September 9, 2007

Consequences Of Lack Of Flexible Capacity

This past week, I spent a lot of time driving in various parts of the Northeast and Mid-Atlantic states. I hit horrific traffic problems, which is not surprising to anyone who has spent time in areas like Boston, New York, or Philadelphia.

Two things are worth noting, one of which is a broader point about our society today:

  • Traffic congestion is popping up in areas in which we have never experienced it before. For the past 15 years, my family and I have been going down to South Bethany Beach, Delaware for a week’s vacation. This year, for the first time, we experienced horrific traffic delays at odd times at places like the Delaware Memorial Bridgegoing into Delaware, State Route 113 south of Dover, and even some of the county roads between Route 113 and Bethany Beach. Much of this is a result of continuous over-building of new housing in areas in which the infrastructure is not there to support traffic.
  • The bigger issue is that our infrastructure in many places has no flexible capacity. Driving from Peabody, Massachusetts, into Cambridge, Mass. last week, we experienced a horrific delay getting across the Tobin Bridge because of a problem on Storrow Drive that had an effect that radiated across a good part of Boston.

It is this second problem that gives me deep concern about our future. When we spend too little money on flexible capacity, we guarantee that small problems have huge disruptive consequences. Businesses experience this in many circumstances:

  • When public companies are expected to lever up or to return every bit of spare cash to shareholders if they do not have an immediate use for it, they are succumbing to a pressure that will deprive them of ability to respond to unanticipated conditions.
  • When organizations cut every bit of “excess” staff, they lose the flexibility to address unanticipated growth opportunities or risks. For example, if there were a serious pandemic, most organizations would collapse because of their inability to deploy trained staff.
  • When companies operate with a “just-in-time” supply chain strategy, they cannot manage supply chain disruption effectively.

Governments, as well, are operating in ways that do not prepare them to address unanticipated problems. “Rainy funds” are hard to maintain because citizens demand either tax reductions, spending on social needs, or spending on capital projects when there are budget surpluses.

Today, we experience this chronic underinvestment in our transportation network, as well as the lack of “rainy day” funds. To some degree, politicians who want to get re-elected succumb to short-term pressures.

However, there are mechanisms to insulate certain funds from these pressures to spend money foolishly or to reduce taxes that cannot easily be increased in more challenging times. We saw politicians become very creative in dealing with the difficult issue of military base closures. They agreed to have a neutral Defense Base Closure and Realignment Commission make recommendations that would have to be approved or rejected as a package.

Today, we desperately need creative political and business leadership that can recognize the pressure to think short term, and to find ways to insulate themselves from that pressure. As we look at those who vie for our support in 2008 for federal elective office, as well as those who will run for state and local offices between now and then, identifying those who have the will and the skill sets to devise mechanisms to recognize the pressure to take destructive short-term actions and to counteract is a task all of us have to undertake.

I would love it if those who question candidates during pre-election debates would zero in on this issue and ask candidates about how they would address this type of problem. For anyone reading this blog, I would be interested in your ideas on this suggestion.