Tuesday, March 1, 2011


This column began with a simple idea: complex systems are particularly vulnerable to disasters.

Unfortunately this gets a bit buried under the current political analysis that begins the piece. If you're interested in some further analysis try this piece from the Financial Times; http://www.ft.com/cms/s/0/5c7fa72e-3d20-11e0-bbff-00144feabdc0.html?ftcamp=rss&ftcamp=crm/email/2011221/nbe/Comment/product#axzz1FD5R5QbD


Souls are normally consigned to Hell as a punishment for terrible sins and wickedness. Most religious traditions feel obliged to go into some detail about the specifics of the torture that lies in wait for the guilty. It wasn't very long ago that churches would go into quite specific descriptions of the penalties that were appropriate for the crime -- everything from disembowelment to the most gruesome forms of agony. Surprisingly, however, none of the great imaginative writers of the past were able to conceive of the particularly cruel torment that Julia Gillard now faces on a daily basis, as she attempts the tortuous process of negotiating legislation that is acceptable to both the Greens and independents, as well as her own party.
Building a coalition to take the first step on a carbon tax has took all of Greg Combet's brilliant negotiating skills, forged in a lifetime of managing to hammer out deals between workers and unions. And then, with the spirit of the agreement not even one week old, the squabbling began. Today it's about whether petrol should be included; tomorrow it will be about the massive diesel rebate that's enjoyed by our miners as they exploit the resources of the outback.
The opposition thinks it smells victory. Tony Abbott is back on the attack. But there is a vulnerability at the heart of the strategy that must surely terrify his troops as he urges them forward, into the breach. If Gillard can just hang on long enough to repel the initial onslaught the dynamic can change suddenly. The Liberal party remains ready to tear itself apart at the slightest opportunity. Serious policy and personal rifts threaten to destabilise his forces. The key for Gillard now is to keep selling her policy to the public: to focus on the necessity of dealing with the changing climate rather than on the cost of doing so.
Doing this will prove an enormously difficult task, because it's about changing the entire way we look at the world. It will require new thinking on the part of everyone, and not just the government. Take, for example, the flood levy. The critical vote on this measure won't be taken by the Senate until the end of the month but the government is already engaging in talks in an attempt to convince the one remaining holdout, Nick Xenophon, to pass the legislation. He wants to force states to take out their own compulsory insurance before he'll agree to the $1.8 billion revenue raising. Queensland’s hit back with state Treasurer Andrew Fraser attempting to dismiss Xenophon as nothing more than "pimping" for the insurance companies. What's become incredibly obvious as the debate has continued is that the winner will be the person who can best frame the prism through which these issues are perceived by the public.
Insurance makes sense. Those who can afford to generally take out some form of protection to cope with those unforeseen emergencies. People make these decisions on a daily basis, roughly calculating the risk and reward of taking out health insurance, for example. Young couples have to work out if there are better off putting the money into the mortgage or having that little bit of extra reassurance in the case of debilitating sickness. People do their own risk analysis on a daily basis, working out whether they require tax-deductible (but limited) protection, or maybe decide they want to go the full Monty, with all the bells-and-whistles.
Nevertheless, this doesn't mean that purchasing insurance is the right answer in this situation. The problem is that there is no sensible way of measuring the sort of risk that we now face -- just look at the weather. The enormous rain dump that forms the Northern Territory's wet season this year will be another all-time record. Darwin recorded more rain this month alone than all the other state capital is normally see in a year. The deluge is phenomenal. Normal rules don't apply. Xenophon is right when he asserts we need to prepare for natural disasters, but that doesn't mean that purchasing insurance will provide the sort of protection that is required. These issues need to be thought about from a holistic perspective.
As a society we've become accustomed to reaping the benefits of specialisation. Complexity, coupled with economies of scale and transportation has led to our society becoming far more interconnected. With that has come increasing dependency and inter-reliance. The system is incredibly beneficial -- as long as it works as intended.
Think of the recent financial crisis. Financial instruments became progressively more complex. Theoretically, international banks could reduce their exposure to particular asset classes (like American mortgages) by on-selling bundled packages of thousands of products to other institutions (such as Australian local councils). Theoretically the deal was brilliant. The known risks and rewards matched each other perfectly and everyone got to feed off the money that was created by the transaction. Unfortunately, what looked like a win-win situation quickly turned into a lose-lose disaster. The complexity of the system meant that the problems rapidly cascaded until it threatened the entire global economy.
Here in Canberra we confidently expect the government will be able to properly look after any threats. And so it did until, in 2003, it was faced with a crisis it had not anticipated, despite a series of warnings. It is not far-fetched to suggest that one of the reasons that four people died and more than 500 homes were left destroyed and damaged was because, here in the ACT, we live in a complex society where we feel we can rely on the government. We know it has resources and expect it to put into operation plans to protect us. Everyone depends on other people to take action and, as result, sometimes nothing is done. The recent flooding in Brisbane had a similar effect. Information was disseminated quickly enough and people weren't empowered to take their own action to protect themselves. They, quite understandably, expected the government would not allow too much water to build up again in the dam above the city. Unfortunately, as we now know, the complex organisation tasked to prevent disaster failed miserably. South of Townsville, however, smaller councils proved more resilient than able to effectively mitigate the effect of tropical cyclone Yasi.
Rather than purchasing insurance (a task of mammoth complexity) we might be better off investing in simple structures to increase our resilience to the next threat. They are not diminishing.

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