Sacred Headwaters #8: Systemic Risk and Resilience

The global system is deeply interconnected, both ecologically and socially. Small (or large) disruptions can have cascading and unpredictable effects. How can we plan in the face of uncertainty?

Sacred Headwaters is a bi-weekly newsletter that aims to guide a co-learning process about the existential issues and planetary limitations facing humanity and about how we can reorient civilization in a way that will enable us to thrive for centuries to come. If you’re just joining us, consider checking out the first issue for some context and read through the other issues when you can. The newsletters are not strictly sequential, but this exploration is meant to build on knowledge and understanding over time. Subscribe below if you haven’t already, and please share with friends, family, and colleagues who may be interested:

Sacred Headwaters #8: Systemic Risk and Resilience

Before getting into this week’s reading, I’d like to share a few thoughts.

We’re living through a global crisis like we’ve never seen. As with climate change, some of us are privileged enough to be insulated from the impacts of this pandemic. None of us are immune to the virus itself, of course, but even in that sense, health outcomes are correlated with wealth, particularly at the extremes — the most vulnerable and the wealthiest. COVID-19 is laying bare the inequalities of our global society and we have a choice in how we respond. All we can do, really, is to respond as communities, working to support those in need, and the health care system as a whole. It’s inspiring to see the self-organizing work that communities — both distributed (digital) and physical — are doing around the world.

We — you, the readers, and me, the author — are a community spread across the globe, and I want to say: if you need help, please ask. This is a small community (219 subscribers at the time of writing), but it’s a community of people who care enough to learn, and it’s a community with diverse geography and resources. Whatever you or your community needs, maybe someone here can help.

---

As I’ve said before: I try to avoid the daily news cycle with Sacred Headwaters. I’ve been planning to write an issue on systemic risk since I started this newsletter. The last few weeks have made clear the time for that issue is now. That said, these readings will not focus on COVID-19. They will focus on the broader fragility of the global system (which we can see playing out in realtime), and on strategies for building global resilience.

If you haven’t read “#4: Introduction to Systems Thinking,” I’d recommend reading that issue first.

Human society exists around and within a number of complex systems and it is, itself, a complex system. Each country is a system; the species as a whole is a system; the earth is a system. In learning about climate change, we’ve already learned a lot about complexity and about how different, often seemingly unrelated systems interact with each other (remember the “whale pump?”). It should come as no surprise that collapse of one system can lead to unpredictable and non-linear change in many others. The most prominently discussed climate examples are permafrost melt and arctic and antarctic ice sheets, but the reality is that every system is interconnected, whether or not we, as humans, have an understanding of the thresholds at which they cause disruptive change.

The same sort of thinking applies to non-ecological systems. Our world is incredibly interconnected; we’ve built a global network — economic, political, technological — that means no one is immune to systemic shock. To maximize “efficiency,” we’ve built global supply chains, promoted “just-in-time” manufacturing and logistics, and concentrated food growth geographically. As a result, events in one part of the world — whether geopolitical (war), biophysical (drought), or otherwise — can have dramatic and unpredictable effects on other parts of the world. What’s more troubling is that these effects are poorly understood and arguably actually impossible to fully understand. How can we make decisions in a complex world where deterministic understanding of risk is impossible? And how can we improve the global system to reduce systemic risk? In other words, how can we build systemic resilience?

These questions are all incredibly important in the face of the climate crisis, in the face of global inequality, and of course, in the face of COVID-19.

“How the volcano eruption exposed the vulnerability of the global supply chain” (5 minutes)

In 2010, a volcanic eruption in Iceland (sidenote: I’ve since kayaked a river that was temporarily blocked by lava flows from this eruption!) blocked air travel across the Atlantic. The airline industry, obviously enough, lost a bunch of revenue. But less obviously, there were cascading and unexpected systemic effects, including the temporary closure of automobile factories in the US. This article, though brief, provides an introduction to the globally interconnected economy and the potential for cascading and unpredictable effects.

