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Ethos Issue 4, Apr 2008
Managing Complexity and Uncertainties
Lam Chuan Leong
Governments should make provisions for increasingly unpredictable and disruptive outcomes in the future, argues Lam Chuan Leong, Senior Fellow at the Centre for Governance and Leadership.
History is not without its disruptive surprises. At the end of the 19th century, it was thought that everything that could be known had been discovered. Yet only a few years later came the x-ray, sub-atomic particles, nuclear fission and other discoveries that completely changed the world.
Clearly, however, the pace and nature of disruptive change is evolving more rapidly than ever before. It is now commonplace to assert that the world is more complex and uncertain.
Three major factors have helped accelerate the pace of change. First, the increasing sophistication of markets and distribution channels has allowed new products to be diffused very rapidly, not only within national borders but also globally.
Second, transport and communications technologies have brought the world closer together. It has enabled global production and spread the economic gains and the knowledge of production globally in a far shorter period of time.
Third, the revolution in information technology has greatly speeded up the diffusion of information, both in terms of technology and also of social behaviour. Societies that used to exist in isolation without outside influence can now see and learn through the media or Internet about what is going on elsewhere almost instantaneously. Along with easier travel, information technology spreads and speeds up the learning process of societies in both good and bad ways.
The positive aspects of these developments are well-known. On the downside are “globalised” threats such as contagious diseases, financial crises, terrorism and conflict.
The increase in complexity and uncertainty brought about by these factors has implications on the way the public and private sectors manage their affairs.
RISKS OF COGNITIVE FRAGMENTATION
Studies into human cognition have shown that the human mind cannot handle too many items at once. It tries to cope with complexity by breaking it down into compartments or sub-components which are left to be handled by other people or at other times. This has given rise to the ever finer modes of specialisation that characterise modern societies. However, this also brings with it the risk of “fragmentation”. On occasion, this fragmentation can lead to a serious failure as shown in the following example by Gary Klein: 1
“During an operation, the surgeon decides to lower the patient’s blood pressure. He directs the anaesthesiologist to give the patient a drug that will have this effect, but does not explain what he is trying to accomplish. The anaesthesiologist gives the drug, notes that the patient’s blood pressure goes down, and boosts the level of another drug that will increase the blood pressure. To the anaesthesiologist, this is standard operating procedure to keep the patient’s vital signs stable. The surgeon notes that the blood pressure is higher than he wants and directs the anaesthesiologist to increase the dosage of the first drug. The anaesthesiologist follows the request, watches for the blood pressure to reduce, and then boosts the drug that will return the blood pressure to its normal level. This cycle continues until the patient ends the game by dying.”
This is a simple example that could be put right once the lesson has been learnt, but there are more complex situations where it is not as easy to avoid the negative consequences of fragmentation.
For example, people put their money into banks or insurance companies and assume that these institutions—and their regulators—know what they are doing. That did not prevent banks lending to sub-prime borrowers. The banks thought they had diversified their risks. They assumed that the financial products had been structured to minimise risks. They looked to credit rating agencies and even loan insurance agencies to take care of some of the work of risk assessment and management. So the whole chain of fragmentation continued.
Had nothing untoward happened, most of them would have been richly rewarded. As it turned out, there was a correlation of risks, and the whole chain fell apart with very serious consequences on a system-wide basis, harming even those who have little to do with it. The same could be said of the food production chain, and its potential impact on human health.
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