2.5 Systemic risks

While some degree of interconnectedness is necessary for systems to exist and adapt, too much interconnectedness can be very dangerous. 

A good example of a highly interconnected (i.e. coupled) system and the risks it poses is the uncontrolled movement in a dense crowd, which can result in the loss of life. In a tightly packed crowd, unintentional pushing is propagated and intensified as each person pushed continues to push more people nearby. Once set in motion, the disturbance easily intensifies, leading to undulating waves in different directions as people try to regain their balance and create space around them. While no one person wants to cause harm, the interconnectedness of movements due to the density of the crowd leads to disaster when people stumble and get trampled by others. 

The development of modern societies has moved towards ever greater interconnectedness across a wide range of systems. Advances in information technology and social media platforms have made it possible to transmit data instantly to almost anywhere, energy systems such as electricity grids are very large and interconnected, shipping and air transport move huge volumes of people and goods rapidly around the world, and capital moves unimpeded from one country to another.

In addition, systems are increasingly interconnected. Electricity networks, for example, are necessary for the operation of information networks, and information networks are necessary for the operation of electricity networks. Information networks are also increasingly necessary for almost all the systems in society, such as banking, medical care, transport, commerce, manufacturing, energy distribution and so on. 

Nor should we forget the major impact of 'natural systems' phenomena such as storms, solar storms, forest fires, floods, droughts, infectious diseases, volcanic eruptions, etc. on all human systems, nor the human impact on the functioning of natural systems, of which climate change and the loss of biodiversity due to overconsumption of natural resources are the most obvious.

With increased interconnectedness, systemic risks, i.e. risks of large-scale disturbances that spread from one system to another and intensify, have increased. One of the best-known systemic risks that has materialised is the 2008 financial crisis, in which the entire financial system came close to collapse because complex new financial instruments had exposed all financial actors to the same risks. Some did warn of the growing risks to the whole economic system, most famously the influential investor Warren Buffet, who called the new financial instruments "economic weapons of mass destruction" (http://news.bbc.co.uk/2/hi/2817995.stm). But nothing was done until the risk materialised.

Another example is Covid-19, which spread around the world in just a few months and caused huge changes in people's health, mobility and social life. Scientists had repeatedly warned of the risk of a global pandemic, but no concrete changes to systems were made before the risk materialised. 

Now, in the summer of 2022, the war in Ukraine will cause problems for international diplomacy, world food security and European energy supplies, and we probably cannot yet even begin to guess what the ultimate impact of the war on the various systems will be. Crises may not be fast-moving, but they can be very difficult to stop. The 2013-2014 unrest in Ukraine's Maidan Square, for example, was already identified as a likely trigger for systemic crisis in a 2014 study by Frank et al.

It is essential to understand that the factors that trigger a crisis are not the cause of the crisis. The cause of the crisis lies in the structure and high interconnectedness of the systems. In such a system, even a small disturbance in any part of the system can potentially trigger a crisis. The trigger itself may be small in relation to its consequences. For example, the "Arab Spring" of 2010-2012, in which widespread protests, uprisings and violence spread across North Africa and the Middle East, leading to numerous changes of power and the ongoing Syrian civil war, was triggered by the immolation suicide of Mohamed Bouazizi, a Tunisian street vendor fed up with corruption. Bouazizi's suicide was not, of course, the cause of the crisis, but it unleashed existing tensions between the power elite and the people. The Internet and the mass media quickly spread the unrest throughout the cultural sphere.

What's next?

Today's complex and interconnected systems have emerged without central planning as a result of decisions taken by individual actors, such as governments and businesses. This also means that there is no single actor or system in the world that can manage or even comprehend the current network of complex systems as a whole.

Paradoxically, the efforts of individual actors to reduce their own risk in the system may increase the risk to the system as a whole. For example, one of the drivers of the 2008 financial crisis was financial innovations designed to reduce the risk borne by investors. The spread of these innovations exposed the entire global financial system to the same risks, increasing the interconnectedness of the system and eventually materialising in a global financial crisis.

Unfortunately, researchers do not have very good advice on how to respond to growing systemic risks. Systemic risks have only come to the attention of researchers in the last couple of decades, and research has mainly focused on understanding the nature, scope and multidimensionality of risks. The current understanding is that the risks are large, that they are beginning to materialise and that the situation is beyond the control of any single actor. 

Galaz and colleagues (2017) analysed governance regimes related to global systemic risks and came to the following conclusions:

1. International cooperation mechanisms such as climate change mitigation and ozone layer protection treaties have an impact on the behaviour of states, but because these treaties address individual systems, their ability to manage risks associated with coupled systems is poor. Changes towards polycentric governance, greater cross-sectoral interaction and the strengthening of international legal mechanisms could help to manage systemic risks, but promoting these changes will not be easy.
2. Norms and values related to international governance are relevant as they create coherence in a fragmented governance and policy environment. However, change in norms tends to be slow and happens "below the surface"; real change in norms and values usually requires a crisis to have occurred. 
3. International organisations developed for crisis detection, management and recovery, such as the International Atomic Energy Agency (IAEA) and the Food and Agriculture Organization (FAO), can serve as resources for managing systemic risks. 
4. Developing these institutions to better respond to changing risks is necessary but difficult.
5. In the future, discussions on global risks and their management must not focus on efficiency alone. Transparency, broad participation and accountability are key values for the acceptability of governance and decisions. Ignoring these values would create serious legitimacy problems and make it more difficult to cope with a future in which globally interconnected risks are more pronounced.

In summary, there is a growing awareness of systemic risks among scientists, but this has not yet changed the way in which governance systems operate. The necessary changes can be identified, but their implementation will be slow and difficult and will most likely only take place in response to the risks that have materialised.

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