Black Swans Are the New Normal. We Need to Build Anti-Fragile Societies Now.

The COVID-19 coronavirus pandemic has exposed many fragilities in our current systems: economic, health and disaster response, and societal, to name a few. The associated economic crash that will most likely lead to a broader recession underscores how unprepared we are for disruptions to our precariously balanced ways of life, whether we be workers, business owners, public servants, or corporate executives.

We need to not only respond better, but to also be able to recover, thrive, and move forward faster in order to adapt to a rapidly changing world, that will face more natural disasters and pandemics. Let's not let this crisis go to waste.

A "Black Swan" event was described by author Nassim Taleb in The Black Swan: The Impact of the Highly Improbable, as:

...an event with the following three attributes. First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme impact…. Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.

This definition is also commonly combined with a sense of independent events that align by chance to produce unpredictable catastrophes. But is the coronavirus pandemic really a "Black Swan"? Political analyst Michelle Wucker rightly argues that it is not a Black Swan, but a Grey Rhino: meaning a highly probable, but neglected threat that will have enormous impacts.

“Given what we know about pandemics and their increasing likelihood, outbreaks are highly probable and high impact. I coined the term “gray rhino” for exactly such events: obvious, visible, coming right at you, with large potential impact and highly probable consequences.”

The collision of multiple catastrophes such as pandemics, climate change, destruction of natural infrastructures that deliver 'ecosystem services', and global commerce fragility based on limited supply chains and just-in-time operations are making black swans into grey rhinos, and we should expect more of them to come at an accelerating pace in the years to come. We need less fragile and more resilient economic, political, and social systems in order to cope with these disasters, let alone thrive. If we get it right we will be able to create not only more resilient systems, but ones that will reduce our impact on the environment and disaster threat landscape, and the impacts they have on us. Resilience means our systems are able to recover more quickly, adapt to changes in an agile way, and if they're also sustainable, keep our human civilization running in a way that doesn't threaten its own existence.

TLDR: Underlying this is a series of either poor or conflicting incentives that encourage people to build fragile systems. Isaac Asimov's fictional concept of Psychohistory can be applied here: that even if individuals are somewhat unpredictable, societies of them will act in accordance with incentives and within the structures they have built for themselves. With this disruption comes the opportunity for us to rethink the assumptions and incentives that distort our society and make it fragile. There is no time like the present and not much time to spare - now is the time for us to act and build resilient, anti-fragile systems, businesses, programs, and technologies, rather than wait for the next disaster or pandemic to remind us that we saw this coming and simply ignored it, hoping the science was wrong.

The Factors That Lead to Fragility

To understand the reason why black swans are becoming gray rhinos, we need to understand the drivers of increasing probability of these disasters. They include:

Climate Change: By 2100, if unmitigated, climate change could cost the US economy as much as 10% of its GDP, in addition to the unmeasurable human and environmental damage. The rate of global sea-level rise between 2006 and 2016 was 2.5x faster than it was for almost all of the 20th century, and the impacts of this are already affecting us.

For anyone out there who may still not believe this is a real threat, please consider research here, here, and here. But also please think about the wide ranging benefits of the solutions to the climate change problem - they will benefit society in terms of threat reduction, economic growth, innovation, and better health for all of us, in addition to protecting clean air and water and making our lives and civilization more sustainable (able to carry on). According to the US Department of Defense, in its Climate Change Adaptation Roadmap:

“But the challenge of global climate change, while not new to history, is new to the modern world. Climate change does not directly cause conflict, but it can significantly add to the challenges of global instability, hunger, poverty, and conflict. Food and water shortages, pandemic disease, disputes over refugees and resources, more severe natural disasters - all place additional burdens on economies, societies, and institutions around the world." -

‐ Secretary Hagel, Halifax International Security Forum (DoD Arctic Strategy) Nov 2013

The vast majority of experts agree that we will face an array of challenges in the near future, including:

• Weather-related disasters: As global temperatures rise, the number of large scale (over $1 billion in damages) natural disasters have already increased more than 2x above the average and are projected to increase even further in the coming years. This includes more frequent and stronger storms thanks to the higher energy content of warmer seas and air, more droughts and related wildfires, and more extreme temperatures. Since 1980, these disasters have cost the US over $1.6 trillion and these costs are expected to increase dramatically as climate change advances.

Above: Increases in extreme weather events are already occurring, and are expected to accelerate. Image courtesy of Urban.us, a climate change impact fund.

