September 11 Economic Ramifications

A week after the terrorist attacks, debates began to surface over the future of super tall buildings. Even the World Trade Center location raised tensions over the possibilities of the future development. Discussions over the idea of mandating separate code requirements for skyscrapers drew national attention. Issues such as blast-resistant framing, ingress-egress routing, fire-resistance, and material standards were topics of concern.

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According to John Rattenbury, P. E. , senior corporate engineer of R.G. Vanderweil Engineering, all buildings and structures can be hardened against violence, vandalism, and disaster. However, many questions arise from this suggestion. Are people willing to work in this type of structure and is society willing to pay the increased price of construction and design standards? Taking into account the low-bid nature of the construction industry and the owner’s financial margins for both public and private work, the speculated general conclusion is no (7, 57).

The final answer, however, may be determined by Legislators to mandate whether certain design criteria must followed when it is practical and effective. Also, these particular design standards may apply only to structures deemed to be potential terrorism targets. Whether or not a structure is a high rise building or a likely terrorist target, John Harris, executive vice president of Hines Interest, says “the decision to build tall is tenant driven, and tenants the world over have indicated they are not cowed by the WTC attacks…

Outside of Manhattan, we’re seeing absolutely no reaction, no stoppage to development plans… Everything is going forward” (2, 21). According to the Building Owners and Management Association International of Washington, D. C. , they are not aware of any developers’ plans to reduce building heights as a result of the WTC attacks, but BOMA did state that they released additional information on security and safety to all of their members. A majority of foreign development has followed suite with the continuance of construction in light of the terrorist attacks.

Sellar Property Group, London, remained committed to a $500-million tower that will become Europe’s tallest office building in 2005. Cesar Pelli, designer of the twin 1,482-foot-tall Petronas Towers in Kuala Lumpar, Malaysia, currently the world’s tallest buildings, also believes “the only way to demonstrate our strength would be to build two towers of similar size”. Conversely, not all-oversea development is keen to this conviction in regard to the future of high-rise, large-scale projects.

The 1,700-foot Mori Building In Shanghai, previously in schematic design, is now under review because of the WTC attacks. William Pederson of Kohn Pederson Fox, the designer architect for the Mori building, stated that it is still too early to decide the ultimate fate of the project (2, 23). Though many architects and designers have their own opinions about building vertically, it is ultimately up to the developers with the financial support who will be making the decisions regarding design height and the relative overall bottom line costs.

The attacks on the WTC and the Pentagon caused many owners and developers to reassess and possibly reconsider their spending plans. The faltering economy and security concerns were brought to the top of the priority list for many owners. According to Laura Ray, assistant general manager for infrastructure management at the Metropolitan Atlanta Rapid Transit Authority, their operating funds decreased approximately $12 to $20 million following the attacks.

“With the events of September 11, our operating funds have taken a nose dive…and that’s serious”, said Laura Ray (13, 15). Additionally, Marriott International Corporation planned for a dismal year in the leisure and travel business. In response to the attacks, their capital improvements plans were reevaluated and the dollar volume of projects under construction dropped from $250 million a year earlier to $67 million. To worsen the situation, owners and developers began to feel the financial pinch of increased security costs and the new concerns of how to provide the required protection without restricting public freedom.

Evando Braz, partner in PriceWaterhouseCoopers and head of its engineering and construction practice, stated that as a result of these matters, “more owners are commissioning a full-blown risk assessment before the projects start, and it’s really beyond the insurable risk; it’s A to Z, all possible risks” (13, 17). Although the construction industry expected the worst from the insurance market following the attacks, many insurance companies stated that they would provide insurance under the right circumstances and they have rightfully done so.

Insurance giant AIG noted that they do not intentionally avoid projects with increased risks, however, it admitted that the environment has made it harder to obtain insurance coverage and that costs have noticeably increased. “Insurance rates are going up, especially worker’s compensation insurance. In general, the insurance industry is raising prices, and that just ripples through the economy”, says Charles B. Muttillo, vice president at Morley Construction Company. Insurance firms have increased their cost by 20% to 30%, although for some firms it’s over 100% (5, 29).

The constrained and higher priced insurance market will ultimately make it difficult for many contractors to obtain bonding, in effect, reducing their capability to acquire future projects. Without work, these smaller companies may eliminate jobs or reduce hiring in efforts to maintain productivity and profits while trying to ride out the insurance squeeze. This situation is likely to end in bankruptcy for these companies, especially if another terrorist attack occurs in the near future.

Although the property and casualty insurance industry was overcapitalized by an estimated $100 billion before the attacks, according to Erick Rajendra, an Electronic Data Systems vice-president, another attack will put an enormous strain on this private financial market. Even though the insurance industry had enough capital to cover even the highest estimates of claims from the attack, some companies were strained financially. “If you have some weak companies in the chain, that will cause greater losses for the stronger companies”, says Robert MacDonald, CEO of Allianz Life Insurance Company of North America (4, 30).

Not since World War II have Americans felt so united and patriotic. However, the major difference between the 1940s and the present is that our nation is fighting two wars. The first battle obviously is our fight against global terrorism. More importantly, we are struggling with the economic challenges facing our country. The cost of the war on terrorism since September 11 has exceeded $40 billion to date. This figure includes an estimated $20 billion for the military, $7 billion for recovery efforts, $3 billion for bio-terrorism, $2 billion for infrastructure security, and $600 million for airport security.

