Economy and Infrastructure Sector - Research Paper Example

Business and Finance Critical Infrastructure Sector ABSTRACT Economy of any country rests and thrives on its infrastructure setup. Finance and business infrastructures are the primary necessities through that economy of the country throbs and elevates to the new levels in terms of Gross Domestic Product of the country. Currently, the U.S. financial service sector has assets of more than $48 trillion in its control and it is correctly considered the financial hub of the world that contributes almost 8 percent in GDP. The financial and business sectors fall under the purview of various regulatory bodies that form the policy environment. The hosts of regulatory bodies like Security Exchange Commission, Chicago Board of Trade Futures, Federal Trade Commission (FTC), The New York Stock Exchange, Commodity Futures Trading Commission (CFTC), and many others are part of the policy environment, which is responsible in allowing, regulating, and settling various financial transactions, without which we cannot think of existence of any present day business activities. Importance of business and financial infrastructure can be gauged from the fact that federal government has identified financial sector as part of its critical infrastructure protection (CIP) efforts. Numerous arrangements help protect customers as well as institutions. The depositors are protected by Federal Deposit Insurance Corporation (FDIC) in the event of a severe liquidity crisis or due to failure of a bank. Government Emergency Telecommunications Service (GETS) is available to all institutions during disruption of the primary communication links. It is possible that we may encounter totally unknown calamity whether manmade or natural of totally different dimensions and depth and then it will be a real litmus test for all our thought process and strategic preparedness and final assessment from the fact that how we come out of it unscathed. Introduction Economy of any country rests and thrives on its infrastructure setup. Finance and business infrastructures are the primary necessities through that economy of the country throbs and elevates to the new levels in terms of Gross Domestic Product of the country. When U.S. was under the grip of great depression during the thirties and unemployment was rampant, then the new president elect Franklin D. Roosevelt spearheaded the country through host of infrastructure projects in terms of roads and buildings, bridges and hydroelectric dams, electrification and irrigation projects. This helped reduce the high unemployment rate and increased business activities manifold. After the necessary pause during the World War II, activities again got momentum to create large scale interstate highways, air and sea ports including many housing projects in private sectors. As physical infrastructure is a key to thriving economy so is the financial infrastructure too for any country. Currently, the U.S. financial service sector has assets of more than $48 trillion in its control and it is correctly considered the financial hub of the world that contributes almost 8 percent in GDP. This financial sector is primarily owned by private sector and grossly regulated by federal or state government agencies. (Sector Profile and Goals2007) It is well understood that set of rules, institutions and working systems provide a broader framework under which various financial transactions pertaining to banking, insurance, money markets, mutual funds, and futures contract in reference to various underlying securities take place. These institutions are necessary for the healthy functioning of the markets and can be described as an essential network of financial infrastructure for the growth of economy. The business and financial sector infrastructures are interwoven and any adversities impeding the functioning of the same will greatly affect the economy of the country in general and business sector in particular. Nonfunctioning of financial infrastructure will have a catastrophic effect on the economy as a whole. What We Mean by Financial and Business Infrastructure? Financial and business infrastructure is a wide term used to define plethora of tasks and activities that can be derived from it. Some of them can be described as under. Rules and regulations governing financial institutions and corporations Information infrastructure made of communication networks Exchange, settlement and clearing system consisting of technology platforms, systems, rules and regulations. Accounting and auditing bodies to implement and monitor proper compliance with set of rules and laws. The importance of financial and business infrastructure can be gauged from the following facts: 1. Any changes in financial and business infrastructure directly affect the investor's decisions on resource allocations. 2. Financial infrastructure has a direct bearing on the architecture of financial sector. 3. There is a direct linkage between new infrastructure development, and federal policy measures enacted time to time in view of the changing world dynamics. Policy Environment: The financial and business sectors fall under the purview of various regulatory bodies that form the policy environment. The hosts of regulatory bodies like Security Exchange Commission, Chicago Board of Trade Futures, Federal Trade Commission (FTC), The New York Stock Exchange, Commodity Futures Trading Commission (CFTC), and many others are part of the policy environment, which is responsible in allowing, regulating, and settling various financial transactions, without which we cannot think of existence of any present day business activities. Critical Infrastructure Protection: Federal government has identified financial sector as part of its critical infrastructure protection (CIP) efforts. The sectors which fall in this category are those essential from the view of economic security, national security and for the public safety and health. The sectors considered vulnerable are insurance companies, mutual funds, banks, stock exchanges, thrift institutions, government-sponsored enterprises, pension funds and many of such institutions fall in this category. (Banking and Financial Institutions form a critical Infrastructure 