• More diseases and health impacts: Due to warmer climates, existing diseases are predicted to spread to new areas and infect larger populations, and new diseases will likely emerge in these conditions or from the rapidly melting permafrost. The UN estimates that climate-related deaths will increase to an average of 250,000 per year between 2030 and 2050 - many of them children. This is a conservative estimate that doesn't include the deaths from disease pandemics or resulting social instability.

• Natural ecosystem collapses: The oxygen we breathe, water we drink and use for our industries, food stocks, and raw materials all depend on "ecosystem services" - think of our recent collective realization that without the work of honeybees, we would all perish. We are in the middle of the 6th mass extinction event that we know of, and unlike the earlier mass extinction events that were caused by comet strikes, extreme volcanic events, ice ages, or other cataclysms, this one is due to our activity. The UN Biodiversity Report finds that over 1 million species could go extinct in mere decades if we don't act. This includes 1/3 of marine mammals, corals, and sharks, 40% of amphibians, and many large land animals. This is in addition to local ecosystem collapses such as those due to ocean acidification and de-oxygenation, coral bleaching, overfishing beyond sustainable levels, and elimination of many of the plankton organisms our seas. Our global economy and our lives depend on all of these ecosystems functioning in an optimized, delicate balance.

Economic and Societal Fragility: Many of the human-constructed systems we rely on are also highly fragile, leaving people, businesses, and organizations unnecessarily vulnerable to disruptions, let alone disasters.

• Centralized or non-redundant systems: Centralization has its benefits. It allows for coordinated control of how resources are used, accountability, and the ability to easily identify where things are coming from and going to, especially during disasters. But centralization can also increase bureaucracy and fragility in some systems, increasing the impact of a disruption to that system. A stunning example of this was the 2003 Eastern Blackout, when tree branches touched power lines in Ohio, causing a series of cascading problems that left 50 million people without power, some for weeks. Similar issues of fragility due to centralization confront supply chains, government services, foreign policy, security and peacekeeping, health care, etc. Centralization means lower tolerance of failure over fewer nodes, leaving the network vulnerable to inclement weather, cyberattacks, spikes in demand, and unpredicted events.
• Financial uncertainty for consumers: Without customers, a business cannot exist. Without financial certainty and resources, consumers cannot be customers, let alone meet their basic needs. Even in times of abundance, many people are one paycheck away from running out of funds. Due to the coronavirus pandemic, unemployment claims have skyrocketed and have broken records, but many people are finding that they don't qualify for benefits, leaving them vulnerable (although some states are thankfully expanding coverage). In addition, many people were already out of work or homeless for protracted periods of time, and do not receive the physical or mental health services that could help them get back on their feet.
• Uncertain health care capacity and costs: The WHO estimates that human health will continue to be endangered by climate change if we do not choose to mitigate the factors that contribute to it. Many hospitals normally operate at near capacity, so when disasters strike and increase the patient volume by even single digits, it can overwhelm the ability of doctors, nurses and emergency care workers to save lives and provide treatment. COVID-19 has given us a glimpse of what we can expect in a world overwhelmed by climate change-related pandemics and disasters. In addition, health care systems such as in the US that are either corrupted or dysfunctional, despite the hard work of caretakers and support staff, lack of preventative care, unpredictable costs that can cost more and cause more health issues in the longer run, and contribute to worker insecurity.

(Above) A chart from the WHO showing health impact projections from climate change.

Moving Towards Resilient, Anti-Fragile Systems

In order to move towards more anti-fragile systems, we need to think longer term and understand that these more regular and larger scale disasters are highly probable. However, we have a choice to let them turn into gray rhinos or not, by not neglecting to prepare and plan for them, as well as building systems that will quickly recover when they strike.

Climate Change and Natural Disasters

• Proactive strategies: As with any disruptive event, it is better to prepare to respond, mitigate the potential impact, and create clearly defined policies and procedures to follow when disasters or disruptive events occur. For cities, this could mean building out infrastructure that will reduce the impact of disasters. For venture capital it could mean creating funds and accelerating partnerships for startups, while helping the startups develop plans that help them thrive during chaotic times, simultaneously protecting and nurturing the fund's investments. For large corporations, this could mean reviewing strategy, operations, supply chains, and employee benefits within the new context to become more resilient and adaptive, while seeking opportunities to help solve the challenge itself wherever the company operates. For NGOs, the Overseas Development Institute recommends building adaptive capacity for people, food supplies, and local organizations, as well as helping to strengthen the human relationships that will help improve coordination during hard times.

