Network Diffusion: The Economical Solution to Terrorism
Brian Gongol

Security Spending Represents a Tremendous Drain on American Economic Resources

The case for shifting power and authority from the national government to the states is usually made on philosophical or historical grounds. While there is clearly a case to be made for classical federalism (strong states in tandem with a strong but distinctly limited national government), little has been said about the efficiency and suitability of the classical federal model as a response to contemporary world threats.

The federal government plans to increase Homeland Defense spending by 10% in FY 2005, including $33.8 billion in discretionary budget authority. It's a value more than 50% over the net worth of Paul Allen, the third-richest person in America, and is easily matched or bettered by private-sector spending on anti-terrorism measures.

Terrorism has forced both the private and public sectors to evaluate how they distribute resources. Terrorists themselves understand that terrorism can leverage vastly greater damage on its victims than it costs to carry out. Targets can't afford to ignore the terrorist threat altogether, but much of what has been done in the United States in response to terrorism has been symptomatic rather than systematic. The result is that actual security has only been increased somewhat, while the incentive structure that makes terrorism attractive to insurgents and enemies of the United States has been left virtually untouched. The likely consequence is that a large volume of resources will be needlessly expended in pursuit of an imperfect sense of security.

Power Is Concentrated, Both Geographically and Structurally, in Both the Private and Public Sectors

It is surprising that there hasn't been a broader debate on more economically efficient means of defending the United States against terrorism. It would be logically absurd to try to spend our way into security, since we could in fact devote the entirety of our gross domestic product on security measures without actually guaranteeing that no further attacks would take place. Yet it has so far eluded us in our response to terrorism to consider changing systems and structures in order to make them more robust in response to the threat of attack.

With the ever-increasing scope and reach of the national government has come an increasing concentration of power and control at the national level. The same effect has simultaneously played out in the private sector as more challenging tax and regulatory structures have enhanced the environment for large businesses at the expense of a more vibrant market for small- and medium-sized businesses, since those smaller firms are less able to effectively shield themselves from those taxes and regulations through accountancy, legal action, and political favoritism.

The net effect of these trends has been to concentrate power and control, both geographically and structurally. Today, one national government in Washington, DC, commands the powers of the vastly greater part of what was intended as a balanced federal system.

National authority extends far beyond simply the reach of national-level agencies. Many (if not most) state and local governments depend upon direct fiscal support from the national government in order to carry out even their most basic activities, like building infrastructure and maintaining school systems. The net impact has been to create a system in which local and state governments are neutered and have become largely incapable of self-maintenance. Again, the same effect is widespread in the private sector as well, where fewer businesses are independent and large organizations concentrate decision-making authority at the top echelons.

Concentration Exposes the System to Much Greater Liability

This is precisely the opposite of a healthy structure for sustainability and robustness in response to terrorism. The attacks of September 11th were brutally effective at causing financial and economic hardship precisely because they brought business activity in Manhattan to a standstill. With so much of the nation's business and financial activity dependent upon that one geographic space, a single disaster wrought enormous distress.

Similarly, with so much of the government's power and authority concentrated within Washington, DC, it too is both a geographic and structural linchpin. Discussions of "government continuity" in the event of terror attacks only serves to confirm the observation that the system has been rendered highly unstable by the perpetual efforts to push government responsibilities up the food chain.

Category Weakness Diffused Network Alternative
Government Continuity Heavy concentration of power and authority in a relatively small number of agency directors and officials, many of whom live in or around Washington, DC. Power and responsibility, wherever reasonably possible, should be pushed back "down" to the states. The sheer difficulty of trying to similarly disrupt operations for each of 50 state governments, plus the national government itself, makes it nearly impossible to conceive of any attack or series of attacks that could effectively disrupt the self-government of the entire United States.
Intelligence-Gathering The CIA and FBI have failed on several high-profile occasions to effectively gather the necessary evidence and intelligence needed to thwart terrorist attacks. Much of the best footwork on terror issues has been done at the local level, but many state and local law-enforcement agencies remain dependent upon federal funding and training. A healthier approach would enhance the independence of local authorities to coordinate themselves independent of federal agencies, especially in case of damage to the federal agencies' ability to respond to attacks.
Budgets and Fiscal Authority The national government holds sway over vast reaches of local budgetary authority, from education to infrastructure-building. States and local agencies need more responsibility for and ability to handle their own financial conditions in order to reduce the risk that catastrophic events on a national scale will cause those local agencies to fall apart as well.
Business Continuity A vast number of major companies are concentrated in a handful of states, including New York and California, while states like Iowa and Indiana and South Dakota have few or none. Businesses would be wise to consider spreading out their risk pool geographically in order to reduce their exposure in any one location.
Transportation Bottlenecks The nation's transportation system, particularly for air travel, depends upon a small number of hub airports. Disasters or delays caused at any one of these airports can cause a ripple effect of trouble throughout the system. The sustainability of regular air travel in case of a major terrorist disruption at O'Hare, LAX, John F. Kennedy, Dallas-Fort Worth, or Atlanta would be difficult at best. Southwest Airlines has shown that the hub-and-spoke model isn't the only way to run an airline. Given the risk that a catastrophic event could be targeted at one of these airports, it's difficult to understand how the major airlines continue to justify concentrating huge shares of their equipment and labor at those few destinations. A major event at O'Hare could certainly spell the end for United, just as one at Dallas-Fort Worth could mean the same for American.
Business-Sector Resilience Complicated tax and regulatory conditions tend to favor large firms, since they have the resources to afford the accountancy and legal advice that can help them avoid the impact of those taxes and regulations. Further, large firms are more capable than small firms of buying political influence through campaign contributions and lobbying. The resulting market conditions favor business concentration, which exposes the economy to risks similar to those of government concentration. An environment that offers small firms a level playing field in terms of taxation and regulation would increase the robustness of the private sector by increasing the number of sustainable firms that would be likely to survive major damaging events. Small firms are particularly sensitive to challenging tax and regulatory climates, since they are forced to spend a disproportionate share of their resources on compliance, which reduces their ability to invest in growth and development.