Using the 3Rs to deal with crisis: in the first of a series of articles written by various ABAC members, the USA's Robert Prieto discusses how APEC economies can best deal with massive "unknowns" that can disrupt business - APEC Focus - resist, respond, recover

Business Asia, June, 2003 by Robert Prieto

September 11th, 2001 was part of a long series of unexpected events whose shock had global social and economic consequences. As the current challenge of SARS has shown, this series of unexpected events continues unabated. Each event, while representing separate and different crises, is extremely similar in its economic, social and political impact and, equally important, the speed with which these impacts are felt on a global level. What are we to learn from each of these events that will aid us in handling the next of the "unknown unknowns" we will undoubtedly face?

In the aftermath of 9/11, I found myself co-chairing the infrastructure task force initially organized by the New York City Chamber of Commerce. In the aftermath of that role, I turned to bringing a "systems engineering" perspective to draw out lessons from 9/11 that we can apply to future events. Little was I to know that 15 months later, as a member of the APEC Business Advisory Council, I would be looking at another issue of comparable global significance from this same "systems" perspective.

In light of their global consequences, the similarities between fundamental issues of Severe Acute Respiratory Syndrome (SARS) and 9/11 are frightening. The SARS crisis affecting various APEC countries is just the latest in a series of unforeseen shocks delivered to the region. With each unfortunate event, from the financial crisis to September 11th to SARS, APEC economies have an opportunity to learn.

The 3Rs

APEC nations in the 21st century have highly internationalized and interdependent economies. Along with this globalized trade and business environment is an increased recognition of the threats we face.

The only prediction we can safely make about unforeseen threats is that they will occur. To deal with these "unknown unknowns", we must ensure that the critical systems of our trade and business environment can Resist, Respond, and Recover from unforeseen events.

But what are these critical systems? How can they be defined? Building on what we have seen in other comparable events of "scale", I would suggest the following definition:

* Institutional frameworks, systems, or protocols whose failure or significant degradation would lead to unacceptable economic and social consequences, including unacceptable loss of life;

* Institutional frameworks, systems, or protocols whose rapid failure would significantly impact response efforts; and

* Institutional frameworks, systems, or protocols whose degradation would significantly impact the speed and prospects of recovery.

Critical response

Banking is an example of a critical system for a nation's economy, The Asian financial crisis of 1997 illustrated the importance of putting in place safeguards (ie transparency, proper governance, adequate oversight) that allow the system to resist economic shocks. Critical systems must be designed to resist shocks and avoid catastrophic failure. This role is ideally suited for a forum like APEC which can:

* Know all that is being done;

* Learn from an incident;

* Consolidate this invaluable source of knowledge; and

* Ensure its timely dissemination across the region.

One unfortunate feature of the SARS outbreak is that medical personnel, the "first responder" of SARS, were hit hard by the disease. Similarly, New York City firefighters, the first responders to 9/11, were also its heroic victims. It must be recognized that large scale unexpected events have the capacity to degrade the response mechanism.

IMF prescribed responses in 1997-98 for APEC countries experiencing balance of payment crises were hindered by a broad structural financial and economic collapse. IMF response mechanisms were inadequate considering the scale and multi-level nature of the crisis.

Each economic shock, whether natural or man made, has taught us lessons. These include:

* The link between the trade and business environment and overall economic health is crucial;

* Flexibility and redundancy of critical systems is essential;

* Failure to invest in critical systems represent a real cost and a real risk;

* Operational and emergency response expertise is an integral element of critical system response; and

* Today's interdependent economies requires a response that is highly considerate of the effects that a domestic crisis will have on the region and the world.

The economic damage of the SARS epidemic was caused mostly by fear of the unknown. In an information vacuum, panic is a rational reaction. A public that correctly understands the scale of the problem and methods to prevent future transmission can more easily recover their way of life.

We must design our systems for recovery. From a policy standpoint, this can mean many things:

* Implement a culture of transparent and accurate information;

* Ensuring legal instruments and access for specialized experts and international organizations after a crisis;

* Ensuring consistent and accurate documentation and data collection; and

* Pre-planning and rehearsing response and recovery scenarios for high-probability events (natural disasters, bank failures, terrorist acts).