This final price tag may seem enormous, but it is still less than 1% of our annual national product (12, 4). It is important to note that from 1990 to 2000, defense expenditures fell from 5. 2% of gross domestic product to less than 3%, the lowest level in the postwar period. It is essential that our government increase spending on defense and other security related issues, such as reinforcing security at airports and better public health defense against bio-terrorism. The United States grew at a pace fast enough during the 1990s that the government can afford further spending on security, both military and economic.

The economic consequences for this increased spending, however, will likely result in smaller surpluses, higher long-term interest rates, and less private investment. According to Marvin H. Kosters, the American Enterprise Institute director of economic policy studies, “with more research and development funds going to projects that enhance security, less will go to those that enhance profits. The Immediate implication of a shift to public spending is a significant reduction in productivity growth” (4, 31).

This outcome can have dire effects on the construction industry, or any business for that matter, by diminishing the capital formation for future design and construction projects. The impacts on the construction industry from the terror attacks were generally not as onerous as experts had predicted. Construction, by nature, is insulated from external shock and, if anything, may actually increase as the rebuilding program begins in New York. According to Robert Murray, vice-president of economic affairs, McGraw-Hill Construction Information Group, total construction spending will drop from $481.

4 billion in 2001 to $481 billion in 2002. The unemployment rate in the construction industry was 6. 4% in 2000, but increased to 7. 3% in 2001. Compared to the overall unemployment rate of 4. 8% in 2001, the construction industry did not fare too bad considering the setbacks from the attacks. The average hourly earnings of construction workers for 2001 were $18. 33, compared to the average of $14. 33 for all workers (6, 56). Construction, which is ultimately derived from supply and demand, is currently being driven by a very strong public works sector.

The strong housing market was a significant source of contribution for the industry during 2001, mainly because of the low interest rates in the market. New home construction for 2002 is estimated to drop by 2%; however, this level of building will still be large enough to exceed the residential construction activity in the last recession. In 2001, according to F. W. Dodge, the commercial building sector decreased the most by dollar value: stores down 10%, offices down 14%, hotels down 15%, and warehouses down 16%.

In light of the WTC attacks, work in the construction industry will maintain enough flexibility to sustain employment. Moreover, “we’re seeing the overall price structure in the construction industry remain fairly stable – a little appreciation, but nothing significant”, says Charles B. Muttillo, vice president at Morley Construction Company (5, 27). The impact of construction costs in New York City obviously has the potential to be costly. The most expensive costs will be associated with cleaning the HVAC systems in the surrounding building that were contaminated.

In addition, the replacement of computer cabling and fiber-optic networks will have tremendous costs associated with the upgrades (6, 57). The WTC attacks placed the construction and design industry in a new, positive spotlight to which they are not accustomed. Many acts of heroism were displayed with many acts of tragedy. The disaster has pulled together an industry similar to the manner that the nation has united. Cooperation, advancement, and knowledge between disciplines and trades will be raised to levels previously unheard of.

Through this tragedy, our nation will prevail and learn from past mistakes. It is obvious that September 11 was not about buildings or retaliation; it was about terrorism and airplanes. Experts agree that there is no cost-effective magical structural material that can make buildings resistant to terrorist attacks. Structures such as high-profile public places, skyscrapers, and even nuclear plants cannot be made terrorist proof. Buildings and other structures can only be protected to a certain extent. To help our economy rebound from the attacks, consumers must regain confidence in the system.

The United States government must lead the efforts by demonstrating to the nation that terrorism and its accompanying economic instability will not be tolerated, now or ever. If preventive measures result in some of our freedoms being restricted, so be it. In the words of Representative J. D. Hayworth of Arizona, “Whatever it takes”. It is my opinion that the people of the United States do not want to be forced to live and work in an environment that resembles an oppressive steel cage just to feel protected.

The logic must be reversed such that the inhumane individuals who foster terrorist beliefs and execute such attacks ought to be the people who are confined to cages, or better yet, wooden boxes six feet under. It is imperative and essential that our United States Government exercise all powers ready and available to thwart and annihilate potential and existing threats to our country. Those who feel that the government is overstepping their boundary by attacking terrorism globally obviously have not been affected directly by the terrorist attacks. It is nearly impossible to live in Texas and not have some friend or family in the military.

I respect and honor the individuals who fight for our safety and freedom by combating overseas. The answer is to not pour money into research for building regulations or enhanced design methods to protect us from falling buildings, but rather decipher how to protect us from the sinister people who implement and plot attacks that cause buildings to fall upon us. Ground Zero efforts officially ended on Friday, August 31, 2002. The removal of the World Trade Centers Towers’ remains was put to rest at 10:29 A. M. , the precise moment of the second World Trade Center Tower collapse.

For a sense of closure, an honor guard carried a flag-draped stretcher out from the seven-story pit that was previously the 10-story pile of twisted steel, concrete, ash, and loved ones. Over a seven-month period, a total of 1. 8 million tons of debris was removed from the site. The one-year anniversary of the September 11 attacks is approaching. The significance of this date and of all future September 11 anniversaries will exemplify the resiliency and determination of our people, our pride, our economy, and our nation. We must believe in the creed that what does not kill us, only makes us stronger.