Vital Systems Security

Here is a new and interesting article that engages some of the VSS work:

Increasingly, governmental responses to incalculable, but high-consequence, threats to life and security are framed by what has been described as the `precautionary principle’ (Ewald), `preparedness’ (Collier, Lakoff & Rabinow) or `pre-emption’ (Derrida). This article redescribes features common to these characterizations as the paradigm of prudence and examines how this approach to risk management is playing out in the context of fears that feature within the Australian political imaginary. We explore how the approach to the future entailed in the paradigm enframes `life’ and stifles democratic participation and innovation in ways of living. Three case studies (in biosecurity, bioecology and biomedicine) demonstrate not only how the paradigm pervades the government of everyday life, but also how it is challenged by human `agents’, material `life’ and the dynamic relations between these two. By formulating what this involves, we point to a concept of the political more conducive to democratic pluralism, diversity of life and innovative culture.

The ongoing crisis in the housing market seems to illustrate how the economy can be thought of as a vital system and how that system and its governing can be conceptualized. The article points to how the labor market and the housing market can interact in unexpected ways and prevent markets to reach equilibrium.

The rapid decline in housing prices is distorting the normal workings of the American labor market. Mobility opens up job opportunities, allowing workers to go where they are most needed. When housing is not an obstacle, more than five million men and women, nearly 4 percent of the nation’s work force, move annually from one place to another — to a new job after a layoff, or to higher-paying work, or to the next rung in a career, often the goal of a corporate transfer. Or people seek, as in Dr. Morgan’s case, an escape from harsh northern winters.

Now that mobility is increasingly restricted. Unable to sell their homes easily and move on, tens of thousands of people like Mr. Kirkland and Dr. Morgan are making the labor force less flexible just as a weakening economy puts pressure on workers to move to wherever companies are still hiring.

In 2007, the inter-state migration dipped at a rate of 27 percent compared to last year, highest decrease in the rate of inter-state migration in the last 15 years! This seems to hint at the re-conceptualization of the economy as an open systems with interacting sub-systems and non-economic domains. In this new way of thinking, the problem of government becomes how to manage these interfaces where different series interact and influence each other. In the last post and in our conversations on the management of the economy, Stephen and I have been arguing for a transformation in the conceptualization of the economy as a vital system that needs to be governed accordingly rather than simply intervened upon. In this perspective, crisis is external to the exogenous to the system, rather than endogenous as Keynesian paradigm would argue. In the Keynesian paradigm, the crisis located at the natural life cycles of capitalism; due to the need for large scale re-investment at the end of each business cycle, the balance of savings and investment gets obscured and unless intervened the economy rather than coming back to the equilibrium point fails to restore the market equilibrium. So, the solution is proactive government intervention with the goal of prolonging the business cycle. The problem is located within the very nature of capitalism. However, as we have been seeing in the housing crisis the problem has nothing to do with fixed costs of re-investment of the business cycle. It rather has to do with the mismanagement of risk, which seems to be an agent of translation between different domains. It is a way to manage an interface, i.e the housing market, and indirectly the labor market, and people’s seemingly non-economic needs of inhabitation. As we have been seeing, miscalculation of risk is posing great vulnerabilities to the economy as a vital system, and the problem of crisis manifests itself in terms of shocks disseminating from one sub-system to an other. Then I presume the problem becomes one of resilience and robustness of the interfaces connecting different domains within the economy: the ability to absorb unexpected, and yet immanent shocks. So, can we actually understand the neoliberal language of regulation, as opposed to intervention, in terms of the management of interfaces? Probably Stephen can tell us more with regard to risk.

Fantastic, informative article in NYT Magazine takes a peek at ‘cat bonds’ — or catastrophe bonds — and the argument for pricing insurance in accordance with more ‘realistic’ models of risk, for example for hurricanes or disasters. Interesting, compelling, and well-written… I don’t like being so cynical but it almost has one believe that the insurance industry can play a socially useful role in solving the problem of risk mitigation: by encouraging people not to build and live on fault lines or in highly vulnerable hurricane zones — or by pricing insurance sans state subsidy in such a manner as to cover actual losses as opposed to the fantasy losses that the industry, pre-Katrina, historically pre-supposed. All of this sounds great if it didn’t ignore the fact that at a population level those most vulnerable to extreme disasters are to be found in the lower strata of the social class and SES registers. There is also a pretty heavy correlation between race and vulnerability to extreme events.

