What Would You Have Done Differently
Musings on COVID and the Bureaucratic Problems of Black Swans
Ever heard of COVID-19? Of course, you have. What if you had heard about it in December 2019? What would you have done differently?
This is my question to members of Corporate America and similar large institutions. Starting in March 2020, many in Corporate America responded effectively to COVID, establishing task forces, transitioning to remote work, responding to supply chain disruptions, etc. Taxpayers have also given hundreds of billions to companies, many of which had engaged in billions of dollars of stock buybacks in the recent past. As companies and institutions stabilize and learn to operate in our new normal, society should ask how they can prepare for the next black swan. Whether or not COVID-19 should be classified as a black swan, grey elephant, or purple rattlesnake, it's worth imagining what members of these institutions might have done differently if they had prior knowledge.
The short answer is that, on average, they would've done nothing different because of the Bureaucratic Problem of Black Swans.
Consensus Kills Innovation
Every day in Corporate America, meaningful innovation dies a painful death. This can happen for many reasons, but consensus culture is disproportionately responsible:
"The 'coming to consensus' trap appears when an organization seeks innovation but tries to build group consensus about which new ideas it should support. Consensus-based decision-making can lead to funding only the clearest, safest, or lowest-common-denominator ideas; truly radical projects may raise too many eyebrows to pass through a collective filter." SSIR.
When you need to convince a host of specific people, each of whom can kill an idea with a no, there's a high risk of death. For this reason, any idea that is "contrarian and right" is impossibly difficult to pursue in a consensus-centric organization. Compare this to a startup trying to get funding: a startup can get 99 rejections from venture capitalists, but the startup can survive if even 1 says yes. Simply put, for ideas to survive in bureaucracies, all it takes to die is one no; for ideas in startups, all it takes to survive is one yes.
Bureaucratic Problem of Black Swans
This innovation-related mental model applies to black swans too. The consensus culture of bureaucracies also stifles preparation for existential risks.
Let's imagine a fairly senior manager at ABC Widget Company who was aware enough or smart enough to game out how COVID-19 was spreading in Wuhan and how American political institutions would likely respond. What would they do? They may want to sound the alarm and propose risk mitigation measures, but they would ultimately need to explain what they were seeing to various layers of people in order to gain consensus. Our fairly senior manager would need to go to their Vice President who would go to their Senior Vice President who might go to their Chief Operating Officer who might then go to the CEO. In a consensus organization, any single person could and likely would disagree that a global pandemic was imminent.
Any sufficiently crazy risk would most likely be shot down in a consensus organization. That is to say, any sufficiently large risk would likely be ignored in most of our institutions.
Prediction versus Action
In many board rooms, the notion of a black swan still garners the response that they shouldn't be considered because they cannot reliably be predicted. However, the incentives of our institutions are not optimized for survival; our societal institutions are structured so that even if someone is able to see a black swan coming, they are likely to be ignored.
There is always the risk of being the boy who cried wolf. Organizations have finite resources and cannot fully prepare for every single existential risk that exists. However, as a society, we should want to ensure our institutions can respond to these risks. This might require new risk management structures. For example, just as whistleblowers have a separate channel to voice concerns about possible illegal activities occurring in companies or institutions, a separate avenue for employees to report potential black swans might be a way to ensure that all risks are at least surfaced and explored.
Separately, it is worth ensuring that there are incentives in place for institutions to not only explore such risks but to act on them. Bailing out institutions every decade is the opposite of incentivizing resilience and antifragility. The continued socialization of losses and privatization of gains creates moral hazard.
Managed Decline or Optimistic Dynamism
I believe one of the central books of our time is The Decadent Society by Ross Douthat. In it, he quotes W.H. Auden:
“What fascinates and terrifies us about the Roman Empire is not that it finally went smash,” wrote W.H. Auden of that endless autumn, but rather that “it managed to last for four centuries without creativity, warmth, or hope.
Douthat believes our society today is in a similar spot: aging, repetitive, and lacking optimism. But the truth is that today, these two futures are not so different from one another. The structures that are causing the technological stagnation we see, are the same structures that will hold us back from addressing the greatest existential risks of our future.