Monday, March 14, 2011

Japanese Lessons

DAY 6 OF 46

California, the land of beautiful weather and beautiful people, falling into the ocean.

Like many non-Californians, I've joked about it for years. Almost in gleeful anticipation of it happening. Not for the tragic loss of life which such a cataclysmic event would undoubtedly involve. But the drag on the rest of the country that California's superfluous and oftentimes esoteric lifestyle represents.

Sun-bronzed, bikini-clad, Rodeo-Drive-shopping, Malibu-living denizens of casual mortality. Not to mention casual morality. Uber-hip silicone valley girls, and Silicon Valley technocrati whose reality really is virtual. And the whole liberal, hippie, surfer, gangsta, preppie, Beemer, studio, smog, Berkeley, celebrity, Beverly Hillbilly, freeway crazy culture.

Falling into the sea.

New York may be the financial capital of the world. Washington DC may be its political capital. But California is the world's blow-dried, sport utility, lift-and-tuck pop-culture capital, in glorious Technicolor and surround sound.

So when people start talking about what happened to Japan last Friday also happening to California, many Americans join me in laughing it off, as if it wouldn't be any great calamity. Arizona could use some oceanfront property anyway.

The Golden State is Still Golden, Indeed

Yet it's hard to estimate what a similar natural disaster would do for not only the West Coast, but for the United States as a whole. Despite its massive social and economic problems, California remains our most populous state by far, and single-handedly churns out 13% of our Gross Domestic Product. If it were its own nation, it would have the world's eighth-largest economy. It's also the world's fifth largest food supplier.

Needless to say, all kidding aside, an epic natural disaster to California alone would have not only world-wide ramifications, but also critical implications for every American. After all, fissures in Japan's economy have already begun to appear just days after their quake. Factories still got damaged, mass transit was still crippled by blackouts, fuel supplies ran out, and basic foodstuffs were unable be restocked, even in relatively unscathed Tokyo. All despite rigorous engineering standards designed to prevent their built infrastructure from collapsing onto their economy.

So, how does that bode for those of us on this side of the seismic region known as the Pacific Ring of Fire?

More Than Just a Rainy Day Fund

Conservatives across the United States have been harping for years about our need to right-size government by reducing our national debt, public sector spending, and reinvigorating private enterprise. Yet, unfortunately, politicians of both conservative and liberal stripes have been playing the same old Washington parlor games that fortify the status quo at the expense of streamlining our finances.

But... what do finances have to do with earthquake preparedness?

In the wake of Friday's historic earthquake and subsequent tsunami in Japan, American money experts have already launched a spirited debate on how ill-prepared Japan has been for such calamities. Not in terms of preparing their physical infrastructure to withstand strong earthquakes, which they have proven to have done well. Instead, these financial experts are looking at Japan's national finances.

I'll spare you the nitty-gritty details and statistics, mostly because I don't understand them myself. But suffice it to say that Japan's debt load was already critically imbalanced before Friday, which meant that economically, the country was not prepared to assume the levels of debt that will be required to recover and rebuild from this catastrophe. It may be able to pull a few rabbits out of the banker's hat, but it could be far more economically painful for the entire country than if their government been keeping better books beforehand.

Indeed, none of us knows what disaster might be looming around the proverbial bend. Part of being a sophisticated, first-world economy has historically included being somewhat prepared for the unexpected. Or at least financially flexible. Unfortunately, even though we've learned how to design buildings to withstand earthquakes, we may not be as fortunate with our budgets.

When it comes to earthquakes, we know what to expect. Most scientists agree that "the Big One" is due to hit California at any time. Yet aside from recommending that homeowners keep extra flashlights and bottled water handy, little concern has been paid to the bigger picture, like the state's burgeoning budget deficit. Instead, politicians dither about cutting costs and raising taxes, barely able to fake a facade of competency in conventional money matters.

In the meantime, a lack of political will concerning securing our international borders has resulted in an untenable influx of illegal immigrants who contribute little to the tax base yet will demand enormous assistance should an earthquake ravage their California barrios.

Prudent politicians (if we've still got any), bureaucrats, and business leaders will appreciate the clarity Friday's disaster in Japan gives to our own perils here at home. Can we continue to operate like we have all the time in the world to solve our problems? Can we continue to defer the big decisions and painful cuts that will be required to get our finances on more solid footing?

Tiny Wisconsin, on the frozen tundra of the upper Midwest, has done more in the past month to reconcile its books than the admittedly far more complex states along the West Coast, but where is the physical urgency the greatest? Is it any wonder that one of the states with the worst budget problems is populated by people who willingly tolerate exorbitant costs of living and earthquake risks simply because the climate is so perfect?

