Black Swan Kills Sitting Duck
Mankind is entering an age in which the danger posed by highly unlikely but devastating events can no longer be ignored. One sort of risk arises from catastrophes such as the BP oil spill in the Gulf of Mexico, the massive earthquakes in Japan and Haiti, and other recent deadly events. As society has advanced, the costs of such disasters have grown exponentially. But there is an even greater worry, as the subprime-mortgage-induced financial meltdown and Icelandic-volcano-induced global chaos demonstrate. The dramatic increase in the complexity of industrial, financial, and economic networks means that extremely rare localized crises can unexpectedly and rapidly cascade into systemic risks that expose the unknown fragilities of many wider, interdependent networks.
The challenge for innovators today is to confront this more dangerous world boldly, without abandoning risk taking, but also to do so wisely, by building resilience into supply chains, organizational culture, and society at large. Doing so will require rethinking how to trade off risks smartly, how to weigh costs against benefits more efficiently, and how to experiment and fail more often but more gracefully.
This chapter presents the evidence for thinking that the world economy is indeed getting riskier, for individuals as much as for firms and nations. This does not, however, need to lead to a defensive crouch: innovators who are prepared for a riskier world when rivals are not will find opportunity where others encounter adversity.
The world is getting to be a more dangerous place. This creates both problems and opportunities for innovators. The previous two chapters have shown that innovation is getting faster and more open. This chapter argues that it is getting riskier too. It lays out the case for thinking that the global economy is entering riskier times, and explains how leaders can build resilient systems to predict, prevent, and prepare for such risks—and possibly even profit from them along the way.
Hang on a minute, though. The notion that the world is getting riskier might seem strange to some. After all, isn’t the history of human progress one of improving living conditions and greater prosperity for most of mankind?
At one level, such skepticism is justified. Through most of history, the ordinary person’s life was nasty, brutish, and short. The biggest explanation for this, of course, was that almost all of mankind lived in grinding poverty through almost all of history. But the last two centuries have seen a spectacular rise in per-capita income, starting with Europe and the United States, but spreading powerfully to China and other emerging economies in recent decades. Aside from poverty, two other hazards made life particularly risky in the past: physical violence and the all-too-common public health threats that led to misery and, often, premature death. On these important measures, there is no doubt that life today is much less risky than in the past.
Consider violence for a start. Steven Pinker, a renowned cognitive scientist and author, has scrutinized the number of bloody wars, murders, executions, cruel and unusual punishments, highway banditry, sword fights, and other sorts of violent acts inflicted by man upon man, and he concludes that humanity lives in the best of times. Of course, the notion of the noble savage was always a myth: archeologists have shown that even the supposedly peace-loving Maya of Mesoamerica were, in fact, quite violent at times. But what of the twentieth century, often said to be the bloodiest in history? (Cue film footage of the two world wars or Stalin’s pogroms, each of which killed many millions of unfortunates.) Pinker points out that despite that undeniable and tragic death toll, when one takes into account the overall global population, the last century was actually much less violent in proportional terms than other epochs. And mankind is getting less and less violent as time goes on.
He believes a confluence of happy factors explains this, ranging from the spread of democracy and the rule of law to changing attitudes toward corporal punishment, warfare, and chivalry. Perhaps surprisingly, he adds globalization and the information revolution to the mix, arguing that these trends widen the “circle of empathy”: a genocide in a remote corner of the world that surely would have gone ignored by uninformed outsiders now may, just possibly, prick the conscience of CNN viewers in powerful countries who push leaders to act. A good recent example is the decision by Western powers in early 2011 to intervene in the Libyan conflict between Muammar Gaddafi, the long-ruling tyrant, and rebels in the eastern provinces.
Another impressive advance has come in the shape of public health innovations, such as antibiotics and vaccines, that have extended lives, reduced misery, and otherwise improved the health of everyone on earth. A century ago, adult life expectancy was less than half of what is enjoyed by most people on earth today and infant mortality was tragically common. Through most of history, people were at constant risk of being struck down by plagues and pestilences of unknown origin. Today, scientists of course know that most were caused by bacterial or viral sources. A simple cut that now would be healed in days by the use of a bandage and antibiotics could, back then, result in an infection that left a person stone-cold dead.
