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Networks, Regime Shifts

Seed’s global reset on tipping points and systematic risk

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Seed magazine has a special issue on new approaches to interconnected and complex challenges. It also features interesting articles on TEEB and ecological economics, new modes of science, forecasting, tipping points and systematic risk.  As well as,  Carl Folke’s article on resilience, which I mentioned previously.

Economist Ian Goldin writes on On Systemic risks

Systemic risk is the underbelly of globalization and technical change. Intense integration of markets, trade, and finance has accompanied the latest tidal wave of globalization, facilitated by seismic policy shifts, like those associated with the fall of the Soviet Union, the formation of the European Union, and the opening of emerging economies. Between 1980 and 2005, global foreign-investment flows increased 18 times, and trade flows increased more than sevenfold, reflecting unprecedented integration.

… While the term “systemic risk” has historically referred mainly to collapses in finance, recent decades of globalization have created new and broader risks. There has been an exponential increase in the number of nodes and pathways through which materials, capital, information, and knowledge can be transmitted at lightning speeds and with global reach. These networks also have the potential to create and propagate risk. Interconnectedness, networks’ central property, can lead simultaneously to greater robustness and more fragility. Risk can decline as connectivity increases because as risk sharing increases, so does the number of nodes and links. This is true of financial systems, manufacturing services, intellectual property, and ecosystems. However, increased fragility is also a concern. Once a tipping point is triggered past its threshold, connectivity can amplify and spread risk instead of sharing it stably.

Looming systemic risks include pandemics, which may spread more rapidly across a densely connected world, and bio-terrorism risks, which are likely to become increasingly systemic in the 21st century. The ability to produce biological and other weapons of mass destruction is becoming more widespread, especially among non-state actors, due to technological innovation (not least with the development of DNA synthesizers). Increases in population density, urbanization, and the growth of connectivity, both physically and virtually, means that dangerous recipes and panic can be instantaneously transmitted globally. And climate change, a silent tsunami that crept up on us, presents major systemic environmental, social, and economic risks to humanity.

In an article On Early Warning Signs of tipping points ecologist George Sugihara writes:

A key phenomenon known for decades is so-called “critical slowing” as a threshold approaches. That is, a system’s dynamic response to external perturbations becomes more sluggish near tipping points. Mathematically, this property gives rise to increased inertia in the ups and downs of things like temperature or population numbers—we call this inertia “autocorrelation”—which in turn can result in larger swings, or more volatility. In some cases, it can even produce “flickering,” or rapid alternation from one stable state to another (picture a lake ricocheting back and forth between being clear and oxygenated versus algae-ridden and oxygen-starved). Another related early signaling behavior is an increase in “spatial resonance”: Pulses occurring in neighboring parts of the web become synchronized. Nearby brain cells fire in unison minutes to hours prior to an epileptic seizure, for example, and global financial markets pulse together. The autocorrelation that comes from critical slowing has been shown to be a particularly good indicator of certain geologic climate-change events, such as the greenhouse-icehouse transition that occurred 34 million years ago; the inertial effect of climate-system slowing built up gradually over millions of years, suddenly ending in a rapid shift that turned a fully lush, green planet into one with polar regions blanketed in ice.

The global financial meltdown illustrates the phenomenon of critical slowing and spatial resonance. Leading up to the crash, there was a marked increase in homogeneity among institutions, both in their revenue-generating strategies as well as in their risk-management strategies, thus increasing correlation among funds and across countries—an early warning. Indeed, with regard to risk management through diversification, it is ironic that diversification became so extreme that diversification was lost: Everyone owning part of everything creates complete homogeneity. Reducing risk by increasing portfolio diversity makes sense for each individual institution, but if everyone does it, it creates huge group or system-wide risk. Mathematically, such homogeneity leads to increased connectivity in the financial system, and the number and strength of these linkages grow as homogeneity increases. Thus, the consequence of increasing connectivity is to destabilize a generic complex system: Each institution becomes more affected by the balance sheets of neighboring institutions than by its own. The role of systemic risk monitoring, then, could simply be rapid detection and dissemination of potential imbalances, much as we allow frequent underbrush fires to burn in order to forestall catastrophic wildfires. Provided that these kinds of imbalances can be rapidly identified, maybe we will need no regulation beyond swift diffusion of information. Having frequent, small disruptions could even be the sign of a healthy, innovative financial system.

Further tactical lessons could be drawn from similarities in the structure of bank payment networks and cooperative, or “mutualistic,” networks in biology. These structures are thought to promote network growth and support more species. Consider the case of plants and their insect pollinators: Each group benefits the other, but there is competition within groups. If pollinators interact with promiscuous plants (generalists that benefit from many different insect species), the overall competition among insects and plants decreases and the system can grow very large.

Relationships of this kind are seen in financial systems too, where small specialist banks interact with large generalist banks. Interestingly, the same hierarchical structure that promotes biodiversity in plant-animal cooperative networks may increase the risk of large-scale systemic failures: Mutualism facilitates greater biodiversity, but it also creates the potential for many contingent species to go extinct, particularly if large, well-connected generalists—certain large banks, for instance—disappear. It becomes an argument for the “too big to fail” policy, in which the size of the company’s Facebook network matters more than the size of its balance sheet.

