Fishburn Hedges

02.12.2011

It was standing room only at the Policy Exchange think-tank today for a roundtable discussion with Nassim Nicholas Taleb, famous for his book about financial risk, The Black Swan.

The first point of note is that he was introduced by Rohan Silva, senior policy advisor to David Cameron and George Osborne. Silva pointed out that Taleb is a regular visitor to Number 10, where he no doubt finds much common ground with Cameron’s chief strategist, Steve Hilton.

Taleb was promoting his thinking about fragility in organisations, the economy and, indeed, political systems. This is going to feed into a new book on the matter, which won’t be finished for a year.

“I’m talking about it now so people can contradict my ideas before it is published, rather than after,” he said. I’d say there’s lots to contradict – but make up your own mind.

 Here are a few of Taleb’s thoughts:

• Predictions of the future blind you to the risks ahead. Better to deal with them by looking at the robustness of ecosystems. That is what mother nature does. It builds in redundancy – that is why we have two kidneys;
• Fragility is measurable. The larger something is – the more fragile. If you are hit by a large you, you are killed, but if you are hit by a lot of small rocks, you survive;
• The amount spent by the state is not the issue – it’s where it is spent. So Sweden, where the state makes up 60% of its  GDP (Taleb’s figures – I can’t and won’t verify as I’ll explain later) is more efficient than, say, the UK (where the state  a lower percentage of GDP) because most of this is delivered locally;
• Size has a "fragellizing" (his word!!) effect – which is shown by the fact that as projects get larger the risks and the likelihood for cost overruns grows exponentially. He illustrated this by saying that construction projects these days are more likely to be delivered late and have cost overruns. He backed this up by saying he had evidence from the past 100 years. As a student of history Taleb is being economical with his examples, as we all know that projects as diverse as the Great Wall of China, Norman castles in southern England and the Panama Canal suffered massive cost overruns and delays (see my point above about figures);
• Lack of “noise” – i.e. debate – in a political system causes fragility, and means that when the challenge comes it can be shattering – as evidenced by the Arab Spring.

While Taleb has his supporters and is influential, it will be interesting to see whether his book is much advance on the seminal work Small is Beautiful by EF Schumacher that came out nearly 30 years ago. Anyone who wants to understand where the Tory part of the coalition wants to head could do worse than read that.