Despite these advances in tackling everyday dangers, mankind is nevertheless entering more perilous times. That is because of the rapid rise of two very different and much more worrisome sorts of threats: costly catastrophic threats and global systemic risks.
Our Final Century?
More than half a century after the height of the Cold War, Martin Rees, a distinguished veteran of the antinuclear movement, believes that the world came closer—and more often—to the brink of thermonuclear destruction than most people realize. Could it happen again? More broadly, could mankind, even unwittingly, unleash a chain of events that destroys the natural environment, and ultimately humanity itself?
The debate over how to safeguard the world is not limited to disaster scenarios, of course. Conservationists, politicians, and scientists of every hue continue to hold forth on mankind’s environmental depredations. For Rees, a respected Cambridge University astrophysicist and Britain’s astronomer royal, the emphasis is on warning: he penned Our Final Hour a few years ago as a clarion call. For others it is the more difficult task of trying to devise prescriptions.
The specter of a terrorist attack or an accident involving bio-organisms or nanotechnology so concerns Rees that he is ready to wager anyone $1,000 that one million people will die as a result of a single horrendous act by 2020. In addition to threats from disgruntled misfits or religious radicals, he worries about the destruction of the natural environment that may result from broader policy choices made by society. And he is particularly concerned that the current pattern of global economic development might fuel climate change and biodiversity loss on such a scale as to lead to environmental disaster. One of the most brilliant scientists of the age estimates that mankind might have only a fifty-fifty chance of surviving this century.
Consider, for example, the mysterious decimation of the bee population in various parts of the world due to something called colony collapse disorder. This had been observed in Europe and the United States for several decades. But in 2011 the United Nations Environment Programme (UNEP) issued a warning confirming that this problem was a global one with potentially devastating consequences for humanity. That is because bees are nature’s chief pollinators, and more than two-thirds of the world’s food supply relies on them doing their mundane jobs. Achim Steiner, head of UNEP, put it bluntly: “Human beings have fabricated the illusion that in the twenty-first century they have the technological prowess to be independent of nature. Bees underline the reality that we are more, not less, dependent on nature’s services in a world of close to seven billion people.”
What’s more, the evidence is quickly mounting that the world is being buffeted by catastrophic risks, which by definition are low-probability but high-impact events, much more often these days. The most obvious recent example would be the triple tragedy of earthquake, tsunami, and nuclear meltdown endured by Japan in 2011, but other examples include the costly BP oil spill in the Gulf of Mexico, the devastating earthquake in Haiti, and the floods that ravaged parts of Pakistan recently.
It is tempting to dismiss this string of accidents as mere anecdote. It would certainly be unscientific to claim that any single weather-related event was definitively caused by climate change. However, the economic evidence suggests that there is something more worrisome going on. The Inter-American Development Bank has analyzed four decades of disaster data for Latin America, and it finds that the cost imposed by catastrophic risks is now increasing at four times the rate of economic growth in the region. Troublingly, the experts estimate that foreign aid covers only about 8 percent of the direct cost of dealing with those disasters.
Swiss Re, a leading global reinsurance firm, follows disaster trends extremely closely (understandable, since reinsurers get stuck with the bill). Even before the Japanese crisis of 2011, the firm sounded alarm bells about the rising incidence and soaring cost of catastrophic events. The global annual cost of such disasters averaged, in inflation-adjusted terms, roughly $25 billion a year back in the 1980s; in the decade following 2000, that figure shot up to $130 billion per year. The year 2008 saw the toll rise to $270 billion (only $52 billion of which was insured) and the loss of life reach 240,000. Nouriel Roubini, a prominent economist at New York University’s Stern School of Business who correctly predicted the financial crash of 2008, recently addressed a group of the world’s leading risk managers and experts and made this startling statement: “Events which should happen once in fifty years are happening very often, and we don’t know why.”
There are a few clues. One is that thanks to urbanization and demographic shifts, far more people now live in cities and close to waterways. Because this clusters both people and economic activity, it magnifies the toll extracted by a given disaster if it happens to hit close to those cities. Climate change, and the associated disruptive weather patterns that it spawns, may also be contributing to the freakish storms seen of late. Another factor to consider is that the world is now much wealthier than it was in the past and therefore simply has more assets to lose in any given incident.
