- The Washington Times - Tuesday, May 28, 2002

In the aftermath of September 11, the daily barrage of predictions of incipient terrorist attacks against numerous business targets nuclear power and chemical plants, shopping malls and financial institutions has accelerated the need to highlight lessons learned thus far on the impact of terrorism on business.

Terrorism is relatively easy and inexpensive to activate yet very difficult and extremely costly to counter. The costs of protecting industry from terrorist acts against it have run into the billions of dollars. These costs are ongoing and are likely to rise in the future.

Business, too, is cognizant that it has limited financial resources with which to reduce terrorist threats. In turn, the tension between providing sufficient security without expending excessive resources has gained greater resonance.

Analogously, due to rising costs associated with corporate security, industries will have no other recourse other than to shift some of these expenditures to consumers. As there is now a security surcharge on airline tickets, so too, other businesses deemed soft targets of terrorism such as restaurants and movie theaters may follow suit. Security charges were instituted at some restaurants in Israel, where numerous suicide bombers have wrecked heavy human and financial tolls.

Significant terrorist attacks may negatively impact several sectors simultaneously perhaps commercial aviation, insurance, hospitality and tourism during an initial period. At the same time opportunities might be created and expanded in other industries such as corporate security, defense, biometrics, and explosive detection equipment. Product lines may be removed from the market or limited, depending on the severity of the attack (for example, terrorism insurance coverage becomes scarce).

A terrorist incident on one portion of an industry, such as commercial airlines in the transportation industry, can have positive ramifications on other segments of the same industry, such as corporate jets. A terrorist's use of one business service (e.g., postal system) can lead to opportunities in unrelated business sectors (e.g., pharmaceuticals) as demonstrated during the anthrax attacks in fall 2001.

Companies are creating subsidiaries and expanding business units focusing on homeland defense products and services. There has been an increase in joint ventures, mergers, and acquisitions among companies helpful in the war on terrorism, particularly among defense and biometrics companies. Such collaborative and integrative shifts are expected to proceed.

A multifaceted private-pubic relationship has developed as a result of the war on terrorism. Government plays an active role in business activities, such as through emergency funding to airlines, and enters into functions previously under the purview of the private sector e.g., aviation security. The public sector provides funding and research to industry in order to develop or improve counterterrorism tools, including pathogen antidotes and explosive detection equipment.

Concurrently, the 2001 U.S.A. Patriot Act enables government to place great pressure on business to provide information about customers purportedly involved in funding terrorists. Government, moreover, may affect the production and pricing levels of companies through persuasive tactics in times of a national crisis, as in the case of an anthrax outbreak.

Business tends to focus substantial attention on the most recent threat while often ignoring future challenges. Following the September 11 attacks, the commercial aviation sector implemented wide-reaching changes in its security framework. Unfortunately, security in other transportation modes (e.g., passenger trains, buses and subways) has not yet received adequate attention. Sadly, only major attacks on disparate settings will initiate greater focus on other risks.

Management is better sensitized today to assess internal threats (e.g., background checks to minimize "sleeper" potential terrorists) and external threats (e.g., protection against attack on a factory) than prior to September 11 when security matters received limited management attention. If management fails to adequately protect its work force, it will be held accountable when a terrorist incident occurs.

Another consequence of a terrorist attack on a business is that a company can become a plaintiff (e.g., a corporate tenant sues a landlord) or defendant (e.g., the estate of an employee sues a corporate tenant). Lawsuits may arise directly from a terrorist incident (a patron in a restaurant) or indirectly (a doctor misdiagnoses anthrax exposure).

These findings provide an elementary base from which to assess the preliminary effects of terrorism on business. In the coming months it is likely that terrorism will inflict additional human casualties, financial costs and manifold consequences on American business. Businesses, however, can play a key role in reducing dangers created by terrorists if they devote serious attention and sufficient resources to such threats.


Yonah Alexander is director of the International Center for Terrorism Studies, Potomac Institute for Policy Studies in Arlington. Dean C. Alexander is a lawyer and a fellow at the International Law Institute in D.C. The authors recently published "Terrorism and Business: The Impact of September 11, 2001" (Transnational Publishers, 2002).


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