The real cost to America and the world of Sept. 11
Dec. 10, 2001
By James W. Schmotter
The horrific attack on New York's World Trade Center on Sept. 11 was unprecedented in American history in its suddenness and scale. Not since World War II have we seen destruction of major cities in this magnitude, and never on United States soil since the great San Francisco earthquake and the Chicago fire of the 19th century. And unlike those latter two natural disasters, Sept. 1l was unprecedented in its premeditation and possibility of repeat. The attack is also unprecedented in its potential implications for the American economy. Let me speculate about what some of these might be.
First, we must note that this is the first such successful attack on physical and human infrastructure of the Information Age. Berlin, Tokyo and London were severely damaged during the 1940s, but this was before the Internet, 24/7 financial markets, global logistics and ubiquitous real-time news coverage. Only those in the immediate vicinity of Pearl Harbor saw the USS Arizona sink; millions worldwide viewed the collapse of the Twin Towers of the World Trade Center.
This immediacy of communication, I think, magnifies the potential psychological ramifications of the tragedy. More Americans feel directly connected to the atrocity and the subsequent suffering it has produced, and this connection will be reflected in their actions. What does this mean for the economy? Unfortunately, such psychological connection probably means that the normal blow to consumer confidence such an event causes will be even deeper and longer. For the past year, it has been consumer spending that's kept the U.S. economy from turning the economic distress that many regions, including Michigan, are experiencing into a real recession. While I have confidence that our business cycle will eventually return to an upward swing, the economic slump before that turn will be longer and deeper than we anticipated before Sept. 11.
The effects of the World Trade Center's destruction are also unprecedented in the massive scale of their impact on physical and human infrastructure. The value of the physical capital that disappeared on the morning of Sept. 11 will be valued in the billions, but the value of the tragic loss of human capital is even greater. Entire departments or companies, such as the securities firm Cantor Fitzgerald, suffered horrendous loss of life. We grieve for this human loss and feel for the friends and families affected, but we must also remember that those who died in the World Trade Center were among the world's most skilled professionals in their fields. Understanding the complexities of depending on real time digital information, Wall Street firms have prepared for natural (or in this case, man-made) disasters. Huge server farms scattered across the country in secure locations back up data, and while consumers of financial services may experience delays and dislocations in the months ahead, no valuable information will be lost. What will be missing, however, is the wisdom of those who perished in the attack. This wisdom, the product of decades of formal education and workplace experience, will not so easily be replicated.
The tragedy of Sept. 11 also has significant short-term impact on other industries: for example, airlines and hotels. Neither industry was experiencing its most robust season before the attack, and the federal bailout of the airlines is only the most immediate recognition of the difficulties these fields face. Similarly, the disappearance of 10 percent of the office space in Manhattan promised to create a radically altered real estate market there. And the costs and nature of reconstruction will pose challenging questions. Should Lower Manhattan's concentration of business be replaced in kind or is more dispersed commercial development elsewhere in the city more appropriate? Indeed, will hundred-story skyscrapers, a uniquely American form of architecture, ever be built again?
However, despite these immediate challenges, I remain optimistic about the economic future. And ironically, the source of that optimism lies in the same historical period I referred to in this article's first paragraph. For years, I began an international business course I taught with slides of old photos of the destruction of Tokyo and Berlin in 1945. From these ashes rose two of the economic powerhouses of the 20th century. America's economic fundamentals, political stability, banking system, and human creativity in 2001 far, far exceed what Japanese and Germans brought to their rebuilding task. We remain the most powerful and successful nation on earth, and no serious scholar doubts that will change in the decades ahead.
Dr. James W. Schmotter is dean of the Haworth College of Business at Western Michigan University. This column was originally published in the Nov. 21 issue of MiBizSouthwest and is reprinted in WMU News with their permission. The article is part of a monthly MiBiz series featuring professors from the WMU Haworth College of Business.
Media contact: Jessica English, 269 387-8400, jessica.english@wmich.edu