Although all of those circumstances play a role, each by itself feels unsatisfying as the sole explanation for the trend. Larry Brilliant, the head of the Skoll Urgent Threats Fund, believes there is a more powerful connection. His nongovernmental group monitors risks in such areas as climate change, water scarcity, pandemic diseases, and nuclear proliferation. Reflecting on the growing nature of these wicked problems, he remarks, “Globalization has accelerated them all . . . they all have worldwide impacts and no single country can tackle them alone.”
The Paradox of Globalization
Brilliant’s observation reflects a powerful and contrarian insight: the same globalization that has fueled global economic growth and the rise of the middle classes in emerging economies in recent decades has also made it much easier for catastrophic risks to become global rather than local calamities. That points to the second and even more worrying development: the increase in global interconnectedness is leading to a higher level of systemic risk. Catastrophic events such as the BP oil spill are bad enough, especially since they are getting costlier, but that event did not precipitate a systemic crisis. In contrast, the subprime mortgage meltdown in the United States sparked contagion that came perilously close to causing a genuine systemic meltdown in global financial markets. The worry is that the global economy now faces a rising level of risk because of the proliferation of incredibly complex and interlinked systems that extend well beyond high finance.
Every year, the World Economic Forum surveys hundreds of the world’s leading academic risk experts, corporate risk managers, government disaster-planning officials, and others concerned about this topic in preparing its annual report on global risk. The group’s track record is impressive. In its reports from 2006 onward, for example, the WEF consistently identified asset prices, indebtedness, and fiscal crises as top global risks—and, of course, it was proved right.
When the WEF put together its report for 2011, it had this to say: “The world is in no position to face major new shocks.” And yet, the group lamented, “we face ever greater concerns regarding global risks and the prospect of rapid contagion through increasingly interconnected systems and the threat of disastrous impacts.” At the very top of the list of those global threats was climate change. However, two other cross-cutting threats also made the top of the list. First, glaring gaps in global governance bothered the risk managers. They pointed, in particular, to the difficulties encountered by negotiators of the climate change accords under the UN’s Kyoto Protocol and the World Trade Organization’s Doha round of trade liberalization talks. The other top risk cited was growing economic disparity, seen both among and especially within countries. These risks, the experts warned, meant that the same globalization that has brought the world closer together may lead to a backlash that tears the world apart.
No Safety Net
Tying together the threads of globalization and interconnectedness, Herman “Dutch” Leonard of Harvard University points to another factor that is making the world economy riskier today. He observes that many of the systems that have developed to allow the 24/7, open, and connected global economy are complex and interlocked—but goes on to note that the buffers and shock absorbers in that system are insufficient and under great strain. A good example of this can be seen in the global supply chain. Led by cost-conscious and efficiency-minded multinationals such as Walmart, firms everywhere have migrated to lean inventory management techniques and just-in-time manufacturing.
This is great when times are good, but when disaster strikes it can amplify the impact of any local disruption. The explosion of Eyjafjallajökull, an Icelandic volcano, in 2010 and the Japanese tsunami in 2011 both had much greater than expected ripple effects on the global supply chains of everything from food to cars to iPads. Leonard observes that the eruption disrupted delicately balanced systems and brought the global economy to within days of a spiraling supply chain calamity. After the Japanese disasters, Harley-Davidson had difficulties getting hold of radio components. Sony ran short of displays and batteries. Toyota, GM, and other automobile manufacturers were forced to cut production because of parts shortages caused by the earthquake and tsunami. Apple took extraordinary measures to make sure it got the parts it needed in time for the much-anticipated launch of the iPad 2 in early 2011, but it was still knocked sideways by the Japanese tragedy—not because of shortages at its primary suppliers but because of woes at the suppliers to those suppliers. What all that shows, argues Leonard, is that “our buffers are drained.”
The central arguments about systemic risks are put forward persuasively by Charles Perrow in Normal Accidents. A complex system is one that is made up of three or more subsystems. The subsystems are linked with each other, creating feedback loops that can self-reinforce or cross over and reinforce each other. Crucially, such systems are tightly coupled, meaning that there are no buffers or shock absorbers in the links between subsystems. This means that when something goes wrong in one subsystem, it automatically produces input errors in the subsystems it is connected to, which, when amplified by the feedback loops, leads to chaos. In fact, because errors will eventually occur in two subsystems simultaneously, pushing the system past its margin of safety, a failure of the whole system is on the cards virtually by design.