Multiple Breadbasket Failure (10 minutes)

If you’ve read about systemic risk at all, you’ve likely heard of multiple breadbasket failure (MBBF). It’s a common issue to talk about. It describes the situation where more than one food-producing region of the world experiences dramatically reduced yields simultaneously. There are many possible causes: drought, war, blight. Climate change is increasing that risk globally as it brings more and more extreme weather events. This article lays out some of the reasons why MBBF could have global implications and analyzes some of the potential avenues for resilience — and the lack thereof. The author was (he’s since passed away) a researcher in this area and his research agenda (30 minutes) into the risks of multiple breadbasket failures is a good read as well. What’s most striking to me is his stark assessment of our lack of understanding of the real risks, and as a result, our policymakers’ inability to compose strategies to build resilience — or even conceptualize the need for them.

Financial Risk and Multi-System Contagion (35 minutes)

This paper is quite long. I’d like you to read the Overview and sections I and VI. The rest of it is interesting and worth reading if you have the time, but takes another hour or two. Business Insider wrote a sort of fast and loose summary of this paper here. Don’t read this in place of sections I and VI, but perhaps use it to supplement your reading of those sections if you don’t have time to read the whole paper.

Systemic risk is a term most commonly used in finance. We’re using it more broadly here, but the fact is, at this point in time, every human activity is affected by and affects the global financial system. So when we see systemic risk in the financial system, it’s also systemic risk in the human system — and vice versa. This is playing out in real time today: a virus is causing a global financial crisis that rivals and is likely to exceed anything we’ve seen in the last 90 years. This financial crisis, in turn, is likely to cascade into other sectors of the human system, though we are doing surprisingly well in this regard so far.

Collectively, it is like we are passengers travelling in an unimaginably complex plane locked onto a perilous course.

This paper makes the case for the plausibility of rapid contagion (forgive the word in our current context) between financial systems and supply-chain systems. It’s written in a post-2008 financial crisis world and it posits that globally, our financial system is so fragile that even events like one significant Eurozone country defaulting on debt could cause global supply-chain collapse. It’s interesting to consider this perspective as we watch the world issue trillions of dollars of debt to try to stave off global economic collapse. We’ve been forced into a situation where there is no good option, and we can only hope that what we’re doing is the best path forward.

UN Global Assessment Report on Disaster Risk Reduction, Chapter 2 (20 minutes)

Again, this chapter is a bit longer than 20 minutes. Please read section 2.4 and the conclusion; as always, read the whole thing if you have time.

This UN report is meant to assess global disaster risk and map a path towards mitigation. Chapter 2 focuses specifically on systemic risk: how we can model it, predict it, and plan for it. The chapter gives a handful of real examples similar to what we’ve looked at so far — MBBF, financial risk, and more — and then begins to build a framework for dealing with these risks. Section 2.4, the section I’m asking you to read, emphasizes our inability to accurately and deterministically model systemic risk. Computational power has made it possible for us to model non-linear systems in ways we never before could, but it does not grant us a full understanding of the earth system, nor the human system within that. As a result, the authors argue that we cannot boil systemic risk management down to quantifiable variables, models, and decisions: instead, we need our human value structure to make decisions in the face of uncertainty. This chapter doesn’t tell us how to mitigate systemic risk; we don’t know how, right now. But it does make concrete recommendations about how to move towards a framework of systemic risk mitigation to replace the existing reductive disaster management framework.

Book Recommendation: Linked: How Everything Is Connected to Everything Else and What It Means for Business, Science, and Everyday Life, Albert-László Barabási

In this book (2014), Barabási tries to lay out a picture of the earth — and humanity — as a network. Today, we’re most familiar with the concept of a network through the internet, and specifically, through social media: companies like Facebook have developed data structures specifically for modeling, storing, and describing networks. But the reality is that the world is a network and we are all nodes, best described by our relationships with the other nodes of the system — humans and non-humans. In this book, Barabási describes human existence as a network and tries to develop that into a useful lens with which to understand our position in the world.

---

Like what you’re reading? Subscribe if you haven’t already and share if you have: