Outlook: World economy proves to be robust in the aftermath of 9/11

National Grid; Kingston/Maine
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The Independent Online

Today is the second anniversary of the terrorist atrocities in New York and Washington. At the time, September 11 was widely thought of as a day that would change the world, yet one of the most striking things looking back on those terrible events from a distance of two years is quite how limited the wider economic impact really was. Even for the two industries most obviously affected by the atrocities - insurance and airline travel - September 11 only accelerated and exaggerated a moment of truth which in the end they would have faced anyway.

For airlines, the underlying story was one of chronic overcapacity compounded by massively overweight cost structures, so that when the catastrophe came, many found it difficult to survive. In point of fact, most of them have survived, supported by government largess and the protection of the US bankruptcy courts. A similar story emerges for insurance, an industry which in the run up to 11 September 2001 had become severely undercapitalised and where cavalier risk-taking was the order of the day.

In both cases, then, 9/11 exposed some big, underlying weaknesses, but it didn't actually change anything. There have been some big refinancings, yet hardly anyone went bust. Indeed, by allowing premium rates to rise and insurers to raise more capital, the insurance sector has emerged from the wreckage stronger than when it went in. Long-haul airline travel is still depressed compared to where it was prior to September 11, but it is recovering, low-cost travel is thriving as never before and to the extent that the market remains depressed, it is more because of the business downturn than fear of flying.

The same goes for the macroeconomy. At the time, it seemed likely the atrocities would push the US economy into recession, and with it possibly the rest of the world. As we now know, the US economy was already in recession, and by forcing policy action that might not otherwise have taken place, 9/11 may even have succeeded in averting a more serious downturn.

Of course, the jury is still out on whether the consumer credit boom created in the US and Britain to address economic weakness has in fact done the business, or whether it has only delayed or prolonged the pain. But again, the primary cause of the problem is not so much the events of September 11 as the overhang of the bubble. The reason why the business and stock market downturn proved so long is that the excesses of the last boom were so great. Osama bin Laden might have wished to think otherwise, but there is nothing whatsoever that connects his atrocities with Enron, Worldcom and the crisis of trust in American capitalism.

As for the rest of the world, the economic downturn in Continental Europe and Japan continues to look more serious than the US, yet neither could have been further away from the events of September 11, or the geopolitical stresses and strains that have followed in their wake. Indeed, if we are looking for a seismic shift in the world economy this past few years, it is about as far divorced from al-Qa'ida as is possible to imagine - the Chinese development story.

It is always impossible to prove a negative, and of course we simply don't know what the world would have looked like without September 11. Yet economically, it might not have been very different. So many of the old problems remain, and so many of the new ones are wholly unrelated to the collapse of the twin towers. Far from plunging the world economy into chaos, Bin Laden only succeeded in demonstrating how robust it really is.

National Grid

Roger Urwin of National Grid managed not to blow his fuse yesterday, which showed impressive cool given the when-did-you-stop-beating-your-wife style grilling he was subjected to over last month's London blackout. As it turns out the Grid's report into the power failure shows it was caused by a conventional blown fuse at one of its south London substations.

To be precise it was the wrong fuse which had been incorrectly fitted by an outside contractor. Instead of keeping the juice flowing to 410,000 customers, most importantly London Underground, the fuse decided it was being overloaded and tripped, plunging a fifth of the capital into darkness and stranding thousands on stationary tube trains.

A hanging offence? Or an isolated incident caused by simple human error? The Grid has opted for the latter interpretation and decided not to discipline anybody, inside or outside the company. It will be interesting to see whether Mr Urwin's bonus is equally unaffected when the remuneration committee gets around to deciding it later this year.

No-one can plan for absolute perfection and the fact that the Grid has now checked 9,000 of its 43,000 other automatic protection relays and not discovered a single other rogue fuse would suggest this was indeed a one-off. On the face of it, the problem was not one of under-investment, which is what the London Mayor, Ken Livingston, was quick to accuse the grid of, or even lax operating standards. If that had been the case, then the law of averages would have turned up a few more dodgy fuses by now.

Nevertheless, the Grid is left with some awkward questions to answer, some of which will undoubtedly be posed by the separate investigations being undertaken by the Department of Trade and Industry and the energy regulator Ofgem. These include how the faulty fuse slipped through the Grid's own inspection system and how it managed to lie undetected for two years.

National Grid would like to think that in years to come, the speed with which it corrected the problem (the power was back on in 41 minutes) will come to be seen as a textbook case of crisis recovery. But that does not explain why no one is carrying the can for Britain's worst power failure in a decade, nor does it answer the sneaking suspicion that there is indeed a wider problem of underinvestment in the Grid which the London blackout tangentially highlighted.

Just a week after the London blackout, the Grid was hit by a second blackout after the West Midlands was plunged into darkness during the commissioning of a new substation. Mr Urwin insists that the Grid has not become accident prone. But three strikes and he could find himself out on a limb.

Kingston/Maine

The telecoms sector is so bombed out that it's hard to believe it could sink any lower, yet Kingston Communications has still managed to chalk up two revenue warnings in less than a year. The last of these has proved too much even for a board as supine as Kingston's, and belatedly the chief executive of six years, Steve Maine, has finally been ordered to spend more time with his family.

Kingston started life as the local telephone monopoly for Hull, a position it still enjoys and which continues to generate decent if unspectacular profits. Then came the telecoms boom, and scarcely able to believe its luck, Hull City Council cashed in half its chips and floated the company on the stock market. A subsequent inquiry found that the millions raised for local authority spending were largely squandered, which shouldn't really surprise anyone. Perhaps more surprising, Mr Maine managed to match the councillors pound for pound in his profligacy. The hundreds of millions he spent digging holes in the ground still struggle to generate anything of significance in the way of revenue.

Throughout Kingston's bust, Mr Maine has paid himself a salary out of all proportion to his performance. The new man at the helm, Malcolm Maine, has a CV that reads like a Who's Who of corporate catastrophe. British Biotech, Arthur Andersen, Polly Peck and Eircom are just four of the companies he's worked for. It ought to qualify him well for Kingston.

jeremy.warner@independent.co.uk

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