Everyone knows the âblack swansâ – extreme and one-off events that are impossible to predict. Think of the assassination of Archduke Franz Ferdinand that started World War I or the stock market crash of 1987, which set a record for one-day price cuts. But what about the risks that surround us and that lurk in plain sight?
Was anyone really surprised by the Colonial Pipeline ransomware attacks? Or the failure of the PG&E network? Or Hurricane Katrina, the great financial crisis of 2008, the Fukushima nuclear disaster or the Covid-19 pandemic?
These are the types of risks that many people, from policymakers and business leaders to activists and journalists, have seen coming well in advance. The peculiarities of these “gray swans”, like the insurance company Aon double in a report, may have been unpredictable. But the events themselves were not.
This is because they represent a different kind of threat that requires a whole new way of managing risk. If there’s one thing the pandemic has brought back with crystal clarity, it’s that seemingly disparate issues including climate change, supply chain disruption, inflation, financial stability, inequality. and nationalism, are in fact intimately linked.
Add in increasing digital connectivity and you have what complexity theorists would call an “infinite” problem rather than a series of finite problems. These are not the types of risks that can be addressed on their own, or even permanently. They demand a radical shift in thinking about the nature of the underlying problem and, ultimately, profound changes in the way we live, work and govern.
Take, for example, the weaknesses of the American agricultural system exposed by the pandemic. There were queues at grocery stores, even as farmers threw away their crops, due to two siled supply chains. One supplies restaurants, the other supplies grocery stores, and both are very concentrated.
In the meat food supply chain, which has been severely disrupted by the virus, just five counties meet most of the country’s demand. The first two, San Bernardino and Riverside in California, are essential to the logistics of trucking in all sectors. These places are also plagued by natural disasters and economic inequality (California’s Inland Empire region was zero point of the housing crisis). The risk poles, anyone?
An analysis of the meat sector by MITER, a nonprofit public interest research group, hints at the challenges of solving such a complex problem. You need to think about antitrust policy (why have three supplier companies become so important?) And farm subsidies. Why are we paying farmers to grow crops that are mainly consumed by livestock if we want to reduce carbon emissions?
National security is another concern – should China own as much American pork production as it has? The same is true for healthcare in vulnerable populations, as is technology open enough to allow communication between multiple systems, but which must be secure. The list is lengthened increasingly. And this is only part of the agricultural sector. Bring that kind of analysis to water, energy, finance, or the internet, and the bowl of spaghetti gets more complex.
There are a lot of people who want to give thought to such complex systems in the post-Covid world. I recently participated in the OECD’s New Approaches to Economic Challenges Event explore whether short-term national responses to the pandemic create greater resilience or simply worsen existing system failures. Industry experts in places like Darpa, the innovation arm of the US Department of Defense, are also seriously considering how to create more resilient systems.
The Biden administration certainly has more of this kind of common systems thinking than any White House I can remember. But the United States can and must do more to combat gray swans.
A valuable guide to these topics is a lengthy document called “Anticipated Governance”, which proposed ways to help the executive cope with “the increasing speed and complexity of major challenges”. It was written in October 2012 by Leon Fuerth, a foreign service veteran who was the national security adviser to Al Gore, the vice president of Bill Clinton.
As Fuerth puts it, âIf we are to remain a functioning republic and a prosperous nation, the US government cannot rely on crisis management indefinitely, however skillful it may be. You have to get ahead of events or you risk being overwhelmed by them. . . Our 19th century government is simply not built for the nature of the challenges of the 21st century.
The report offers several smart proposals. Here is one of mine. The United States needs a Resilience Czar in the White House, someone who responds directly to the President and can cut down on public sector bureaucracy, think across agencies, and start focusing administration even more. heavily on what it is already doing – reinventing the US economy in a way that will be structurally different from what was before.
Such a person should come from a defense background, where the synchronization of complex systems, from infrastructure and logistics to technology and people, is an everyday affair.
This could pose a doctrinal challenge for the United States, which has generally kept the military away from affairs that take place within national borders. This is yet another systemic challenge to be addressed in a future column.