Resilience: it’s not about anticipating everything, but being able to react

Invited to the last edition of the Conference of Economic Studies of the Latin American Reserve Fund (FLAR) A few days ago, Markus Brunnermeier, author of the book “The Resilient Society” chosen by the Financial Times as one of the best of 2021, pointed out that putting resilience into practice would serve to prepare societies well for whatever comes next. “It’s about learning how to recover quickly,” he explained.

La Fontaine’s fable tells the story of the oak and the reed that grew together. As time passed, the mighty tree began to mock its companion, calling him weak, until a tornado came to the region.

The force of the wind was so powerful that the oak ended up being uprooted and turned into firewood, while the rush survived thanks to its adaptation to the onslaught of the elements. The story ends with the moral. “So much vanity and pride, what use have they been to you? Your inflexibility in the face of the tornado has led to your own downfall. “

Such a story inspired the professor at Princeton University in the United States, Markus Brunnermeier, to write his book “The Resilient Society”, chosen by the Financial Times as one of the best of 2021. After the emergency unleashed by the pandemic, the question What the German economist seeks to answer is what can be done to adequately react to inevitable and severe shocks, which will surely happen again?

In response, the author makes use of a term that originally comes from physics. The Royal Academy defines resilience as “the ability of a material, mechanism or system to recover its initial state when the disturbance to which it had been subjected has ceased.” So it’s all about the ability to bounce, rather than the ability to resist.

Look forward

Raising reflection is key as the world tries to regain its lost normality. The process has been uneven – like the distribution of vaccines itself – and it is not without anguish.

While the reports on the omicron variant are relatively reassuring, in the sense that its contagious power does not appear to exceed that of other Covid-19 strains, the initial scare was great. It is enough to see the collapse in stock markets and prices of raw materials in November to understand that the nervousness persists.

The important thing now is to learn the lessons left by a catastrophic circumstance, which affected not only the health of hundreds of millions of people, but also daily life on the five continents. Invited to a talk by the Latin American Reserve Fund (FLAR) a few days ago, Brunnermeier pointed out that putting resilience into practice would serve to prepare societies well for what may come. “It’s about learning how to recover quickly,” he explained.

The range of possibilities is wide and begins with global warming, since the increase in the average temperature of the planet is already a reality to which adapting is not an option, but an obligation. Without ignoring that humanity should do what is in its power to defuse the threat, the important thing is to be able to adjust in time and not when it is too late.

That same admonition extends to other areas ranging from the loss of effectiveness of antibiotics, to cyberattacks that make telecommunications collapse, to known geopolitical tensions, which could lead to major brand conflicts. In the absence of contingency plans or previously discussed alternatives, the ramifications will be very serious.

An example of what this implies is related to production processes. For years, factories sought maximum efficiency and incorporated the concept of “just in time” for managing their inventories. After the upheavals experienced in the logistics chains, what is imposed now is the “just in case”, which consists of not depending on a single provider, but on a plural number in different geographies.

It may be that that translates into smaller margins, until the disruptions arrive. Whoever has a “plan B” manages to get out of the pot faster than the one who ignored the risks.

Additionally, it is worth experimenting and innovating, even if it sometimes leads to failure. Being wrong in good faith is part of gaining experience, just as a child who develops antibodies at an early age is more likely to resist more diseases as he grows up. “This does not mean avoiding all risks, but avoiding some and assuming others when there are potential gains,” stressed the professor.

At the country level, an essential element is to make the social contract evolve. It is known that in Japan the use of masks is something customary for years, something that undoubtedly made them less vulnerable to the coronavirus. In contrast, in the West the positions of those who refuse to cover their faces or get vaccinated are known, claiming a violation of their individual freedoms.

Bad distribution

There are long-term forces in economics that are worth taking into account. The technological advances that allowed remote work made nations more resilient, but it cannot be ignored that there are growing inequalities, made more evident by the pandemic.

Both when it comes to the labor market and education, the disparities are obvious. Along with those who kept their jobs, there are those who were victims of company and business closures. The same is the case with education, where millions of children and young people were able to continue attending classes online, while others backtracked on what they knew.

For its part, the proper functioning of the financial markets – which was in danger at the beginning of 2020 – showed that, by departing from orthodoxy, a good number of central banks avoided a drop in the prices of shares and other assets. Even so, the size of the debts skyrocketed and now the challenge is to gradually reduce them.

This becomes more complicated at a time when inflation shows an upward trend, both in the northern and southern hemispheres. Potential increases in interest rates, necessary to prevent prices from spilling, would be a headache in many capitals.

However, the underlying discussion is how to make the world more resilient in the face of shocks that will come, beyond the fact that no one knows how or when. Issues such as a different international order, which promotes cooperation more than individualism, top the agenda.

Unfortunately, in this case the part is not very encouraging. No one doubts that the confrontation between Washington and Beijing is going to be the predominant note for decades to come. Although the friction would be seen more in the economic and technological fields, the alarms about what could happen with Taiwan have increased in intensity.

As if that weren’t enough, there are so-called “hot spots” on the world map. Russian expansionist ambitions, instability in the Middle East, differences between India and Pakistan, turmoil in Africa, are part of the reality today, along with the nuclear weapons of North Korea or the eventual resurgence of Islamic terrorism.

All this makes the transit of emerging countries, where a large part of humanity lives, more complex. The world population, which 50 years ago amounted to 4,000 million people, is now double.

There is no doubt that the progress against poverty is significant and that, in general, the average Earthman is healthier, more educated and has a higher quality of life than ever. The mess is that inequities are the norm and large numbers of nations are caught in various traps.

On the one hand, there are poverty traps, a term that refers to segments of a society that do not have the means or the opportunities to get ahead. On the other is the so-called middle income trap, which leads to stagnation that is expressed in mediocre growth rates, as is the case in much of Latin America.

And in this field, much has to be done to increase resilience. The effect of the health crisis on the richest societies was substantially more moderate than in the southern hemisphere, especially with regard to the possibility of financing mitigation programs that avoided bankruptcies and layoffs. They all got into debt, but the industrialized countries paid interest rates close to zero, while the rest experienced pressure and capital flight.

In conclusion, there is no choice but to keep your guard up. But as contradictory as it may sound, that approach requires the right combination of strength and flexibility. As Brunnermeier said “the question is not to anticipate everything, but to be able to react”.

Whoever doubts it, only has to remember the fable of La Fontaine, in which the mighty oak ended up in a chimney, while the reed continued to withstand the wind. Bending, but not breaking.