2009) Threats and Vulnerabilities: The one of the commonest vulnerability to this sector identified is in terms of cyber threats since majority of the business operations and services offered in this sector make use of the net connectivity and servers can be accessed from any remotest part of the world. These threats constitute activities like foreign intelligence, terrorism, and monetary crimes like forgery. In the past, financial sector has been under such threats and will remain like that in the future too. Besides, financial sector is also considered to be vulnerable for its dependency on other critical infrastructures like power and telecommunications. In the changed world dynamics terrorism has been one of the biggest threat looming large on the financial and business infrastructure of the country. It will be pertinent to delve into the incident of 9/11 and understand how it disrupted business environment of the area in general and of the whole country in particular. Effect of 9/11 on Business/Financial Sector The incident of 9/11 brought a catastrophe to many businesses and financial sectors such as insurance, aviation, tourism in particular and myriad of small and big businesses in various forms. It will be pertinent to go through some of the effects that these sectors have gone through immediately after the horrified incident. Insurance: Insurance is in forefront as one of the most profoundly affected sector due to 9/11 incident. The losses to the insurance sector were estimated to the tune of $40 billion in terms of the claims made toward the loss to the property, life and business losses. If such terrorist attacks become frequent, perhaps it will be beyond the capacity of the insurers to bear the losses. Moreover, industry has no prior experience so as to decide their rates of premiums for such incidents if they occur in future. As a result, very few companies are ready to provide for insurance schemes against losses arising due to terrorist activities. Customers are unable to obtain necessary insurance cover for any unforeseen losses if they happen to be victim of unfortunate incidents in future. (The Economic Effects of 9/11: A Retrospective Assessment 2002) Business Activity: It has been said that almost 18,000 businesses were either destroyed or dislocated due to the incident of 9/11, which were located in and around the World Trade Center. The compensation and loans provided were not sufficient to mitigate the hardships of such small business holders. Financial Catastrophe: There was a widespread disruption in the functioning of major financial institutions like The New York Stock Exchange. The exchange was closed owing to a large scale confusion and chaos in the city and remained closed until following Monday. Banks and major broking houses downed their shutters in Wall Street areas. NASDAQ too canceled trading for the day. Trading on the bond market too ceased for many traders were located at World Trade Center. The New York Mercantile Exchange remained closed for a week. However, Federal Reserve managed and averted liquidity crisis by infusing $100 billion a day for at least 3 days in a row. In the aftermath of this attack, gold prices per ounce shot up from $215 to $287. Aviation Sector: Other than insurance, Aviation was another sector, which was affected enormously. Due to recession aviation industry was already passing through a bad phase. The incident of 9/11 brought havoc as most of the flights were grounded at various places within U.S. The victim’s nearest kith and kin were compensated by United and American airlines to the tune of $25,000 as an immediate relief measures. There was a large scale dip in the share prices of the companies in this sector. Midway Airlines, already in the bad shape, closed down the shutters after this incident. Many airlines declared thousands of layoffs in the subsequent week after the incident. The federal government provided an interim short term assistance of $5billion to the industry. (The Economic Effects of 9/11: A Retrospective Assessment 2002) Tourism: Tourism was the third industry after insurance and airlines to suffer the most. Hotel occupancy in New York fell below 40% and large numbers of workers were given layoffs. Tourism across the nation suffered major jolt. The people were scared off flying from one place to another after the incident, which put the tourism industry into dumps. The hotel booking cancellations from the tourist within and outside of U.S. were at unprecedented levels. It had a multiplying effect on all the business activities throughout the country. (The Economic Effects of 9/11: A Retrospective Assessment 2002) Lessons Learned from the Incident: Having seen 9/11 incident happening in such a damaging proportion, question does arise in our mind that have we learned anything from this? The incident opened our eyes that master mind of the terrorists may be sitting at far off places geographically but still they can play a dirty game in our very homeland. There is no need to allow fear overpower us as this way we will be helping terrorists only. Life is precious but life full of fear is no life at all. Importance of airlines for business, leisure to cargo transport can well be understood during such terrorist activities, when interlinked business activities come to a complete halt for unknown fears and in search of remedial safety measures. Incident provided a crucial understanding that aviation industry is an important link to all business activities. Stricter measures like enacting the law of Aviation and Transportation Security Act (TSA) came into being due to this only. (Targets for Terrorists: Post-9/11 Aviation Security 2006) Incident brought solidarity among the countrymen for they realized that every citizen needs to understand the serious consequences of such incident and we need to cooperate and respect our service and military personnel for they are the ones risking their lives for us and safeguarding the nation. We need to speak up if we find any untoward or suspicious thing happening around. An alert citizen can prevent many such mishaps as it happened in shoe Bomber" incident, which was averted because of an agile and fast-thinking traveler. The incident happened barely 5 months after the incident of 9/11 