When Should the Public Sector Take Over in a Meltdown?
Summing Up Jim Heskett's readers have wildly differing opinions as to what extent governments should step in to remedy public sector "meltdowns."
The variety of responses stimulated by this month's column may help explain why our public institutions are so often perceived as responding slowly to natural or man-made "meltdowns."
First, as Ravindra Edirisooriya suggests, we had better have a common understanding of what a meltdown is. As Philippe Gouamba puts it, "Is it a partial collapse or a total collapse? What is at risk in this collapse; is it human lives, corporate capital or national pride?" Having asked these questions, he opts for intervening "immediately."
Others are more introspective. While C.J. Cullinane recommends that government "at least monitor the situation," he offers little hope that government intervention can be any more effective than private sector responses. Richard Oxford agrees, noting that "Free markets work within limits." R. A. F. Reisner argues for the "public's right to know," but suggests two other questions in assessing the need for a takeover: "What's the cause of the problem? And what are the public interests at stake?" Gerald Nanninga suggests the criterion of whether "government management is clearly superior," noting that this may be the case only when there is a "threat of widespread panic" or "when a crisis breaks down an entire system (like the banking system)." Elaine Scheye would limit intervention only to cases where "public safety" of a physical nature might be threatened. Rob Houck reminds us that considerations of potential legal liability often inhibit transparency in such cases.
Should the public sector wait for an "invitation" for its intervention? The sentiment here seemed to be that it depends on the nature of the calamity. In a natural calamity, according to Kamal Gupta, the invitation is less important. Phil Clark, based on his experience, has concluded that "the sooner the government becomes involved in catastrophic events the better the outcome …" When it is economic, however, the guidelines are less clear. Gupta would suggest avoiding intervention. But when it is national, he suggests that other countries "wait & watch, and move in at an appropriate time, whether invited or not." Given the widely varying nature of crises, Gaurav Goel suggests putting in place methods for early prediction as well as criteria for the timing of intervention and, just as important, "the exit process once the desired results (predefined) … are achieved."
Several argue that prevention…whether through planning, laws and regulations-or the financing of "insurance" …is a valid goal for the public sector. Marco Solari suggests that the "government role should be to … dismantle … too much concentration of power." Stephen Basikoti says governments can be more "proactive in their monitoring activities." Here there is recognition that several forces mitigate this approach, among them lack of public credit for prevention (as opposed to recovery), political opposition to preemptive actions, and the sheer cost of insuring against meltdowns (Phil Clark).
David Physick responds with questions: "Is the question being posed, i.e., 'When?', the wrong one? Is the correct question actually 'Why'?"
What is the public's role in a meltdown? What do you think?
Over the past several years, we have witnessed a variety of "meltdowns," ranging from financial to nuclear. Although we can debate the meaning of the term, it's a graphic way of describing a situation in which events appear to be out of the control of a responsible private organization.
Differences of opinion arise over whether an "out of control" situation exists. In just the last few weeks, we have seen the Japanese government debate whether or not it should intervene in the management provided by nuclear power provider Tokyo Electric Power Co. in efforts to control a meltdown at its Fukushima Daiichi Nuclear Power Station. At the same time, the global public sector stood on the sidelines, waiting for requests for assistance by the Japanese government in a matter of clear significance to private and public entities around the world. In a sense, the situation raised the question of intervention among public organizations as well as between private and public.
Recall the debate over whether or not the US government should have bailed out two major automakers. Regardless of whether their problems were of their own making, there were those who argued that the immense health and pension obligations and non-competitive compensation structures of these companies represented a situation "out of the control" of management. Others objected, saying that these private organizations should have been allowed to deal with natural consequences of their own actions.
The near meltdown of the financial sector is an even more appropriate example. Here was a situation in which a decision by public officials to allow Lehman Brothers to fail had consequences not for just other private organizations, but for public entities all over the world. Clearly, the community of interest (and self-interest) extended far beyond Lehman Brothers and the US Government.
Now we have the issue of who should control information related to a critical failure that is of interest to private and public institutions globally. In the case of the nuclear meltdown in Japan, the lack of timely and accurate information was an important part of the problem. Whose responsibility was it to assure that the best information was made available to all interested parties? In Pennsylvania, when the company operating the Three Mile Island power station was found to be issuing information of questionable accuracy, then-Lieutenant Governor William Scranton, responsible for energy policy in the state, went to the control room of the faulty reactor to check personally on the confidence, if not the competence, of the workers in that facility. Are such efforts appropriate, even in situations in which disclosure can exacerbate the very problem for which a solution is sought?
When should the takeover happen: (1) immediately, assuming a natural conflict of interest in distributing accurate information?, (2) later, or (3) not at all? What are the criteria that should govern public intervention in a meltdown faced by a private organization? Do they apply equally to one government's intervention, with or without a request for assistance, in a challenge faced by another government? What do you think?
Jason Clenfield, "Japan's nuclear disaster caps decades of accidents and fake reports," TheBostonGlobe.com, March 18, 2011
Interview with William Scranton, National Public Radio, March 18, 2011