Yes, money is a finite resource. Logic, fortunately, is not. Irresponsibility will get you nowhere when the ground beneath your feet rattles and rolls.

In addition to stricter fiscal management as a legitimate preparedness measure for natural disasters, the Federal government will need to enforce immigration laws, and provide states with the border protection they need. This should be done not only for the sake of legal residents, mind you, but also for the alien immigrants themselves who, during a widespread emergency, could disproportionately suffer as authorities struggle to distribute adequate resources.

Businesses Should Adjust Just-In-Time Models

Preparing for a natural disaster may be one area free-market advocates actually prefer leaving to the government. But being ready for calamity shouldn't be the sole responsibility of local, state, and national governments. Although some may complain that it cuts into the bottom line, emergency preparedness also involves the business community.

For example, we've all seen the photos of empty shelves in Japanese grocery stores. It appears that the recent invention of just-in-time (JIT) shipping doesn't work during natural disasters. JIT shipping is a popular method for supplying goods to local stores because, ostensibly, it saves money. Inventories are strictly monitored by sophisticated software programs that place orders automatically when stocked products reach certain levels. Restaurants, grocery stores, pharmacies, and hospitals all use JIT processes because it saves space and keeps perishables fresher.

Normally, this process works fairly well, but it's not perfect. JIT shipping doesn't work when regularly-scheduled shipments can't be processed and deliveries can't be made. Office workers forced to camp out in downtown Tokyo swamped what grocery and convenience stores there are, buying up all the food in sight. Hospitals in the hardest-hit areas of northern Japan are running out of supplies because delivery trucks can't navigate the debris-strewn streets.

Free-market advocates cheer innovations like JIT models because they seem so functional and economic, but functionality and economy are two of the first virtues to disappear during a crisis. For businesses and hospitals serving regions likely to be affected by a widespread, crippling disaster, shouldn't inventory controls be loosened to factor in the possibility of unavoidable delays in shipments?

Sure, this might drive up prices for some goods, but shouldn't savvy marketers be able to figure out how to balance it out? And yes, loosening JIT inventories might look like an over-reaction, considering natural disasters are, thankfully, relatively infrequent. Is it better to not plan for disaster at all, and hope the government can step in with supplies?

This is where your business ethics kicks in and helps you calculate profit and loss versus public good. Pick the wrong one at the wrong time, and it may not be just the consumer who suffers.

Communications Companies Need To Let Us Talk

In the discussion of disaster preparedness, another factor of modern life needs to be taken into consideration. Many Japanese were caught off-guard to discover that their technologically-advanced cell phones wouldn't work this weekend, but those old pay phones using land lines did. Since cell phone companies have convinced many people to give up their land lines, isn't it incumbent upon them to make sure their cellular infrastructure is as robust, redundant, and ready as possible? Particularly in parts of the country where natural disasters have been forecast, like the West Coast, the Gulf Coast, and Florida?

Perhaps cellular companies should equip phones to provide only voice service during emergencies, so people can at least contact each other. Data service like videos, games, and photos are not essential during a natural disaster, but learning your loved ones are alive can help calm an anxious populace, and even help rescuers find trapped victims.

If communications companies complain that enhancing their networks to this degree would cost too much, I have some suggestions. For one, quit giving away cheap phones. And how about providing better customer service? Then they wouldn't have to advertise so much, poaching customers from other carriers to replace the ones they're losing due to poor service.

Fair Warning

I probably had free-market capitalists cheering when I preached fiscal sanity as a way to prepare for natural disasters. But I probably lost them when I started talking about for-profit businesses also playing a role in preparedness. "That's what insurance is for," I can hear them retort. Or, "natural disasters are too rare to be accommodated in business plans."

And on the one hand, to be purely mathematical about it, they'd be right. A day after Japan's twin disasters, the Wall Street Journal was already estimating insured losses in the neighborhood of $400 billion. A staggering sum, indeed.

But that doesn't count the costs of lost productivity, healthcare for the critically injured, and repairing and replacing destroyed infrastructure. It certainly doesn't compensate for the loss of life, health, and livelihoods. Maybe I've just been deluded all these years, but I've been led to believe that part of being a civilized society includes accounting for both the good and the bad that can happen. Especially those things experts tell us is just around the corner. Not just for financial reason, but for the sheer morality of being a caring human being.

I understand that we'll never be able to build a disaster-proof environment. But with earthquakes slowly making their way around the Pacific Ocean, how much longer can the United States hope that half-measures will suffice? We're better-prepared than most countries, but not as well-prepared as Japan, and look at what they're dealing with now.

One hallmark of intelligence is being able to learn lessons from experiences others have to endure.

To paraphrase the Stanford economist Paul Romer, let's not let Japan's tragedy go to waste.

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