A Systemic Approach to Dealing with Covid-19 and Future Shocks

Our partners at the OECD view the corona crisis as a reason to systematically strengthen the resilience of our economic and social system.

 

This is an excerpt from a new paper from our partner institution NAEC at the OECD. The full version is to be found at the bottom of this page.

Dealing with the Covid-19 shock and other epidemics through Resilience Strategies and Policies

So, how should we deal with the considerable shock that Covid-19 places upon international markets, public health, social activity, and governance? How can we address the cognitive effects of fear that trigger substantial slowdowns in economic activity, as well as the systemic effects that strain various sectors of international trade and governance?

Two overarching philosophies and methodologies are available for stakeholders to draw upon. Until recently, the consensus would have insisted upon preventing a threat from happening in the first place or substantially mitigating its consequences after the event if absolute prevention or avoidance is impossible. As the basis of conventional risk management (i.e., to prepare for and absorb threats), this option is politically appealing at the onset, as it offers the illusion that unacceptable risks may be bought down before they cause serious problems. In a world of rapid feedback loops and increasingly nested systems where cascading failures are inevitable, however, such options might be ineffective at protecting economic and social systems and calming perturbations, or would be ruinously expensive to implement to the extent needed to assure policymakers and other stakeholders of adequate protection.

The second approach is one that accepts the inherently uncertain, unpredictable, and even stochastic nature of systemic threats and addresses them through building system resilience. Rather than rely solely upon the ability of system operators to prevent, avoid, withstand, and absorb any and all threats, resilience emphasises the importance of recovery and adaptation in the aftermath of disruption. Such a mindset acknowledges that the infinite universe of future threats cannot be adequately predicted and measured, nor can their effects be fully understood. Resilience acknowledges that massive disruptions can and will happen, and it is essential that core systems have the capacity for recovery and adaptation to ensure their survival into the future, and even take advantage of new or revealed opportunities following the crises to improve the system through broader systemic changes. This is sometimes characterised as not just bouncing back, but “bouncing forward”.

Recommendations

Covid-19 is simply the latest, albeit concerning, manifestation of an unpredictable shock to various interconnected systems, where international recovery will have vast implications for future economic, social, and governmental activity. Resilience must become a core philosophy within system management and operation to ensure we are able to continue to function despite disruptions like Covid-19, and are able not only to adapt and improve in its aftermath, but to seize upon new or revealed opportunities.

Interconnectivity between systems is one of the structuring and determining features of our modern world, which is becoming ever more complex and dynamic. This is a product of economic opportunity as well as global political interconnectedness, and has brought considerable benefits to much of the global population. An instinctive reaction to the Covid-19 outbreak would be to limit or reduce such interconnectedness, yet such sweeping policy changes would not better protect countries or international markets against future systemic threats. Instead, an emphasis upon developing resilience within the international economic system is a necessary evolution for a post-Covid-19 world, where systems are designed to facilitate recovery and adaptation in the aftermath of disruption.

A shift from risk-based towards resilience-based approaches for management of epidemics, as well as for other systemic threats, is a necessity. The resilience we are talking about here, however, is not resilience in the traditional sense the OECD tended to use, meaning the capacity to resist downturns and get back to the same situation as before. There is an awareness that the systemic threats modern societies face are increasingly difficult to model, and are often too complex to be solved for the “optimal response” using traditional approaches of risk assessment that focus primarily upon system hardness and ability to absorb threats before breaking. The new approach to resilience will focus on the ability of a system to anticipate, absorb, recover from, and adapt to a wide array of systemic threats (see figure below).

