From financial crises to city-flattening natural disasters, the United States is a nation at risk.
It is the management of that risk that is important, argues Department of Homeland Security Secretary Michael Chertoff, who spoke at Penn yesterday about these issues at the federal level.
"The discussion of risk management is at the core of the role of DHS," Chertoff said. "[It is] the fundamental social problem that we face in the 21st century."
He outlined three events in which the U.S. government had mismanaged risk - the Sept. 11 terrorist attacks, Hurricane Katrina and the current financial crisis. "We have not always handled risk properly," he said.
The management of risk in these situations had been response-based rather than anticipatory, according to Chertoff.
"Managing risk is fundamentally looking ahead . to prevent the disaster or to minimize the risk," he said. "Our society has failed . to anticipate these one-time risks."
In his introductory remarks, Wharton Dean Thomas Robertson said, "[There is a] balancing act going on in terms of the financial crisis and in terms of homeland security about finding the right mix between public and private."
Chertoff commented on the government's obligation to intervene in the private sector to manage risk.
"The private economy is the fundamental engine of risk management, [but] there really is no such thing as a truly free market," he said. "The free market needs the government . to lay down the rules."
According to Chertoff, there are "three types of cases in which government action is necessary and prudent."
The first is when the market and individuals tend to focus on short-term benefits and ignore the distant future, such as when people decide not to purchase flood insurance.
The second involves externalities, or the negative effects, of a private party's actions on others.
The third is to create transparency in business transactions and promote trust, which may have avoided "the crisis of confidence" of the current financial situation.
"While the market plays an important role," Chertoff said, "[we need] intelligent, strong, and not overly smothering regulation."
After his speech, Chertoff answered questions from the audience.
"It was very interesting to hear about where some of the most common pitfalls of risk management are and whose responsibility it is," Wharton JD and MBA student Todd Mortensen said. "Any time in the future I have to make a decision, I'll think back to this speech."
The Wharton Risk Management and Decision Processes Center sponsored the event, which was held in Huntsman Hall.
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