“To prevent future loss of lives and livelihoods, continuing to invest in risk reduction...is important to build the ‘adaptive capacity’ of individuals and societies to reduce the impact of future hazards”

- Katie Peters,

Overseas Development Institute

• Seeing opportunities in solving the problem: With change comes opportunity, and companies around the world are finding ways to proactively join the fight against climate change and social ills. In fact, Boston Consulting Group found that companies who integrate social impact into their core business not only attain the highest level of social impact, they also achieve the highest levels of shareholder returns. Building a business around doing good is good for business, in terms of returns, profitability, recruiting and employee satisfaction, and valuations. They found that investors rewarded top ESG (Environmental, Social, Governance) companies with valuations that were 3%-14% higher and that margins were 12.4% higher for top performers in ESG. They also suggest that companies that take this strategy of integrating impact into their core business open new markets, spur innovation, reduce costs and risks in supply chains, strengthen the brand and support premium pricing, have advantages in attracting talent, and strengthen relationships with governments, regulators and influential parties. It seems that social and environmental impact is not only a risk-reduction strategy, it's a business opportunity that companies can't afford to miss in the coming decades. Large companies like Hitachi set "social innovation" as their mission to build the business through power good and solving grand challenges. Entrepreneurs see opportunities to build new innovations and businesses, while global banks like Goldman Sachs see this as the largest infrastructure build-out in history.

Above: excerpted images from BCG's Total Societal Impact, A New Lens for Strategy

• Data-driven management: Data-driven approaches to containing and preventing the spread of the coronavirus could have prevented many infections and deaths, in China, the US, and around the world. In both cases the data was available and suggestions from scientific and policy experts were clear, but unfortunately not followed for long periods of valuable time due to political concerns. Trust is at the heart of data-driven decisions, and transparency must help citizenry and leaders alike better understand the data, and what to do about it. In public policy and management, it is essential that leaders have the data they need, can track their improvements or decline over time, and that the data is designed to be actionable. The Indian state of Andhra Pradesh's Real Time Governance initiative is a great example of this - uniting data from over 30 different agencies, providing over 700 services in order to improve its public services and emergency response, food supplies, happiness index, and to reach its UN Sustainable Development Goals of 2030 years ahead of time. Smart spaces help organizations big and small to gain new data to, like Andhra Pradesh, improve safety, efficiency and the experience of their customers, while becoming more resilient.
• Restorative ecosystem approaches and circular economy: A circular economy transitions from a cradle-to-grave model of produce-consume-dispose, to a cradle-to-cradle model of produce-consume-recycle-reuse. Restorative economies not only reuse resources, but regenerate natural capital through their production processes. Companies and governments hoping to achieve these goals have an opportunity to reduce costs and to access new raw materials that are considered waste by another entity in the economy. Boston Consulting Group estimates that the transition to a circular economy can unlock $4.5 trillion of economic growth by 2030, and make it easier to shelter, feed, and clothe people around the world.

Economic and Social Fragility

• Basic Income and Economic Demand Floor: The idea of a universal basic income (UBI) has been growing in popularity, especially after Andrew Yang's candidacy popularized the program for mainstream audiences. In order to adapt to exponentially advancing technology and coming widespread automation which will continue to impact our world and change the way we work, entrepreneurship and innovation will also need to accelerate to a similar degree. Research shows that when a citizenry has economic security, they are emboldened to take entrepreneurial risks. Providing an economic floor for entrepreneurs, business owners, and employees will allow many ideas to become businesses, new products, and innovations - especially when people face challenges and rapidly imagine solutions. It will also provide a floor of demand that keeps business in business. In addition, people with a means to support themselves feel more affinity for the system they live within, and are less likely to loot, riot, and revolt out of desperation or frustration when high risk macro events occur. The question of how to structure and deliver these programs is still a hot topic of debate, but results from a variety of studies around the world clearly show that it benefits society.

• Distributed Finance: Solutions such as the rapidly growing equity fundraising industry and crowdfunded debt provide a source of capital for startups, especially for those who haven't had access through traditional funding or face discrimination. Not only do the startups gain access to capital, more of us gain access to investments that allow us to share in the returns of the American Dream. Startups are not just businesses, they are ways that human beings create solutions to problems. By making access to resources more readily available to startups, we can enable more agile adaptation to changes and disruptions in the world. This emergent strategy to adaptation mimics natural processes of creating nutrient discovery, acquisition and transfer networks. A notable example of this is the humble slime mold, which has been shown to build networks that are as or more efficient than our transportation systems, such as the Tokyo subway.

