Unintended consequences:: who’s kidding who?

A parable from the 19th Century that the insurance industry would do well to remember as it (directly and indirectly) presides over a ‘system’ whose man-made complexity – created to strip value from its customers/suppliers in order to sustain its own, spiralling and unregulated, greed – is the biggest single threat to its survival own.

PLEASE follow the links (below) in relation to opportunity costs and …unintended consequences for further explanation. Both are economically significant, yet, apparently, too readily overlooked by acolytes of Irresponsible Capitalism. Yet another entry for the bulging category of inconvenient truths to be swept under the proverbial Corporate carpet!

Opportunity costs: refers to efficient use of resources (does the term ‘peak oil’ mean anything to you!?)

“Anyone who believes in indefinite growth on a physically finite planet is either mad, or an economist.”

-David Attenborough

Law of unintended consequences: is particularly relevant to those of us with an ‘interest’ in complex systems, risk, complexity and resilience. For, although recognised in the days of Adam Smith and the Scottish Enlightenment, it is too readily overlooked. Now that’s bad enough BUT, when you recognise what we now know about dynamic, non-linear, business [digital] systems, IT IS CRIMINAL! As is the ongoing practise of teaching economic theory that is known to be flawed!!!

…the consequences of policies will depend critically on the nature of the interdependences

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Global Supply Chain fragility [Procurement Intelligence Unit]

English: Risk Management road sign

Image via Wikipedia

Back in 1776 Adam Smith wrote about the “specialisation of labour” and, like complexity, this brings enormous benefit to an organisation (or in this case of a nation) BUT the old adage about “too much of a good thing” holds true.

Improved productivity is the holy grail for most CxO’s but, without frequent scanning of the ecosystem (upon which the organisation is reliant), careful measurement and management, the point at which the benefits of specialisation turn negative can, suddenly and unexpectedly, be reached: at Ontonix we talk in terms of “critical complexity“.

Although labour specialisation can increase productivity, overemphasis on the division of labour/product/market would result in overspecialisation. Pashke (2004) explains that the overspecialisation of labour has the tendency to restrict communication between the various areas of (work) expertise and the general public. This then would ensue in communication gaps appearing within and outside the organisation: specialised knowledge becomes exclusive.

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Oops! Solving global problems in complex systems « Sustainable Development in Government

Personally, I feel that “Oops SORRY!” is the very least we should expect from financial and political “leaders” whose lust for power and wealth has seen unstinting support for the “economic domain” and blinded them to the impact upon other, interdependent, domains.

Over the past 40 years our collective problem-solving didn’t actually solve the problems. Albert Einstein’s classic warning applies; how to be sure that we aren’t still trying to solve today’s problems with the same kinds of thinking which causes them? Adam Smith also warned, “When we are in the middle of a paradigm, it is hard to imagine any other paradigm.” With the benefit of 40 years experience since Stockholm we can add, “When we are in the middle of a gradual international problem-solving process, it is hard to imagine other paradigms.”

How to rapidly imagine, design and implement other paradigms? A starting point for this large challenge could be the smallest possible response, to say “Oops!”.  “Oops!” may not sound like much but this acknowledgement of society’s collective failures could be powerful in shifting the dialogue and creating space for new thinking. As an acronym, OOPS! could provide the international community with an informal ‘Out Of Paradigm Space’ to discuss options that haven’t been considered simply because they didn’t fit in the prevailing shared mental models or institutional architectures. OOPS! would ask, “what are we missing here?”…

via Oops! Solving global problems in complex systems « Sustainable Development in Government.

Complexity Economics

dgw complexity science logo

Let me declare that I am no expert but  those responsible for policy, legislation and regulation have no excuses.

“Classical” economic theory is based upon concepts such as rational decisions and stable equilibrium whereas, unless I am making a complete idiot of myself, REAL economic systems do not achieve “static equilibrium” and are inherently unstable. As for rational…I’ll leave you to make up your own mind!

So, whilst there is a huge industry dedicated to financial prediction of one sort or another I can’t help wondering WHY!?

I am not comfortable with the thought of nations or Corporations wasting money in trying to predict the future but the chances of my voice (even though not entirely alone) making any difference are about as long as the chances of some highly paid economists or quants accurately predicting the economic future. So the best that I can do is attempt to educate and assist those businesses whose leaders no longer trust financial or political institutions, question the practice or recognise the sheer folly of such exercises!

It’s a dirty job but someone’s gotta do it and I feel compelled to give it my best shot!!!

Getting my head round complexity has only reinforced my belief that investing in prevention and getting “Fit for randomness” is the most sensible strategy in the face of risk and uncertainty (whether natural or man-made). Quantitative Complexity Management, from Ontonix, enables a business to measure and manage the internal interdependencies and external inter-connectedness of its company ecosystem. We extend the “risk horizon” into areas of (epistemic) uncertainty and, in doing so: Read more of this post