We all know the problem: Following 9-11 we have huge additional financial and operational responsibilities of HLS on our three levels of government. We are not even sure what specific assets we should protect and when they should be protected. Terrorists' options are much higher than what we can prepare for. We are protecting our nation against an unseen enemy with infinite possibilities here and overseas. In various HLS related conferences we have all heard about how numerous are the possible targets so that the listener is unclear how it is at all possible to consider appropriate protection. For example, 15,000 sites in the U.S. store large amounts of toxic chemicals; there are 2 million miles of oil and gas lines, 600,000 bridges, 5,389 public use airports, 145 major ports, 64 nuclear reactors, and 6,800 public supply water sources and the list goes on.
Some estimates have been made for the cost of just improving first response to a minimally acceptable level. The Rudman Report estimates $100 Billion additional expenditures over five years to reach just that minimum level of first response. The amount that state and local governments must cover ranges from an estimated $25 to $75 billion. One other estimate is that one billion dollars per week is added to HLS cost when ever the alert goes from yellow to orange.
HLS is clearly a government function involving what economists term a pure public good where the benefits to society are obvious but without active role of government, it will not be provided by markets. Since the benefits accrue to all from improved HLS and none can be denied the benefits, if government does not get involved it will not be provided. We prefer private market provision that is usually more efficient but it will not be provided unless government intervenes. However, there are some HLS services that will be in the private companies' interest to provide. For example, in Israel , a frequent victim over many years of terrorist attacks, restaurants, office building and shopping malls that wish customers to feel safe and patronize their establishments, fund guard services and make sure that the guard are constantly on alert. The more importance consumers attach to security and the uniqueness of the company's service, the more of the cost of the guards is borne by the consumers. Government and in particular police have had considerable experience in training security officers, and applying technology to security efforts. Thus, government can initiate HLS efforts by offering training, equipment, and advice. One cannot expect governments at all levels to carry the financial burden and in such a short time to be fully operational without the active role of the private sector.
Most of the financial and operational burden falls on state and local governments. In the time of tight budgets the necessary resources are just unavailable. At the same time, the history from other fields of federal subsidization of state and local functions has often led to wasted resources. US DoT has for years subsidized operational expenses of urban mass transit systems. Studies showed that much of the subsidies were simply absorbed in higher salaries and did not lead to increased level and/or quality of service. This strongly suggests another model than strictly relying on federal support, namely, public-private partnerships where market incentives for both innovations and efficient production are present.
We stated above that there is almost unlimited number of facilities to protect. We are vulnerable to chemical, biological, targeted assassination, nuclear, cyber, and conventional terrorism. Some basic protection is possible and required. However, terrorists have unlimited possibilities while government cannot prepare for all of them. Also, raising the level of protection is associated with increased marginal cost. Hence, we must use our available national resources efficiently by limiting such protective measures and spending relatively more on response, recovery, and intelligence. Concentrating, for example, on port protection will shift terrorist actions to other less protected targets. In criminology this phenomenon is simply referred to as a functional/spatial/temporal displacement effect. Target hardening just shifts criminal activities to a time or place or target that is less protected. Getting away from stationary protection to flexible forces that can be relatively easily maneuvered is always desired; it requires more innovative thinking. A related example is the vaunted Maginot Line in France that was designed to protect against invasion. It was easily avoided by the Germans who attacked Belgium and then invaded France from a different door. Or, consider the Bar Lev line that the Israelis built after 1967 along the Suez Canal that was penetrated by the Egyptians in 1973. We should avoid similar mistakes of developing fixed and rigid target hardening.
We talked about the fact that government cannot and should not be expected to carry the entire burden of HLS. Rather, we should introduce business incentives for private firms to share the actual efforts. We also discussed the need to divert resources from target hardening to more flexible and intelligent, response and recovery activities that will fit many stationary type targets.
Now, let's touch upon technology. When public investments are considered, governments often encounter debt limits that prevent sufficient borrowing and introducing capital intensive technological solutions to HLS. This is similar to government investment in infrastructure projects that often use more labor and less capital and technology then is optimal. The private sector usually is more concerned with the discounted present value of costs and as such may spend more at the investment stage, especially in capital and technology, in order to save more on operations through the life of the project. Also, the private sector is more familiar with innovations in technology and has fewer bureaucratic impediments to implementation. Thus, public-private partnerships may enhance adoption of technology and thereby achieve more efficient production.
This all takes us to the following conclusions. HLS is no different from other recent cases for innovating forms of public-private partnerships. The objective is to achieve as much competition in the supply of services while minimizing the role of government in the actual provision of the service. Now we need to think about the nature of the profit incentives that will encourage private participation in HLS without sacrificing security.