Above: The startup and business innovation ecosystem can be thought of as an emergent adaptation strategy for our society to rapidly adapt and create new solutions to the challenges we face and needs we have, much like this slime mold that created a network as or more efficient than the Tokyo subway.

• Distributed and democratically controlled organizations and risk mitigation: Many forms of distributed management and organizations have existed for some time. Organizations like Co-Ops, ESOPs, and corporations operate democratically to various degrees, with their own pros and cons. Distributed Autonomous Organizations operate using blockchain-based smart contracts, which can mitigate corruption and management risks, while reducing costs of management and sharing value with members of the network through tokenization. In regards to the fragility of our electrical utilities example from above, some communities are creating distributed energy generation from solar and wind, as well as energy marketplaces, where those who generate can sell their electricity into the grid, and buy back when they need it. Unlike centralized power generation, these networks and marketplaces allow for more resilient energy availability.

• Critical supply chain and food resiliency: Supply chains are critical to supporting our food supply, as well as the products and services that keep our society functioning. The need to build resiliency into supply chains is a no brainer, but how do we go about doing it? Christopher Knittel, a professor of applied economics at MIT Sloan, recommends the following steps to achieve resiliency:

1. Engage in deeper, long-term collaboration with suppliers: This builds stronger trust and collaboration and can help the suppliers understand that resiliency is a priority, and take necessary action, especially if one encourages better planning with longer-term contracts and guarantees.
2. Extend risk horizons to adapt to longer term strategies: This helps create more robust risk-mitigation plans that take the likely disasters into account.
3. Take stock of geographic threats: Planning for and acting on geography-related threats, such as moving infrastructure to higher ground, hardening at-risk facilities early, or building new ones where disasters are less likely to hit can save costs down the road, along with the health and safety of workers.
4. Start lobbying: Policymakers need to hear from businesses that they take these threats seriously, and that they want governments to do their job to protect economic assets. Identifying what can be done internally, with partners, and by policymakers will help prioritize.
5. Do your part to reduce emissions: Procurement and sustainability are closely related and should align. By involving sustainability in resiliency conversations, and ensuring suppliers know that it's a priority to your business - for social and business reasons, you can increase demand for more resilient and sustainable solutions.

“If I were inside a company, I would create a list of what [my organization] could do, what an industry consortia could do, and what needs to be done by policymakers. Because of the nature of climate change, because it impacts everybody, there’s always going to be some things that just should be done by policymakers,”

- Christopher Knittel, MIT Sloan

• Health care coordination, climate-informed planning, transparency, costs controls, and modernization: How to optimize health care is a highly politicized topic, but we can all agree that people deserve to receive the care they need to be healthy. In order to become resilient and able to deal with emergencies, the WHO recommends integrating climate risks and management measures into health curriculum, building organizational capacity and strategies to fill gaps during a crisis, protecting financial reserves and investments, and developing communication strategies focused on priority entry points. Resilience engineering efforts ahead of time can save costs and heartache down the road. We're seeing the ability of seemingly unrelated infrastructure like bullet trains and naval ships to be used as makeshift medical facilities - these should also be included in resiliency planning, with relationships and procedures ahead of time. Even between times of disruption, the American healthcare system is opaque, policies are unintelligible even by many experts, and among the most expensive for average care. We must de-politicize healthcare, make costs more transparent, and learn from high-performing models that are operating around the world. The main problem, however, is obvious - there's too much money to be made in keeping things confusing and unaffordable. This will take a combined, sustained effort of government, citizens, companies, and data-driven policymaking to get us to a sustainable model.

Everything listed above are gray rhinos, which we know are coming, and will have enormous impacts if we don't take proactive action to become resilient and anti-fragile. Black swans will still occur, and being anti-fragile will only strengthen our ability to respond, adapt, and recover from them. We must make decisions based on data and science, and recognize that disasters will occur more frequently as the climate warms. The more we can build non-fragile systems and resiliency into everything we do, the better adapted we will be to the future we face, and more able we will be to thrive in a changing world. COVID-19 has reminded us to take the warnings of experts seriously, and that proactive action is better than scrambling to react. Let's build a world for ourselves that will incentivize us to succeed together.

"Notice that the stiffest tree is most easily cracked, while the bamboo or willow survives by bending with the wind."

- Bruce Lee

What are some anti-fragile examples or efforts that you've seen? Please share in the comment section below, and thanks for reading!