“A collapse, often sudden, of the whole system is not only possible but inevitable,” insists Leonard. He points to the telling example of the South China snowstorm of 2008. This was a bad but not cataclysmic storm, but because of the failure of multiple subsystems it wreaked economic havoc and proved much deadlier than it should have. Multiple bits of essential infrastructure—rail, electricity, food supply—all collapsed at around the same time. The reason, Leonard argues, was because they all needed each other: the food moved on rail; the rail was electric; electricity production needed coal; coal arrived only by rail; the snowstorm killed the power.
This is a huge problem that will only get worse unless leaders in business and government come together to manage these risks more sensibly. Nassim Taleb, author of the bestseller The Black Swan, warns against complacency, given today’s interconnected systems: “Globalization creates interlocking fragility, while reducing volatility and giving the appearance of stability.”
In Global Catastrophic Risks, a thoughtful collection of essays, Richard Posner argues that the world is underinvesting in the mitigation of several global catastrophic risks of the sort that Rees worries about. In that same volume, Robin Hanson offers this compelling reason to pay attention: “The main reason to be careful when you walk up a flight of stairs is not that you might slip and have to retrace one step, but rather that the first slip might cause a second slip, and so on until you fall dozens of steps and break your neck. Similarly we are concerned about [catastrophes] not only because of their terrible direct effects, but also because they may induce an even more damaging collapse of our economic and social systems.”
Prevent, Predict, Prepare . . . and Profit?
That is a frightening thought, but happily a vanguard of risk managers and governance experts is coming up with something resembling a manifesto for action. The group draws inspiration from successful responses to past natural disasters, though the lessons gleaned there apply much more widely. Whether one is dealing with financial meltdowns, pandemics, nuclear crises, or terrorism, the risk experts associated with the WEF argue that the principles arising from global experience with natural disasters “are unanimously deemed applicable.”
One broad theme emerging from this work is the desperate need for integrated, cross-industry, pan-regional risk analysis—not the bureaucratic silos and navel-gazing approaches taken in the past. An example of what works is the Mekong River Commission (MRC), which oversees resource planning and disaster management for that Southeast Asian river delta. Most such bodies in other regions are local or national at best and usually look only at specific issues such as flood management. In contrast, the MRC counts five regional governments as members, and it performs thoughtful cost-benefit analyses on issues ranging from energy and water to food—all of which, of course, are linked both to the river’s health and to each other. And given the rapid contagion seen in the recent financial crisis, such cross-jurisdictional cooperation makes sense at the global level in tackling many big risks.
Cross-disciplinary thinking makes sense within countries too. That makes it desirable to appoint chief risk officers for countries, much as companies do today, so that they can scan the horizon for longer-term and interlinked threats that individual ministries may ignore. To its credit, Singapore already has an expert government body that does something like this. Larry Brilliant thinks it is just as important to educate those at the bottom about risk as those at the top. He wants schools to teach children what he calls “the four R’s”: reading, writing, arithmetic, and risk literacy.
Beyond that general philosophical shift, the specific recommendations now bubbling up fall into three broad categories: prevention, prediction, and preparation.
Some disasters will happen no matter what measures are taken in advance to prevent them, but the world can do much better on the prevention front. Both Chile and Haiti were struck by massive earthquakes around the same time in 2010, but the former was a minor crisis whereas the latter was a horrific, large-scale meltdown of the entire country. Why? One obvious reason is that Chile is wealthier than Haiti, which helps in many ways, but it is still a developing country with lots of poor people. What Chile did have, though, was much better building codes and safety regulations that were actually policed and enforced, so the housing stock and infrastructure in the earthquake zone were much better able to withstand the blow. That suggests one way countries can prevent some of the losses arising from inevitable disasters is to have proper regulatory precautions in place in advance.
A related point is the need to avoid policy distortions that encourage reckless behavior in the first place. One problem arises from externalities that are ignored by public policy. Consider the contribution to global warming made by burning carbon-intensive fuels such as coal: the energy user pays a market price for coal, but she gets off lightly by not paying for the damage done to the environment and human health by burning that filthy fuel. Policies that internalize that externality, such as carbon taxes imposed on fossil fuels, would help change behavior and possibly prevent future natural disasters.
