15 Oct 2001  Views on News

Lessons from the Rubble

In the wake of the deadly terrorist attack, America has begun to learn some lessons it should have already learned about the New Economy, the role of government, and how the country is viewed elsewhere, says HBS professor Debora Spar.

 

It will take weeks for rescuers to comb through the gruesome wreckage of Manhattan, months to piece together the madness behind the attack. We can only speculate right now about the motives that drove men into the air, into the buildings. We can only shudder at how the U.S. response is likely to unfold and at the continued horrors that any response will undoubtedly let loose. We know that the death toll is at least in the thousands, and that the financial toll will soar to tens of billions of dollars.

There are other things, though, that are also obvious from the attack, things that should have been obvious even without the devastation we have just witnessed.

First is that the new economy never was all that different from the old. In the ancient, heady days of the Internet boom, it became fashionable to declare that the physical bonds of commerce had been replaced by the virtual. Pundits and investors spoke giddily of the end of national borders, of markets that spanned the globe and replaced the hefty weight of machines and plants with ephemeral bits of information. This may be true. We do have global markets and firms whose value is based only on the knowledge they provide. But the advent of the virtual economy does not remove the constraints of the physical. Planes smashed into buildings on September 11, and information was incapable of stopping them. Firms lost physical assets—computers, files, desks, and offices—that cannot immediately be replaced. And they lost people, whose knowledge and expertise may prove irreplaceable.

People resent the United States for its prosperity, for its power, and for the presumption that prosperity and power give it the right to judge and advise others.
—Debora L. Spar

A second grim lesson is that governments do indeed matter. We have heard a lot, again, in recent years about the coming obsolescence of the nation-state. We have been told that the new economy would push power away from states and toward the market, and that smart governments would be the ones that simply let commerce take its course. It's a logical argument, but it's wrong. Look what happened in the immediate wake of the attack. People didn't only want representatives of Morgan Stanley to deal with what had befallen them. They didn't turn to American Airlines. Instead they wanted firefighters and police officers and armies. They wanted Rudy Guiliani to take care of things while the folks in the Pentagon figured out what to do next. In the days and weeks to come, Americans will undoubtedly welcome government back into many aspects of market life: into airports and buildings, rental cars, and flight schools. We may also begin to reconsider Clinton-era policies that reversed the government's historical control over encryption technologies, the complex formulas that allow Internet or cell phone users to scramble, or disguise, their communications. In the late 1990s, the Clinton Administration gingerly stepped away from these controls, ignoring the pleas of the FBI in favor of arguments that controls were bad for commerce. Tragically, it appears that the FBI was right, and that Americans may want to allow the government considerably more leeway for listening in.

Finally, the scariest and most obvious lesson is that U.S. style capitalism is not necessarily a panacea for the world's ills. In the new economy, all of the world was supposed to follow the trail laid down by the United States. It was a trail dominated by high-tech firms, by financial firms, by the information-based giants that drove U.S. prosperity to unprecedented levels in the 1990s. In many parts of the world, however, this trail has long been seen as the wrong road. People resent the United States for its prosperity, for its power, and for the presumption that prosperity and power give it the right to judge and advise others. Thankfully, most of the world's people do not act upon this resentment. But it is there and it is simmering. We saw the tragic explosion of this backlash on September 11. And, terrifyingly, we are likely to see it again.