All economic activity creates risks. Determining which risks are acceptable and which aren’t requires risk management. And more of that is needed here.
The proposed PolyMet copper-nickel mine in northern Minnesota is either a great deal or a rotten deal for Minnesota.
Its 20 years of mining creates 350 jobs and bountiful taxes. On the other hand, it also creates a 200-year threat to the northern Minnesota watershed.
Recent public meetings didn’t help much because they were dominated by solidified opinions, loudly supported by well-practiced presenters. The Minnesota Chamber of Commerce’s description of PolyMet’s latest review as “adequate” is simple-minded because every system is “adequate” until life proves that it isn’t. (Remember all those failures of regulated banks in 2008 and 2009?)
And most frustrating to me is that no one has given us a good definition of what is safe enough (what the experts call “acceptable risk’’) vs. what just isn’t safe in the first place (“unacceptable risk’’). Let’s provide some definitions.
First, understand that all economic activity creates risk. Incorrectly examining economic activity for its risk is best understood by this story of a young scientist saying to an old scientist, “We’re going to be rich because I’ve invented an acid that melts everything it touches.”
“Really,” says the older scientist. “What are you going to keep it in?”
Correctly examining economic activity for risk is found in commercial aviation with its hard-and-fast rule: “Once you get your ticket-paying customers in the air, you have got to be able to bring them back down safely.”
To better understand the concept of acceptable and unacceptable risk, I will paraphrase a 10-page white paper, published in the May 2010 issue of Professional Safety magazine. The author puts all risks in one of four categories:
Category 1: Lower risk factors; procedures in place to ensure maintenance of present risk level.
Category 2: Steps must be taken to reduce risk; remedial action to be taken when necessary.
Category 3: Risk should be reduced as low as reasonably predictable; high priority remedial action plan.
Category 4: Unacceptable; operation not permissible except in rare circumstances.
Stay with me now as we explore a real-world example of acceptable vs. unacceptable risk. For the last year we’ve been reading about oil trains coming out of North Dakota’s Bakken region derailing and exploding.
The unprecedented volume of oil gushing out of the Bakken has exceeded the existing pipeline capacity, thereby creating a huge demand for oil trains. Unfortunately, the current generation of rail cars is proving inadequate for the new stress being put on them.
This stress has manifested itself in a series of derailments/explosions, the worst one causing 47 deaths in a Canadian city last July.
All levels of government have been increasingly pressuring the oil and railroad companies for better safety standards and safer operating procedures. The National Transportation Safety Board, charged with investigating the American accidents, told Congress that oil trains, as currently outfitted, represent an unacceptable public risk.
On March 3, Warren Buffett, whose Berkshire Hathaway Inc. owns BNSF Railway Co., confirmed that BNSF would spend several billion dollars to buy 5,000 new oil tank cars with better safety features.
Our lesson? An economic activity once judged to be an “acceptable risk’’ had become an “unacceptable risk.’’ This judgment offers an important lesson for Minnesotans debating the proposed PolyMet copper-nickel mine. So let’s test what we have learned by briefly taking the side of “acceptable risk’’ by quoting Ely’s Jon Baltich, who told the Star Tribune in January: “There is no doubt that in 2014 that we can safely extract the minerals without damaging the waters or land.”