Governments should also abolish perverse subsidies that lead to behavior that puts people needlessly at risk. A good example is the encouragement by governments—including that of the United States—to build in areas well known to be at risk from hurricanes and flooding. Policies such as subsidized flood insurance and development-friendly zoning regulations make it cheaper for people to move into such areas as the North Carolina and Florida coasts that are picturesque but hurricane prone. Such policies also give the implicit guarantee of rescue by taxpayer-financed first responders, search-and-rescue teams, and so on to people who get in trouble by putting themselves in harm’s way.
Another good way to deal with big risks is to try to predict hazards using intelligent infrastructure. Embedding energy grids, buildings, and other bits of the built environment with smart sensors, alarms, sniffers, and other signaling devices can help risk minders keep their fingers on the pulse of emerging threats. This looks to become a multibillion-dollar industry. IBM was early in this game, promoting its vision for a “smarter planet” made up of digitally connected traffic systems, energy grids, and even entire cities. Hewlett Packard is working on a “central nervous system for the earth,” while Cisco trumpets “smart and connected communities.”
Smart systems can also help avoid problems like climate change and water scarcity in the first place by improving the efficiency with which resources are consumed. Much of the world’s fresh water is wasted before it reaches thirsty mouths, for example, and centralized electricity grids are needlessly inefficient. The sector is attracting many young technology companies, a sign perhaps of innovations to come. One of them, Israel’s TaKaDu, offers a Web-based service that uses sensors, data, and analytics to become the “eyes and ears” of water utilities.
A thoughtful exploration of future trends in resilience supports the argument that smart systems can help. The Rockefeller Foundation asked the Global Business Network (GBN) to put together likely scenarios for the evolution of technology and international development. After an extensive survey of the topic and interviews with scores of leading experts, GBN came up with four plausible scenarios that it plots along two axes: one axis shows the world’s adaptive capacity, while the other gauges its political and economic alignment.
The best possible outcome would be a world that scores highly on both axes, a scenario called Clever Together: “a world in which highly coordinated and successful strategies emerge for addressing both urgent and entrenched worldwide issues.” If alignment is strong but adaptive capacity weak, the experts predict Lock Step: “a world of tighter top-down government control and more authoritarian leadership, with limited innovation and growing citizen pushback.” If adaptive capacity is high but political and economic alignment weak, they expect a Smart Scramble: “an economically depressed world in which individuals and communities develop localized, makeshift solutions to a growing set of problems.” The real worry, though, is that both political coordination and adaptive capacity will collapse, leading to the Hack Attack: “an economically unstable and shock-prone world in which governments weaken, criminals thrive, and dangerous innovations emerge.” The report concludes that while the four scenarios vary significantly from each other, one common theme emerges: new innovations and uses of technology will be a big part of the story going forward.
The move toward smart systems is exciting, but it does raise concerns too. Some, such as the threat posed to privacy by putative Big Brothers having access to so much data, can probably be managed. However, if the headlong rush toward intelligent infrastructure merely creates a gold-plated version of today’s brittle, centralized systems, then it will only be setting the world up for an even harder fall in the future. All that data will be giving risk managers a false sense of security, argues Harvard’s Dutch Leonard, because all centralized systems have the potential to fail—“and when they do, they break with a vengeance.” His research suggests that people underestimate the risk of systemic breakdown and overestimate the robustness of such systems.
From Risk to Resilience
That points to the third way that the world can deal better with catastrophic risk: better preparation. That argues for decentralization and empowerment of localized decision making. Organizations typically have a response plan crafted at headquarters that kicks in when a crisis hits. The snag arises when business is interrupted not in the way the playbook anticipates but in some strange and disconcerting new way. When a crisis hits in an unexpected way—as Chicago experienced during a crippling snowstorm in the winter of 2010–11 that shut down even this city of broad shoulders—a previously determined centralized plan may have to give way to intelligent improvisation. But in Chicago’s case, the city’s officials were too wedded to their centralized evacuation plan to let go of it, even after it became clear that it was failing.
