It’s been a decade since al-Qaida flew planes into the soaring World Trade Center and the seemingly impenetrable Pentagon. The passengers of the hijacked United Airlines Flight 93 bravely fought back and thwarted hijackers’ plans to hit the U.S. Capitol. That plane ultimately crashed into a field near Shanksville, Pa. before it could hit its intended target. After the initial shock at the wreckage and destruction, overwhelming anger, sadness and fear set in. There were 2,977 Americans listed as killed—murdered—in the worst attacks this country has ever seen on its soil.
The wreckage and impact on business was acute in the wake of the gruesome violence. Yet there is a story of incredible resilience when examining the aftermath of the Sept. 11 attacks.
According to USC Price School of Public Policy professor and Center for Risk and Economic Analysis of Terrorism Events (CREATE) researcher Adam Rose, who has studied the economic ramifications of the attacks, many businesses situated near the World Trade Center site relocated to midtown Manhattan or Northern New Jersey.
“This adaptive behavior had the effect of reducing losses and saving 80 billion dollars,” explained Rose.
The economic harm was far less in the immediate aftermath than initial estimates predicted, according to a team of CREATE scientists at USC and affiliates at other institutions, whose study is funded by the Department of Homeland Security. The impact of the attacks in New York ranged from $40 billion to $120 billion for gross domestic product. Those numbers translate to roughly 0.5 percent to one percent of the GDP. Many of the behaviors exhibited by business owners, which included moving businesses or hastening clean up, helped to alleviate longer-term economic devastation.
However, while the immediate financial impact was lower than previously thought, longer-term economic and psychological impacts are undeniable, according to CREATE researchers. America has changed since the attacks on Sept. 11, 2001. Invasive security measures are now a norm, affecting everyone from train riders to air travelers to business owners. These changes haven’t merely imprinted themselves on the country’s collective psyche, but also impact economic development as Americans attempt to find a balance between security measures and commerce.
“You have different viewpoints about what the right level of security,” explained Stephen Hora, a decision analyst and a professor at the Viterbi School of Engineering and the Price School of Public Policy, who is leading the Urban Commerce and Security Study (UCASS). “The people that are primarily motivated to do business are concerned that too much security will negatively impact business. On the other hand you have people that are primarily motivated to keep us safe and secure.”
Using five different attack scenarios, which mirror al-Qaida attacks that have taken place from Madrid to Manhattan, the study examined the economic costs of a terror event and how to prevent them.
“The attack scenarios are representative of attacks that have happened elsewhere,” said Hora. “For instance one scenario is very much like the Mumbai-style attack [in 2008]—low technology, very deadly.”
Too much security can cause stagnation in business. Too little can also be damaging. This is clearly illustrated with the Port Authority of New York and New Jersey, which rents out property to businesses and maintains responsibility for security at the port—from which roughly 19,000 cargo containers flow into the U.S. daily.
“The inception of the Urban Commerce and Security Study project was born from a very high level meeting between the undersecretary at the Department of Homeland Security who is in charge of science and technology, and the executive director of the Port Authority for New York and New Jersey,” said Dave Newton, project coordinator for UCASS, which is funded by the Department of Homeland Security. “The Port Authority is an interesting stakeholder because of their security responsibilities and the fact they are one of the largest landlords in the greater New York area as far as real estate.”
Inspecting each container at the port would impede business but strong layers of security are important, as U.S. ports have already been used to illegally transport goods that have financed terrorism.
“When you have the counter measure in place you incur economic slowdown and the direct and indirect cost of the counter measure, but you reduce the probability of an attack and, perhaps, the consequences of the attack,” said Hora.
In recent years politicians have attempted to pass legislation mandating that more containers in U.S. ports undergo inspection. Due to high costs and difficulties in examining all containers, such measures have not been passed. Instead, the ports have worked to adopt a scientific model.
“Obviously there is a concern of what is coming into the United States and how it’s being examined,” said Bob Hamer, a retired FBI agent. Hamer’s last assignment was Operation Smoking Dragon, lasting from 2002 to 2005. Through sales of counterfeit Marlboro cigarettes and tax stamps, the FBI learned about many of the funding sources helping to finance terrorism through the transport of items via Southern California ports. “A lot of the profits from these counterfeit cigarettes were, particularly, going to support Hezbollah and Hamas,” said Hamer. “The whole thing began with counterfeit cigarettes. It eventually evolved into something much greater than that.” Operation Smoking Dragon also unveiled North Korea’s production of ‘supernotes’—counterfeit 100-dollar bills that were central to the plot of a Hollywood film, “Rush Hour 2,” but a serious real-life concern for those who seek to protect civilians.
The ongoing UCASS project examines the trade-off between security and commerce in the lower Manhattan area, and helps policymakers to identify optimal levels so that economic activity is not infringed upon. It’s a project that CREATE’s researchers also hope to adapt to Southern California.
“Security measures are most effective as systems with layers of security,” explained Samrat Chatterjee, a postdoctoral research associate with CREATE. “The effectiveness of security measures is not simply the aggregation or sum of the effectiveness of the different components within the security measures.”
In layman’s terms, security tactics cannot be evaluated in a simple manner by isolating just one measure and adding its effectiveness to another tactic’s effectiveness. For instance, a 50 percent reduction in risk cannot be added to another 50 percent reduction in risk to reach 100 percent. Instead that reduced risk would be another 25 percent.
“There is not going to be any such thing as 100 percent security,” explained CREATE director Hora. “We have to live with some risk, but we can reduce the costs of unnecessary security measures by calculating likelihood of attacks and effectiveness of security countermeasures..”
Besides surveys, CREATE researchers used computable general equilibrium (CGE) models, which are used widely in policy analysis, and elicitation and survey methods to measure reactions of policy-makers, and Manhattan residents, employees, businessmen and tourists. The researchers also developed a template for identifying all direct and indirect costs and benefits of the countermeasures, including spillover effects that reflect both positive and negative unintended side effects.
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