Ideas

Carl Folke On Resilience

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In Seed Magazine my colleague Carl Folke writes On Resilience:

In the 1930s the American art collector Albert Barnes commissioned Henri Matisse to produce a major painting for his private gallery in Merion, outside Philadelphia. Matisse was ecstatic: He rented an old cinema in Nice, where he lived at that time, and spent the entire next year completing the work, a dance triptych. He was pleased with the result. But when the piece arrived in Merion, Barnes wrote to Matisse explaining an unfortunate oversight: His collaborators had taken the wrong measurements, so the painting did not fit on the gallery wall. The difference in size was marginal, and Matisse could easily have tweaked the triptych to fit the wall, a technical fix. But instead he rented the cinema for another 12 months to complete a new painting with the right dimensions. Moreover, since he felt that mindless duplication was not real art, Matisse considerably changed the concept, effectively creating a whole new design. And in this process of reworking the piece, as he experimented with forms that would capture the dancers’ rhythmic motion, he invented the famous “cut outs” technique (gouaches découpés), what he later labeled “painting with scissors.” Whether consciously or unconsciously, Matisse turned a mistake into an opportunity for innovation. The new triptych not only pleased Barnes, but also served as the stylistic starting point for what would later become Matisse’s most admired works.

The French master’s ad hoc ingenuity captures the essence of an emerging concept known as resilience. Loosely defined, resilience is the capacity of a system—be it an individual, a forest, a city, or an economy—to deal with change and continue to develop. It is both about withstanding shocks and disturbances (like climate change or financial crisis) and using such events to catalyze renewal, novelty, and innovation. In human systems, resilience thinking emphasizes learning and social diversity. And at the level of the biosphere, it focuses on the interdependence of people and nature, the dynamic interplay of slow and gradual change. Resilience, above all, is about turning crisis into opportunity.

Resilience theory, first introduced by Canadian ecologist C.S. “Buzz” Holling in 1973, begins with two radical premises. The first is that humans and nature are strongly coupled and coevolving, and should therefore be conceived of as one “social-ecological” system. The second is that the long-held, implicit assumption that systems respond to change in a linear—and therefore predictable—fashion is altogether wrong. In resilience thinking, systems are understood to be in constant flux, highly unpredictable, and self-organizing with feedbacks across multiple scales in time and space. In the jargon of theorists, they are complex adaptive systems, exhibiting the hallmark features of complexity.

Cities

Seed Magazine on Urban Resilience

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Maywa Montenegro interviews our colleagues Thomas Elmqvist, Brian Walker and Guy Barnett for a long article in Seed Magazine on Urban Resilience.

The article covers many projects including the ongoing Urban Atlas Project, which aims to develop new tools for understanding the social-ecological capacity to provide ecosystem services.

The article writes Urban Resilience:

Urban centers have always been hubs of innovation, creativity, and wealth, but they are also hubs of crime, disease, and environmental pollution. Cities can be models of resource efficiency—the average Manhattanite uses only 29 percent of the energy an average American uses in a year—but they also concentrate the need for huge amounts of power, water, food, and other resources. In the developing world, cities are changing faster than scientists can understand the diverse factors driving those changes, and to complicate matters further, many of those forces operate in contradictory directions and at differing scales.

In short, cities are the quintessential complex adaptive system. Which makes them, in many ways, the perfect place to explore resilience.

Brian Walker is former program director and chair of the Resilience Alliance, a loose international coalition of natural and social scientists who, in their own words, “collaborate to explore the dynamics of social-ecological systems.” In 2005, recognizing the growing impact of urbanization, the Alliance held a series of brainstorming sessions, laying the groundwork for the “Urban Network,” based out of the Stockholm Resilience Center, an interdisciplinary research group that formed at Stockholm University in 2008.

The Urban Network has research sites in 12 cities: Bangalore, New Dehli, Cape Town, Johannesburg, Chicago, New York City, Phoenix, Canberra, Helsinki, Istanbul, and Stockholm. These cities span the globe and differ vastly in terms of culture, history, and economic development. The ultimate goal, according to Thomas Elmqvist, lead researcher of the Network, is to do a comparative analysis of these cities. How are they similar or different with respect to handling development? How do they compare it comes to withstanding shocks and surprises?

“As humans, we should try to understand how to manage systems in order to avoid passing thresholds,” says Elmqvist. But this is especially difficult in urban contexts, which have already been so transformed by humans that they’ve breached most of the thresholds ecologists are familiar with. When great expanses of concrete and steel now exist where trees and streams once did, new tipping points must be defined for places that are, as Elmqvist puts it, “already tipped.”

Case studies are now underway in each of the Network’s 12 participating cities. But in deciding what kind of data to gather, researchers have had to ask themselves: What would a city look like through the lens of resilience?

Metabolism

A city’s lifeblood is a continuous flow of stuff—fuel, consumer products, people, and services that enter it either actively, through human effort, or passively through natural processes like solar radiation, atmospheric currents, and precipitation. Ecologists often talk about these resource flows in terms of inputs and outputs. They’ve developed several budgetary models of accounting for them, including the well-known “ecological footprint.”

The resilience approach, according to ecologist Guy Barnett of the Urban Network’s Canberra research team, focuses less on the resources that cities consume and more on the interdependencies along the chain of supply and demand. Dependence on a single type of fuel as an energy source, for instance, creates a highly vulnerable system—especially if fuel prices are volatile or if the supply is prone to disruption.