A better way, says Leonard, is to “figure out how to make your ‘edges’ learn and respond quickly to unexpected risks.” This is not as outlandish as it may sound. Vivek Kundra served as Barack Obama’s first chief information officer at the White House, but before that he was in charge of technology for the city government of Washington, D.C. In thinking about crisis planning, he draws inspiration from networked, distributed systems such as the Internet that he believes have no single point of failure. He ordered the installation of global positioning technology on the district’s snowplows and made the information available online so that people would not have to go outside to find out which streets had not been plowed or what the road conditions looked like. He beams with pride when he describes how dealing with crippling snowstorms got easier as ordinary citizens began to use the GPS data, assess local conditions through firsthand experience, and suggest better routes for the snowplows to follow.
Decentralized approaches offer an attractive way forward, but depending on how they are carried out they can be a source of strength or of inefficiency. Resilience is much more likely to feature in systems that are decentralized, intelligent, and well coordinated. Leonard argues that thus far what the world has mostly seen are two undesirable alternatives: systems that are decentralized and coordinated but sluggish, or ones that are decentralized and adaptive but uncoordinated. He adds an optimistic note: “While we underappreciate the risks of such systems, we also tend to underestimate the ingenuity and resilience of people when there are system-level issues.”
Alas, trusting open systems and decentralization does not come easily to managers or government officials, who tend to shut down and adopt a bunker mentality during crises. Doing scenario-planning exercises, carrying out dry runs, and practicing improvisation can help. So too does letting employees know that they will not be punished after the fact for their decisions, as long as they did so with the best information available at the time and in a manner consistent with the organization’s values.
But this is not a call for complete decentralization, which can also lead to bad outcomes in a crisis. Ushahidi, a dynamic nonprofit outfit that provides free software and Web tools for open and collaborative innovation, found that many people used its interactive mapping and communication tools in the aftermath of the Haiti earthquake to help with disaster relief. Unfortunately, the information posted grew chaotic and at times conflicting, leading to confusion and possibly hurting the aid effort. The firm has since launched Swift River, an initiative designed to verify and filter raw input so that the do-gooders do not get led down false trails in the wake of tragedy.
Another way risk managers can better prepare for inevitable disasters is the creative use of insurance products. When extremely damaging hurricanes or droughts hit, most poor countries scramble for money, and they rarely get enough from aid to rebuild and help the victims properly. Hoping to break that cycle, Mexico has agreed on an insurance policy with Swiss Re and the World Bank that would pay money to farmers automatically if hurricanes or several other specified types of natural disaster cross agreed thresholds of intensity. Vietnam has entered into a similar insurance deal that would pay out money to poor rice farmers if bad weather results in rice yields that fall below agreed levels. In effect, these countries are paying a small amount now to transfer part of the risk of future disasters onto capital markets, and in doing so providing their vulnerable populations with a valuable safety net.
The most controversial way to prepare better for a riskier world is to stockpile. This applies both to industrial corporations, which worry about physical stocks, and to financial institutions, which are concerned about capital adequacy ratios. This is a difficult pill for businesses and banks to swallow, as carrying more inventory or maintaining more capital and liquidity means higher costs. However, lean and just-in-time inventory management systems are simply not robust enough to handle the sorts of disruptions that today’s unexpectedly interconnected supply chain produces. And being out of stock costs money too, as firms are discovering to their detriment. A study published a few years ago found that firms that suffered from significant supply chain disruptions saw their share returns drop by a third versus the benchmark for their industries. Similarly, taking outsized risks without sufficient capital and liquidity to cover them is a recipe for disaster in times of market stress. And the blow dealt to a firm could be fatal, as recent experiences have shown.
That is especially true if competitors prepare more robustly and are able to stay in the game. Consider what happened in the wake of the Icelandic volcano surprise that shut down air traffic in large parts of Europe in 2010. Many firms struggled to understand the systemic problem, which their standard disaster plans had not predicted, and then found their supply systems too rigid to deal with the shutdowns. Not customers of DHL, though: its managers quickly switched cargoes to southern European airports, which were not immediately affected by the volcano, and arranged trucks and ships to substitute for air cargo. Even though it slowed things down a bit, the managers insisted on full scanning of all packages on the new routes, which allowed customers to track their packages through the crisis. Transparency and nimble, decentralized systems saved the day.
In sum, what the world needs now is to invest in resilient systems that prevent, predict, and prepare for the costly catastrophes buffeting the world economy. The conventional notion of resilience smacks of passivity and invokes the unattractive image of a defensive crouch, but Nassim Taleb argues against this. Instead, resilience should be seen as a fount of competitive advantage for industries and countries, a source of innovation and experimentation for cities, and a spigot of future profits for companies.