Just thinking out loud here, but it seems there are at least two parallel discussions going on here in the area of catastrophic insurance: On the one hand are those discussions which focus on the specific techniques and practices around insurance which are introduced and made viable (and visible) in discourse and policy without reference to a number of salient elements such as social class, race, etc. On the other hand, there exist a number of critiques which point almost exclusively to ‘the social’ — to social disadvantage, the reproduction of oppression, and inequalities in a number of domains — to explain the root ’causes’ of disasters (and offer a way forward) without specific reference to the very rationality and techniques which parse the world into (usually predictable) risks and rewards. This is maybe a crude second-order observation to be considered in light of Stephen’s flag of the Kunreuther piece.

Howard Kunreuther, one of the major figures in insurance and catastrophe risk in the United States, has an op-ed in today’s Times about hurricane insurance post-Hurricane Katrina (he has also co-edited a book on risk and natural catastrophe post-Katrina that is worth a look). Apparently, State Farm, the major insurer for flood risk in the area, has decided to stop selling policies to homeowners in the area. Thus the question: Who will cover loss for the next big hurricane?

This has been a topic on which Kunreuther has been focused since at least the late 1960s, when attention in the United States began to turn to the question of increasing catastrophe risk as people moved into more risk-prone areas, and the role of government in promoting this “risky” behavior through compensation or cheap loans after the event. (Some studies showed that people ended up better off financially, at least in some cases, after natural catastrophes than before.)

The prescriptions now are the same as the prescriptions then: better evaluation of catastrophe loss risk, pricing of insurance to reflect that risk, and individual decisions about what kinds of risks they are willing to take, and what kind of premiums they are willing to pay. Kunreuther adds a proposal for vouchers that would help low-income households pay for insurance, which, he holds is vastly preferable to blanket subsidies which mask the real risks assumed by location decisions.

I blogged on a similar topic some time ago, concerning the Army Corps efforts to disseminate information about flood risk in New Orleans through new visualizations based on the web. Kunreuther is offering a broader overview of what might be called a neo-liberal apparatus of catastrophe risk management through the calculative choices of free actors. Sounds pretty good to me.

Read on for the full op-ed:
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Melinda Cooper recently drew my attention to an interesting study conducted by Harvard Medical School Center and sponsored by Swiss Re and the United Nations Development Programme. The study predicts that “climate change will significantly affect the health of humans and ecosystems and these impacts will have economic consequences.” In addition, the study attempts to “survey” existing and future costs of climate change. It argues that the insurance industry “will be at the center of this issue, absorbing risk and helping society and business to adapt and reduce new risks.”

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An article in today’s Times reports on substantial housing development in the flood plain of the the Mississippi River following the floods of 1993.

Building is happening on flood plains across Missouri, but most of the development is in the St. Louis area, and it is estimated to be worth more than $2.2 billion. Though scientists warn about the danger of such building, the Missouri government has subsidized some of it through tax financing for builders.

“No one has really looked at the cumulative effect,” said Timothy M. Kusky, a professor of natural sciences at St. Louis University, who calculates that there has been more development on the Missouri River flood plain in the years since 1993 than at any other time in the history of the region.

These developments raise again a series of problems relating catastrophe, risk, and insurance that first emerged after the United States passed its first disaster relief act in 1950, formalizing federal aid to flood victims. Immediately, it was recognized that these policies created a problem of moral hazard: individual homeowners would not purchase insurance against what they perceived to be unlikely events, particularly since they counted on the federal dollars to bail them out (often, or so libertarian and economist critics argues, leaving them in better shape than when they started).

In 1968 a program of federal flood insurance was created, which relied on the government to construct hazard models that would serve as the basis for determining premiums, and counted on private insurers to provide policies. But this program — which has been revised many times since — did not entirely solve the problem. On the one hand, individuals purchased policies at much lower rates than was expected, leaving much of the damage from floods still to be covered by federal relief (and the government often stepped in to offer even more relief after major events). On the other hand, these policies did not always do enough to prevent development in flood-prone areas. Of note in the article is the line drawn around the “100 year flood.” This threshold was key to the original program of federal flood insurance, which mandated insurance policies for homeowners living in the damage area of a 100 year event. The question, of course, is how accurate the models are, and whether that threshold is the right one.

One resident who had purchased a house outside the 100 year flood plain (and was thus not required to purchase insurance), said that “It’s not going to flood here for another 100 years, and I won’t be around by then.” A touch unclear on the concept, one might say. In the long run the dynamic is familiar. Bigger levies mean more housing in the flood plain. Which may contain small events, but open the gates for ever bigger, if rarer, events. “If history tells us anything, it’s that levees once built eventually fail,” Professor Pinter said. “But instead of being farmland there, now it’s a strip mall or residential area, or a whole city.” As Aaron Wildavsky might say, “safety” is being purchased at the price of resilience.