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Rough sailing

18 January 2012 By Edward Hadas

The cruise industry demonstrates much of what works well in the industrial economy. But the debacle of the Costa Concordia – 11 people confirmed dead and at least 23 missing, and a financial loss of as much as $1 billion – shows some of the ways the economy can malfunction.

The loss of life from the accident off the Italian coast is tragic, and the loss of money is remarkably large for a business which has global annual revenues of around $34 billion, according to the Cruise Market Watch website. That is not a big business by global standards; airline revenues, as calculated by the International Air Transport Association, are 17 times larger.

Still, the cruise trade is large and familiar enough to provide an illuminating microcosm of the modern economy at work. Affluence is in the background – cruise customers must have ample amounts of both money and leisure time. The spark was entrepreneurial imagination – Ted Arison, who founded Concordia’s owner Carnival Corporation in 1972, believed that there was a mass market for cruises. He was right about this little corner of the consumer culture – cruises are now a popular luxury.

But the idea would not have borne fruit without technological ingenuity – ever larger ships with ever more luxurious features for customers. Investors willing to take risks were also necessary – Carnival and its rivals had to raise money to build ships which did not have a guaranteed market.

Finally, although it rings hollow right now, strong regulation has helped keep the list of cruising accidents short, with almost no deaths. Even taking the Concordia into account, this sort of sailing is much safer than flying. Put it all together, and you get an industry that has increased its passenger count at a fairly steady 8 percent annual rate for two decades.

That sounds good, but something went badly wrong with the Costa Concordia. On the surface, the problem was nothing more than human error. The captain seems to have sailed too close to land, breaking the rules and overruling the technology. But basic rules are almost never broken in a well-designed industrial process, and when accidents do happen there should be recovery systems to minimise the damage.

So look deeper. Engineers may eventually decide that giant cruise ships need more safety features, or even that the whole design is faulty. If that’s the final judgement, it will be hard not to think that entrepreneurial enthusiasm got out of hand. Imagination and innovation are crucial ingredients of modern prosperity, but neither are unmitigated goods.

The cruise industry may be right that its technological model is up to snuff. The failures in the human system are harder to deny. True, it’s too early to say the captain was definitely at fault, and if he was, to decide whether his flouting of the rules was typical or tolerated. But it is clear that the evacuation of the Concordia was poorly managed. Panic could have been avoided if the large crew – one crew member for every three passengers – had been calm and well trained. A safety drill for passengers, which was supposedly mandatory but apparently skipped, would also have helped.

Look still deeper. The carelessness on one ship can be traced to the pressures on the whole of Carnival to perform. No, top management didn’t simply sacrifice safety for the sake of profits. Micky Arison, Ted’s son and Carnival’s current chief executive, knew perfectly well that a serious accident would cost much more than any penny-pinching on safety could gain.

The pressure is more subtle. It is built into the economic logic of this fast growing and competitive industry. Any company that doesn’t build enough ships will soon have an old fleet and can quickly become an also-ran. Carnival, which has a market share of close to 50 percent, is particularly anxious to stay on top. But it is easier and faster to build new ships, even ones that cost hundreds of millions of dollars, than to create the sort of instinctive reflexes in the personnel that can prevent stupid accidents and ensure intelligent responses in a crisis.

Once the expensive ships are built, it is punitively expensive not to put them out to sea filled with paying passengers, even if the quality of the staff leaves something to be desired. So unless something is done to alleviate the competitive pressure to run full speed ahead, the people will almost inevitably be the weakest link in the enterprise.

One remedy is for regulators to require more rigorous training. But it would be better if the companies themselves took on the moral responsibility. They could agree to slow expansion until the human capital can catch up with the physical. If bad publicity from the Concordia disaster sparks such a commitment to the common good, then the deaths and damage will not have been completely in vain.

 

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