The challenge of building resilient infrastructure is setting the worlds of architecture, design, and city planning alight. For example, developers in New York are now considering the use of advanced absorbent materials for sidewalks in low-lying areas at risk from sea-level rise: the clever concrete sucks in water as fast as it comes in, to avoid the worst damage from sudden floods, and releases it only slowly over time. City planners in Asia and the Middle East are building resilient eco-cities from scratch, hoping to leapfrog ahead of Western rivals (who are often stuck with legacy infrastructure of the vulnerable, nonresilient variety) in attracting the knowledge workers and creative companies of the twenty-first century.
Judith Rodin, head of the Rockefeller Foundation, offers this elegant motto for coping with this risky new world: “We must have the capacity to respond adaptively to both acute and chronic stresses—while flourishing.” Rather than merely returning to the status quo after the shock ends, she argues, truly resilient systems adapt and change with the times. The global economy is moving faster, growing more open, and getting riskier—meaning innovators must also adapt and change if they are to flourish. And, argues Stewart Brand paradoxically, they must be bold enough to take more risks—albeit more carefully considered ones—if humanity is to overcome this generation’s grand global challenges.
In some respects, Brand’s green credentials are impeccable. His mentor was Paul Ehrlich, the author of The Population Bomb, published in 1968. That book, and the related Club of Rome movement of the 1970s, famously predicted that overpopulation would soon result in the world running out of food, oil, and other resources. Though it proved spectacularly wrong, its warning served as a clarion call for the modern environmental movement.
Brand made his name with a publication of his own, which also appeared in 1968, called The Whole Earth Catalog. It was a pathbreaking manual crammed with examples of small-scale technologies to enable individuals to reduce their environmental impact, and is best known for its cover, which featured a picture of the Earth from space (which Brand helped to persuade NASA to release). The book became a bestseller in anticorporate and environmental circles. In 1985 Brand cofounded the WELL, a pioneering online community that was a precursor of today’s social-networking websites such as MySpace and Facebook.
Brand still has a following among the Birkenstock set, and he even lives on a houseboat in Sausalito, near San Francisco. But meet him in person and it becomes clear he is not exactly your typical crunchy-granola green. Sitting down to lunch at a posh beach resort on Coronado Island, off San Diego, he does not order a vegan special but a hearty Angus burger with bacon and cheese, french fries, and a side order of lobster bisque. “I’m genetically a contrarian,” he says with a broad smile.
That is pretty evident from his recent proclamations, as the septuagenarian countercultural icon remains determined to rock the boat. But this time his target is the environmental movement itself. He has come up with a series of what he calls “environmental heresies,” which he hopes will influence a new generation of pragmatic, problem-solving greens. Three things that most greens vehemently oppose—genetic engineering, urbanization, and nuclear power—should, he believes, be embraced on environmental grounds.
Start with genetic engineering. Many greens object to the idea, fearing a deluge of “Frankenfoods” and the contamination of pristine wild species. But Brand points to the work of the late Norman Borlaug, the Nobel Prize winner who proved the Club of Rome (and Brand) wrong with his “green revolution” in agricultural productivity. Brand now sees great promise in using genetic science to feed the world, and perhaps prevent future wars, by making crops that are more disease-resistant, drought-tolerant, and produce higher yields.
Similarly, he argues that urbanization can be good for the environment. Mankind has now become a primarily urban species for the first time in its history, and every serious forecast predicts a surge in the size and number of megacities. Most environmentalists are dismayed at this trend and worry about the implications of urbanization for air pollution, resource consumption, and so on. But Brand bluntly rebuts them, insisting that megacities “will increase the Earth’s carrying capacity for humans.”
That may seem an odd argument from a man who wrote a guide to natural living and going “off the grid,” but it reflects another aspect of the maturation of his views. Cities are good for the planet, he argues, because they are engines of wealth creation, and greater prosperity makes promoting sustainability easier. When poor people move from bleak subsistence farming to the economic opportunities found in urban slums, he insists, they no longer need to chop down endangered trees or eat bush meat. “Nature grows back,” says Brand. He also believes cities unleash innovation—pointing to the use of mobile phones in slums to send money—and reckons the next big trend will come “not from Japanese schoolgirls, but slum-dwellers in Africa.”