showing agility of the passenger screaming at the right moment. (The Shoe Bomber’s World 2002) How has Aviation Security Changed since the 9/11 Incident? It will be pertinent to note that shortly after the incident of 9/11, the government passed the act known as Aviation and Transportation Security Act (TSA), which made it compulsory that federal government personnel will be in charge of airport security screening. It has implemented rigorous screening procedures, which necessitates that all bags of passengers are X-rayed and they are passed through explosive detection system. The important thing has been that passenger has to pass through many layers of security measures. Financial and Business Infrastructure Protection and Resiliency Federal government has been a protector of financial system of the last resort. Numerous arrangements help protect customers as well as the customers. The depositors are protected by Federal Deposit Insurance Corporation (FDIC) in the event of a severe liquidity crisis or a failure of a bank. Sudden panicky may cause crisis kind situation for even any healthy institution and FDIC's intervention by way of providing required liquidity in the system prevent such failures as FDIC is authorized to borrow up to $30 billion from the treasury, whenever needed for such critical moments. State-regulated insurance companies have a backing of guaranty funds from their respective states. Numerous financial entities have protection mechanism through safety nets, though such safety nets do no extend any rescue hand on financial failures. Even during the worst scenario, Federal Reserve can inject funds into the system to maintain the liquidity. It has the authority to lend to an institution, which is too big and its collapse can bring a systemic chaos or risk to the economy. Even in unusual or extraordinary circumstances it can lend directly to the concerned businesses, if found necessary. That authority has been restored by congress via TRIA. (Jackson 2005, Homeland Security). Communication Protection Link The federal government in liaison with other banking agencies and treasury has chalked out a plan to provide for the priority communication facilities. The primary aim is to mitigate the effect due to complete disruption of operations. It has programs for the following: To provide telecommunication service to facilitate interbank fund transfer, payment related services and to tackle such emergencies. To provide for wireless service of cellular calls in the event of failure of normal functioning or severe congestion Government Emergency Telecommunications Service (GETS) is available to all institutions for above mentioned purpose. (Government Emergency Telecommunications Service) Advanced Technological Measures as a Security Looking at the gravity of situation, it is now high time to take recourse to advanced technologies into the screening process of passengers. Some of them are: 1. Quadrupole Resonance Scanning (QRS): This can identify content in passengers' bags. It makes use of radio waves and notifies the wavelengths of the energy emitted from the stuff contained in the bags. (What is Quadrupole Resonance?) 2. Backscatter X-rays: is another device to identify the contours of a person's body and that is how device helps to identify plastic explosives or nonmetallic kind of weapons. It can be equipped with the necessary filters so as not to invade passenger’s privacy and modesty. 3. Lie detectors or polygraphs: can be used to screen the passenger screening. Passenger places one of the hands on a sensor and is required to answer some of the questions on a touch screen. By measuring pulse, sweating and blood pressures machine decides whether the person is lying or not. 4. ‘Puffers’ are used to detect explosive or suspected material concealed within clothing. In this small puffs of air are blown at the person being screened. The puffs dislodge molecules from a passenger's body or clothing and that air having been sucked into a filter further analyzed for doubt full materials. This method can also be used for screening luggage. (Layton 2006, Aren't there……) Conclusion It is sufficiently clear that business and financial sectors are critical infrastructure and through a lot of deliberations all possible programs and planning have been done by federal and state governments to safeguard it against any catastrophic incident. Though a lot has been done yet it will not be out of place to mention that the real success of all strategic planning and programs can be assessed when such situation arises. It is possible that we may encounter totally unknown calamity whether manmade or natural of totally different dimensions and depth and then it will be a real litmus test for all our thought process and strategic preparedness and final assessment from the fact that how we come out of it unscathed. References 1. Sector Profile and Goals (2007). Online from http://www.dhs.gov/xlibrary/assets/nipp-ssp-banking.pdf [accessed on 11/28/2010] 2. Banking and Financial Institutions form a critical Infrastructure (2009). Online from http://www.fas.org/sgp/crs/misc/RL31873.pdf [accessed on 11/28/2010] 3. (The Economic Effects of 9/11: A Retrospective Assessment 2002). Online from http://www.fas.org/irp/crs/RL31617.pdf [accessed on 11/28/2010] 4. (Targets for Terrorists: Post-9/11 Aviation Security 2006) Online from http://www.cfr.org/publication/11397/targets_for_terrorists.html [accessed on 11/28/2010] 5. The Shoe Bomber's World 2002. Online from http://www.time.com/time/world/article/0,8599,203478,00.html [accessed on 11/28/2010] 6. Jackson, William D. Homeland Security: Banking and Financial Infrastructure Continuity 2005. Online from http://www.law.umaryland.edu/marshall/crsreports/crsdocuments/RL3187303282005.pdf [accessed on 11/29/2010] 7. Government Emergency Telecommunications Service. Online from http://gets.ncs.gov/eligibility.html [accessed on 11/29/2010] 8. What is Quadrupole Resonance? Online from http://www.qrsciences.com/technology/what_is_quadrupole_resonance.phtml [accessed on 11/30/2010] 9. Layton, Julia. 2006. Aren't there machines that can detect liquid explosives? Online from http://science.howstuffworks.com/innovation/detecting-liquid-explosives.htm [accessed on 11/30/2010] Read More