond levels elsewhere in the world. It tolerates an excessive indulgence in drugs. While the US tries, on one hand, to exterminate the production of heroin, cocaine and marijuana at home and abroad, it permits and encourages unprecedented pill-taking for every conceivable symptom or illness, real or imagined. It is a drug-saturated society. Its citizens also eat to excess, making obesity the country’s primary physical impairment. It indulges in excessive litigation, permitting an unrestrained plaintiffs’ bar to obtain individual and class action judgments far beyond the wildest imagination or rational compensation. And, yes, it is also justifiably accused of entertainment characterized by excessive ugliness, distortion and commercialism. Is there anything that isn’t for sale?

The economic excess of the US puts all the others to shame. When 9/11 should have forced fiscal prudence in light of the long-terms costs of battling terrorism, the US plunged into economic gluttony: Congress cut taxes, increased spending and postponed the inevitable day of reckoning from its unfunded liabilities for social security and medical benefits. From a fiscal surplus at the end of the last century, it now has a skyrocketing deficit. It continues to try and finance this insatiable greed by asking investors abroad to buy its debt. It is a country beset by problems similar to other developed nations — an aging population and radical terrorism — but its reaction has, so far, been one exactly contrary to expert economic opinion.

Should the US be judged only on the basis of this excess and on its recent activities around the world? Isn’t it time to consider the native reservoir of prudence, caution and common sense that have characterized this nation for more than two centuries? Shouldn’t we consider the freedoms of speech, political activism, and religion, and the availability of economic opportunity, and its culture of innovation, all of which have blessed its inhabitants for so long? Shouldn’t we also consider its uncommon history of recoiling from excess when its people realize the costs and effects?

Yes, the recent criticism is warranted in many areas but this country is listening. I remain optimistic that we can and will change the current run of excess.

The second outgrowth of 9/11 is more serious, as it reflects a global problem: the loss of trust in institutions and the erosion of credibility in those who lead.

When I hear a politician or business executive pontificating, I immediately recoil at the words “the fact of the matter is . . . .” This is a preface to mendacity, to a shovel full of slanted if not incorrect information. The bursting of the stock market bubble and the aftermath of 9/11 jointly demolished our trust in elected officials, in election processes, in the word of leaders, in the published reports of corporations and their auditors, and in our long-standing faith in the efficacy of markets. Lack of candor and the inability to apologize, to admit fault, are the prevailing winds. Politicians and executives are afraid to admit error for fear of being ousted from office. Both are driven by fear of their constituents. Peter Bernstein pointed out last month, “Nor will the data (quarterly corporate earnings numbers) ever attain credibility as long as investors require CEOs to perform high-wire pirouettes every three months in an effort to make the earnings numbers come out where investors hope they will be, and to dream up persuasive excuses for shortfalls.” (Economics and Portfolio Strategy, August 1, 2004) Are we afraid to face the truth?

A byproduct of this slippage in trust and credibility is the growing erosion in the pluralism and secularism that have been so identified with the United States for many years. The US is beginning to castigate anyone who does not match the profile of a “safe” citizen. It is starting to rethink its century-old open borders for immigration. Some are arguing that English, and English alone, should be the national language. As we grow to distrust our neighbors, leaders and institutions, some revert to those who promise all the answers, substituting dogma for doubt and difficult answers. As Philip Gourevitch of The New York Times wrote on July 20, “dogma is impervious to reality.” It begins to breed a new and disturbing messianic group belief of our own righteousness, an ironic mirror to the equally antithetical belief of those we now oppose.

The growing antipathy to all things American and the loss of trust in the “system” are two outgrowths of the 9/11 disaster and its subsequent reactions. They will, I suspect, be with us for some time to come, but I believe they are temporary. The cures for these cancers continue to be honesty, candor and expanded communication with those who offer criticism. These three traits are, or should be, the natural tools of those who purport to manage risk. Why shouldn’t we take the lead in this period of global uncertainty?


After writing these words, my editor, cook and constant companion noted sarcastically “Your soapbox is high enough to do Olympic back-flips. Were you robbed of a medal at Athens?” She brought me thumping to the ground!

Our concern with history . . . is a concern with preformed images already imprinted on our brains, images at which we keep staring while the truth lies elsewhere, away from it all, somewhere as yet undiscovered.

W. G. Sebald, "Austerlitz Modern Library", New York 2001

Copyright 2004, by H. Felix Kloman and Seawrack Press, Inc.

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