Brand’s critics accuse him of romanticizing the potential of megacities. But his support for the revival of nuclear power is even more controversial. For years, he held the orthodox environmental view that nukes were evil. He now confesses that this was merely “knee-jerk opposition,” not a carefully considered opinion. His growing concern about global warming, which he calls “the single most important environmental threat facing mankind,” explains his U-turn in favor of this low-carbon but hugely unpopular source of electricity.
The turning point came, he says, when he visited Yucca Mountain, a remote site in the Nevada desert where the Department of Energy had for years planned to bury the country’s nuclear waste. He was visiting the site as part of his Long Now project, which aims to build a “clock” that will last ten thousand years or more in the hope of encouraging society to think about very long-term issues. While studying the deep hole in the ground at Yucca for tips on building his clock—the site, like the clock, is being designed to survive unscathed for thousands of years—he had an epiphany.
Although greens and other antinuclear activists oppose the Yucca Mountain project (opposition that led the Obama administration to try to kill it), Brand says he realized that “we are asking the wrong question” about nuclear power. Rather than asking how spent nuclear fuel can be kept safe for ten thousand to a hundred thousand years, he says, we should worry about keeping it safe for only a hundred years. Because nuclear waste still contains an enormous amount of energy, future generations may be able to harness it as an energy source through tomorrow’s better technologies.
But what about the nuclear accidents in Japan that unfolded following the recent tsunami? Surely that is the clinching argument against this technology? That is certainly the lesson learned by Germans, who voted to kill off the country’s big nuclear power sector in the wake of the Japanese accidents. Brand acknowledges the tragedy in Japan but insists on putting that experience in context. In the grander scheme of things, far fewer people have been hurt or killed by that episode (or by all nuclear plants through history, for that matter) than have been harmed or killed worldwide by the burning of coal—a point usually ignored by antinuclear activists. Carbon-free nuclear power remains a potent and scalable way to tackle climate change, he insists. The right way to see the Japanese disaster is as a learning experience: the nature of interconnected risks and the likely human responses have been put to the test and now can be improved for next time.
Shades of Green
Brand may well be wrong about nuclear power: the energy source that was once claimed to be “too cheap to meter” looks more likely to be remembered by history as too costly to matter. Even so, he gets one big thing right: his willingness to get his hands dirty and balance one risk against another, rather than clinging to ideologically pure positions when confronted with difficult choices, sets Brand apart from the many ideologues in the environmental movement. Indeed, he proudly calls himself an “eco-pragmatist.” He argues that two ideological camps have dominated the green movement for too long: “the scientists and the romantics.” The former group has been stuck in the ivory tower, while the latter has held on to noble but impractical views that, he reckons, have often been contrary to rational scientific thinking. The grip that these two rival camps have had on environmentalism, he says, explains its malaise.
But growing public awareness of climate change and other green concerns promises to end this. “Environmental change changes everything,” he insists, “and among the biggest change of all will be in environmentalism itself.” As environmental issues have moved up the technological agenda, says Brand, there has been a large influx of engineers into the environmental movement. These “techies” had previously been deeply skeptical of the greens, but he now thinks they may save the cause even as they save the planet. Unlike the romantics and the airy scientists, he says, “engineers focus on solving problems.”
Brand’s own pragmatism can be seen in his willingness to own up to his mistakes and learn from them. When his alarmism over the Y2K computer bug turned out to be wrong, for example, it made him realize that his own personal computer was a poor proxy for the world at large, which is “modular, shockproof, and robust.” And the key mistake made by the Club of Rome’s forecasts (which he calls “self-defeating prophecies”), he now acknowledges, was to see the world as static and to place too little faith in the possibilities of technological progress. He firmly believes society can develop the resilience needed to survive and even flourish in the coming era of black swans.
His critics might argue that Brand now places too much faith in clever engineers and fancy technology to solve the world’s environmental problems. But he can respond that his pragmatic approach goes back a long way and has deep roots. As he put it in the introduction to The Whole Earth Catalog, written four decades ago: “We are as gods and might as well get good at it.”
So what should divine governments, companies, and individuals do if they aspire to flourish in this age of complex risks? The final section of the book explains how to harness innovation in the Age of Disruptive Innovation.
Part Three
Greed: How to Win in the Age of Disruptive Innovation