Remarks by Angel Gurría
Vienna, Austria - 6 March 2018
(As prepared for delivery)
Minister Fassman, Director-General Kabat, Ladies and Gentlemen,
I am delighted to be here with you in Vienna today, to talk about how systems thinking, anticipation and resilience are central to addressing global challenges. The OECD helps governments tackle the many policy issues they face. We collect data, compare experiences, give advice and help our Member and Partner countries learn from each other’s best practices – and mistakes. In doing so, we hear the word “system” all the time. The economic system. The education system. The financial system. The political system. The social system.
However, we rarely hear the word system attached to the word “approach”. But I would argue that unless we adopt a systems approach, unless we employ systems thinking, we will fail to understand the world we are living in. This is a world where the eruption of a volcano in Iceland means that agricultural workers in Kenya lose their jobs because planes can’t fly the flowers they grow to the Netherlands for distribution to other countries. A world where the suicide of a Tunisian vegetable seller sparks a revolt that brings down regimes across the Middle East and plunges the region into bloody chaos. We are talking about a world made up of complex systems. Systems of systems interacting with each other, and changing each other by that interaction and the links between them.
The global economy now has a greater number of links than ever before. The global nature of supply chains; new ways of exchanging goods, services and ideas; increasing migration; and ever-greater digitalisation all greatly increase our global connectedness. Such Interconnectedness in turn, gives rise to complexity, and this can be good or bad. Take financial markets for example.
Before the 2008 crisis, the dominant view was that interconnectedness enabled risk diversification and strengthened financial stability both at national and global level. This view was in line with policies encouraging the liberalisation of capital flows and the deregulation of derivative markets. After 2008, interconnectedness has been associated with the risk of financial contagion. However, within mainstream economics, the understanding of why and when interconnectedness may increase stability or instability has remained fragmented. That is one reason our models and methods failed to see the crisis coming, did not grasp how that crisis would evolve into the Great Recession, or how that recession would give birth to the populism and social crises we are witnessing today.
At the OECD, our response to this failure was to launch the New Approaches to Economic Challenges Initiative, known by its acronym NAEC. Since it was launched in 2012 under the supervision of Gabriela Ramos, my Chief of Staff and G20 Sherpa, NAEC has catalysed a debate across the OECD and beyond. It seeks to revise, update and improve our policy thinking and acting and the methods and techniques that underpin them. Complexity science helps us to understand the main features of the most important systems we have to deal with. Features such as emergence. Emergent phenomena occur when the overall effect of individuals’ actions is qualitatively different from what each of the individuals is doing.
Radical uncertainty is another aspect we need to deal with. It describes surprises—outcomes or events that are unanticipated, that cannot be put into a probability distribution because they are outside our list of things that might occur such as electric power, the atomic bomb, or the internet. But despite what I have just said about radical uncertainty and the unanticipated, the fact remains that the future is born by anticipation. We take decisions and perform actions to influence the future, as individuals, societies or governments. And the imagined, probable or expected outcomes in turn influence our decisions and actions in the present. Even things that may never happen or will only happen decades from now can have an impact on what we do today.
That is why we buy insurance and pay into pension funds. That is why we try to forecast everything from GDP to the weather to the results of elections or football matches. Of course not all our decisions about the future are in tune with what economic rationality would like us to do. Homo economicus is often not at home in the real world.
Policymakers and leaders have to deal with how things really are and how people really behave. We promote evidence-based decision making, but of course there is no evidence about the future. And experience shows that simply extrapolating from the past can be ridiculous, dangerous or at best misguided.
Forecasts about innovation provide some wonderful warnings. Werner von Siemens concluding that electric light would never take the place of gas. Or the President of Digital Equipment stating in the 1970s that he could see no reason why anybody would ever want a computer in their home. These men weren’t stupid. They knew their business well. But they made two common mistakes. They projected present conditions into the future, and they considered one element in isolation from its environment.
It’s true, for example, that nobody would want a typical 1977 computer in their home, given its huge size, cost and limited uses. Today, the phone in your pocket uses more computing power for a single Google search than the whole Apollo Program used to put an astronaut on the Moon.
A complexity approach helps us to avoid these errors. A complex world is nonlinear – anticipation is not extrapolation. We are dealing with a world characterised by nonlinearities, tipping points, and asymmetrical relations where a small cause can have a big effect.
In a systems approach, global issues need global solutions. Environmental problems do not respect borders. You need to import to be able to export. The digital revolution is making it hard to define what the “domestic” in “gross domestic product” is. Growing inequalities are creating discontent nationally and are driving international migration.
If we are to tackle these issues, governments must change the ways in which they make and implement policies. An acceptance of complexity shifts governments from a top-down siloed culture to an enabling culture where evidence, experimentation, and modelling help to inform and develop stakeholder engagement and buy-in. Unfortunately, bad things will still happen, and this brings us to another aspect of systems, resilience.
Traditionally, the OECD tended to use resilience to mean the capacity to resist downturns. Today, we need approaches to resilience that focus on the ability of a system to absorb, recover from, and adapt to a wide array of systemic threats.
That is why we are pleased to announce a strategic partnership with IIASA. No one in the world today has a better understanding of how systems work than the organisation led by Professor Kabat. IIASA’s work on the environment, population, energy, future shocks, and a number of other central issues helps us to understand the systemic and dynamic linkages among environmental, social, and economic trends and the impact on them of different policy measures. They understand that because these issues are global in nature, the responses have to be global and systemic.
At the OECD, we have been mapping the trade genome with our Trade in Value Added (TiVA) database to reveal the commercial interconnections between countries.
Our work on the Costs of Inaction and Resource Constraints: Implications for Long-term Growth (CIRCLE) is a key example of linking bio-physical models and economic models to gauge the impact of environmental degradation and climate change on the economy.
We are also looking at complex governing systems in areas such as education policy. And we are looking at the potential for tapping big data in various domains. The nature of the challenges means that no country can overcome them on its own. But for issues such as climate change or trade, a single country acting alone can make things worse for everyone, including its own citizens. That is why the response has to be cooperative, multilateral and systemic. That is why we launched the Inclusive Growth Initiative, whose goal is to address social, economic and other inequalities by integrating health, education and access to opportunities into an overall strategy that puts people at the centre of our policy thinking.
In short, the challenges we face have origins and consequences ranging from the individual to the global; the psychological to the political; the social to the economic. Let me underline what I mentioned at the beginning.
The Iceland-Kenya example reminds us that despite all the wonders of the digital age with its virtual realities and intangible assets, ultimately the environment is the basic system all the others depend on. The Arab Spring holds a particular lesson for an Organisation like the OECD. The parameters that often matter most to us – GDP growth, debt levels, and so on – suggested that everything was fine in Tunisia.
But one lesson NAEC emphasizes is that growth is not an end in itself and that the economy does not exist in a bubble isolated from the hopes, stories, desires and frustrations of the people it is supposed to serve. The economy is political. It is social, historical and cultural. That is why we need systems thinking to understand the issues, anticipate the consequences of our decisions and build resilience. Together we can shape a brighter future, for our economies, our societies and all of our citizens.
I look forward to strengthening our partnership with IIASA to address these enormous challenges.