For all the resources and knowledge that the markets seemingly digest with great efficiency and timeliness, business and government leaders both stop short of taking on the problem of rare events. Perhaps it’s for the reasons that John Camillus outlined in HBR May 2008, that
“Companies… can’t develop models of the increasingly complex environment in which they operate.”
Certainly when stakeholders have competing interests, decision-making is often difficult. But I’m wondering in light of the number of “unimagined,” or “unpredictable” events whether it is merely the impossibility of predicting a rare event that leads to blindness and wreak havoc on balance sheets. BP recently estimated that the DeepHorizon Well disaster would cost a total of $40bn, a record loss for the company that knocked down its pre-tax profits but did not knock the company out.
The ever-changing environment further seems to diminish our willingness and resolve, as a society to be proactive and tackle the possible train wreck in our future. Public policy and governments intentionally move slowly, often requiring at least one of three pressure points to force an issue: a pressing problem, politics or the clear consensus on a particular agenda item. Oddly this is often characterized as the Garbage can approach to Policy making shown here:
In the US the debate and legislative agenda setting process is quite contentious. The Congressional Budget office is no longer universally viewed as the objective arbiter ;and even the supreme court’s independence appears tainted by partisanship.
Who leads and who follows is difficult to figure out in the best of times, with consensus rarely making it easy for us to gain some clear forward movement on a variety of locked issues.
Commentary on the vaunted aftershocks printed in the New York Times as the disaster first unfolded, characterizes the problem in Japan as one of hubris.
Japan’s vaunted scientific and technical prowess has taken on the character of a kind of myth, and that myth has deluded the nation’s politicians and business leaders. But it has been obvious all along that science and technology can deal only with things that fall within the range of what may be expected. And also that it is all too likely that some things that happen in our lives will indeed be “beyond all expectations” — and that it is precisely for this reason that we are able to live those lives. What, after all, would be the meaning of a life in which everything that happened was “within expectations”?
The philosophical issue is a luxury in the face of true uncertainty. At this moment, no one knows, or can know, what the consequences of all these changes will be. The markets continue to fill this void and do what they do best– provide clear interpretative signals of hope, faith or despair. They churn out at amazing speed, bite-size digestible cues devoid of emotion, the technical analysis that crunches large quantities of data often sends out a beacon to guide future activity or give a verdict on the event.
But something is different. Today, the message is not directional. Perhaps we have hit a new realm of complexity. Certainly the market research reports keep coming; but the outlook is one of vast uncertainty. The hyper-kinetic global market is confronting the cross currents of disrupted supply chains rendering the models incomplete and making impossible their estimation of just how far, or how long the economic shocks will reverberate. Again, the echoes printed by the NY Times:
“The outlook is unusually uncertain, ” Mohamed El-Erian of Pimco characterizing the market fall out of Japan’s crisis.
” Uncertainty hangs like a cloud over the future of the global and American economy, ”
“The uprisings, the Persian Gulf, Japan: It’s very likely that the global economic impact will be larger than most people now imagine,” Bernie Baumohl, of the Economic Outlook Group said. “Electricity and gasoline prices will stay high and consumers are nervous. Guess what, that’s not an atmosphere conducive to corporations wanting to hire workers.”
If ever there was clarity and a clarion call for clear vision, faith and leadership from Washington, that time is now. But public policy process offers no clear resolute answer. The routine or over reliance on patterns that repeat to help us plan are insufficient. We must face the reality that our future is exceedingly less likely to resemble the present and will differ dramatically from the past. Some changes will continue to occur incrementally, slowly as it takes time for the impact of the events such as the absence of critical parts or the shortage of oil to work its way to our shores. Our over confidence in yesterday’s routines and outcomes is understandable. In the face of disaster, however our instincts have to kick in and we hope that whatever plans we’ve made they will help sustain us going forward. Insurance for our cars, homes, health and business insulate us from the unexpected costs. The Federal government continues to respond and step in when business or people find it impossible to fully underwrite the risk of rare events, it’s why the government sells flood insurance and offers guarantees to our bank deposits.
Note that the level of confidence in a particular model tracks differently for the scientific community than it does for society at large. Scientists rely on the dissemination and debate of inferences drawn from various model representations that largely occur in publication, with citation and competitive grant process. In contrast, social policy typically requires a weight of evidence or a strong threshold of agreement within the scientific community before confidence arises. Further details are available in the original article entitled Uncertainty as Information: Narrowing the Science-policy Gap, published in the Ecology and Society Journal.