The NAEC report “Resilience Strategies and Policies to Contain Systemic Threats” defines concepts related to systemic threats and reviews the analytical and governance approaches and strategies to manage these threats (including epidemics) and build resilience to contain their impacts. This aims to help policymakers build safeguards, buffers and ultimately resilience to physical, economic, social and environmental shocks. Recovery and adaptation in the aftermath of disruptions is a requirement for interconnected 21st Century economic, industrial, social, and health-based systems, and resilience is an increasingly crucial part of strategies to avoid systemic collapse. Based on NAEC reports and the resilience literature, specific recommendations for building resilience to contain epidemics and other systemic threats include:

  1. Design systems, including infrastructure, supply chains, economic, financial and public health systems, to be resilient, i.e. recoverable and adaptable.
  2. Develop methods for quantifying resilience so that trade-offs between a system’s efficiency and resilience can be made explicit and guide investments.
  3. Control system complexity to minimize cascading failures resulting from unexpected disruption by decoupling unnecessary connections across infrastructure and make necessary connections controllable and visible.
  4. Manage system topology by designing appropriate connection and communications across interconnected infrastructure.
  5. Add resources and redundancies in system-crucial components to ensure functionality.
  6. Develop real-time decision support tools integrating data and automating selection of management alternatives based on explicit policy trade-offs in real time.

Procedurally, a complement to such resilience-based approaches is included in the International Risk Governance Centre’s Guidelines for the Governance of Systemic Risks (IRGC 2018). The IRGC highlights a multi-step procedure to identify, analyse, and govern systemic risks, as well as better prepare affected systems for such risks by mitigating possible threats and transitioning the system towards one of resiliency-by-design. As a cyclical process, the IRGC’s process for the governance of systemic risk includes:

  1. Explore the system, define its boundaries and dynamics.
  2. Develop scenarios considering possible ongoing and future transitions.
  3. Determine goals and the level of tolerability for risk and uncertainty.
  4. Co-develop management strategies dealing with each scenario.
  5. Address unanticipated barriers and sudden critical shifts.
  6. Decide, test and implement strategies.
  7. Monitor, learn from, review and adapt.

The purpose of IRGC’s exercise is not to generate a deterministic model that applies to any and all systems – this is neither possible nor helpful. Instead, it is designed to produce more introspective, collaborative, and multi-system viewpoints regarding the threats that may be lingering along the peripheries of our systems, as well as where our system’s critical functions or resilience challenges should be improved within future strategic management opportunities.

An example of applying similar approaches to disease epidemics is presented in Massaro et al (2018). The methodological resilience framework discussed above was applied to the analysis of spread of infectious diseases across connected populations. They monitor the system–level response to the epidemic by introducing a definition of engineering resilience that compounds both the disruption caused by the restricted travel and social distancing, and the incidence of the disease. They find that while intervention strategies, such as restricting travel and encouraging self-initiated social distancing, may reduce the risk to individuals of contracting the disease, they also progressively degrade population mobility and reduce the critical functionality, thus making the system less resilient.

While slowing down the epidemic’s progression, such containment measures may drive the system into a path associated with long-lasting overall disruption and negative health and economic outcomes. The study highlights that multiple dimensions of a socio-technical system must be considered in epidemic management and sets out a new framework for analysing contingency plans at the national and international levels. For Covid-19, a multi-system approach bolstering recovery of international economic, public health, social welfare, and other affected systems will have the greatest return-on-investment not only in restoring the international baseline of growth and stability, but to ‘bounce forward’ in a way that leaves national and international systems in a far better state than before.

Such a mindset acknowledges that the infinite variety of future threats cannot be adequately predicted and measured, nor can their effects be fully understood. Adopting such an approach means rethinking our priorities, and especially the role of optimisation and efficiency. The science of systems engineering teaches us that when you try to optimise one part of a complex system, you can end up destabilising the system as a whole. We see that in global supply chains, surely one of the most efficient components of the international economy. The French Minister for the Economy, Bruno Le Maire, argues that that there will be a before and after Covid-19 for the world economic system: “We need to draw all the conclusions from this epidemic on the way globalisation is organised, and notably value chains”. When your highly optimised workflow is disrupted by shocks such as Covid-19, maybe just-in-time needs a dose of just-in-case.

 

Read the complete paper below.

 

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