Tag Archives: adaptive cycle

Reorganization

Minsky’s Financial Instability Hypothesis

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Historian Stephen Mihm writes in the Boston Review on Hyman Minsky‘s work on the unstable dynamics of capitalism in Why capitalism fails:

Minsky called his idea the “Financial Instability Hypothesis.” In the wake of a depression, he noted, financial institutions are extraordinarily conservative, as are businesses. With the borrowers and the lenders who fuel the economy all steering clear of high-risk deals, things go smoothly: loans are almost always paid on time, businesses generally succeed, and everyone does well. That success, however, inevitably encourages borrowers and lenders to take on more risk in the reasonable hope of making more money. As Minsky observed, “Success breeds a disregard of the possibility of failure.”

As people forget that failure is a possibility, a “euphoric economy” eventually develops, fueled by the rise of far riskier borrowers – what he called speculative borrowers, those whose income would cover interest payments but not the principal; and those he called “Ponzi borrowers,” those whose income could cover neither, and could only pay their bills by borrowing still further. As these latter categories grew, the overall economy would shift from a conservative but profitable environment to a much more freewheeling system dominated by players whose survival depended not on sound business plans, but on borrowed money and freely available credit.

Once that kind of economy had developed, any panic could wreck the market. The failure of a single firm, for example, or the revelation of a staggering fraud could trigger fear and a sudden, economy-wide attempt to shed debt. This watershed moment – what was later dubbed the “Minsky moment” – would create an environment deeply inhospitable to all borrowers. The speculators and Ponzi borrowers would collapse first, as they lost access to the credit they needed to survive. Even the more stable players might find themselves unable to pay their debt without selling off assets; their forced sales would send asset prices spiraling downward, and inevitably, the entire rickety financial edifice would start to collapse. Businesses would falter, and the crisis would spill over to the “real” economy that depended on the now-collapsing financial system.

It sounds very similar to Holling’s adaptive cycle and the pathology of natural resource management.

Regime Shifts

The long history of human-environment interactions in China

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In a recent paper, JA Dearing and colleagues (J. Paleolimnology 40: 3-31) use paleolimnological techniques to explore the long-term history of the region around Erhai Lake in Yunnan Province. Lake sediment cores (which can explain catchment vegetation, flooding, soil erosion, sediment sources and metal workings) are complemented by independent regional climate time-series from speleothems, archaeological records of human habitation, and a detailed documented environmental history. The authors integrate these data to “provide a Holocene scale record of environmental change and human–environment interactions.”

They use these data to ask:

  • “How sensitive are the studied environmental system processes to climate and human drivers of change?”
  • “Can we observe long-term trajectories of socio-environmental interactions, or periods of social collapse and recovery?”

The authors identify a number of points at which there were major changes in the human interaction with the landscape, including ~9000 cal year BP, when sediment records show a ‘human-affected environment’, ~4800 cal year BP, when major deforestation for grazing led to the extirpation of forest species and some functional units, and ~2000 cal year BP at the introduction of paddy field irrigated farming, and ~1600 cal year BP at which point surface erosion and gullying were caused by increased exploitation of mountain slopes. They go on to suggest that these records indicate several major ‘periods’ in human-environment interactions in this area:

The earliest of these cases probably represents the dispersion of the population away from the established sedentary agricultural units on alluvial fans to the more inhospitable margins of the lake and the valleys. This perhaps signifies the end of the ‘nature dominated’ phase (Messerli et al.) where society could cause significant modification of the landscape but was still vulnerable to the main risks of drought and flood (though the evidence for climate determinism is weak). In contrast, the introduction of irrigation is associated with a trend of weakening monsoon intensity, increasing numbers of centennial scale dry phases, and population growth. It represents an agrarian society in transition, using technological innovation to raise carrying capacities without increasing greatly the vulnerability to drought or flood. The third period is linked to natural population growth, inward migration and metal extraction brought about by the rise of Nanzhao/Dali as a major center”

The authors then ask at what stage of the adaptive cycle the modern Erhai socio-ecological system exists:

At Erhai, the slow processes of weathering and soil accumulation, in association with vegetation cover held fairly constant by a benign early-mid Holocene climate, were interrupted by fast processes of anthropogenic modification of vegetation. For many centuries, this concatenation of ‘slow–long’ and ‘fast–short’ processes led to a resilient land use-soil system (cf. Gunderson and Holling). But increasing perturbations led to system failure, and we can observe that the late Ming environmental crisis represents the end of the last release phase. Thus, the modern landscape may be approaching a conservation phase (K) characterised by minimum resilience.

Dearing and colleagues explore the meanings of this research for current sustainability and conclude that the main threat to the region is high magnitude-low frequency flooding of the agricultural plain and low terraces, which is exacerbated by:

  1. continued use of high altitude and steep slopes for grazing and cultivation that generate high runoff from unprotected slopes and maintain active gully systems, particularly in the northern basins;
  2. reduction or poor maintenance of paddy field systems, engineered flood defences, river channels and terraces; [and]
  3. increased intensities of the summer monsoon.

This fascinating paper is an excellent example of how historical data sources can be integrated to provide a new perspective on social and ecological change over long periods of time.

General

Using Disasters for Systemic Change

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The adaptive cycle concept propose that crisis is followed by a period of reorganization that looks for new forms of organization.  Often these periods rely of plans developed prior to crisis, and are helped by links to areas unaffected by crisis and legacies of past systems that preserve resources during a crisis, for more see Panarchy on RA website or on WorldChanging (Gunderson and Holling eds 2002).

On WorldChanging Matthew Waxman writes about Using Disasters for Systemic Change:

What if we could plan to use the future’s inevitable disasters as opportunities for change and innovation?The planning policy would focus on finding sustainable solutions to broken or destroyed systems. Disaster in this way is used to jump-start changes in infrastructure and thus alter daily habits, patterns, and preferences on everything from energy consumption to transportation, housing and health, economic development, community and civic facilities, open space, food, and lifestyle.

Changes would be contingent on disasters occurring, so this type of planning policy wouldn’t necessitate immediate results without the destructive context – as would planning codes, LEED guidelines or simply better design practices – but it would produce readily-available plans and design-response focused on long-term, large-scale changes to infrastructural systems beyond the scope of a single, smaller-scale project. In the long-view I believe this would speed up the eventual implementation of large-scale change.