Black Elephant Strategy and Collapsonomics

The Design Council had an interesting session on Thursday night, Dr Alex King of the Horizon Scanning Centre was looking at the 30 year ahead scenarios for the UK. They use 4 potential scenarios (see above diagram) run along 2 axes of social orientation:

- From Open, Global society to Closed, Nationalist society
- From Highly Individualist to Highly Collectivist society

The Four scenarios thus are:

- Perpetual Motion: Open, High Individual
- Shaken Open: Open, High Collectivist
- Self Service: Closed, Hi Individual
- Protective Collective: Closed, High Collectivist

The UK is in the cross hairs of the diagram and can move in these 4 ways

Perpetual Motion

In this scenario recovery is more rapid owing to high mobility, but it’s a society with low security, high inequality and high social and familial fragmentation. High innovation and tech usage, but unequal deployment of technology. US Model in extremis, Aka the Rational Economist’s dream

Shaken Open

Takes longer to emerge from recession, but is a more equitable society with higher government involvement. Higher unemployment but jobs are more secure. High use of technology but more regulation and lower innovation (European Model)

Self Service

Similar initially to Perpetual Motion, but more protective over local jobs and has reduced inequality. Requires high level of national self sufficiency, especially basics such as energy, food and . Highly innovative, but less technically advanced that Perpetual Motion. (Tory Eurosceptic Wet Dream)

Protective Collective

Like “Shaken Open” but moves to a more nationalistic identity, very protectionist. Lowest level of innovation and technology usage, high state intervention in activities. High equality and security. (Communism 2.0)

What Dr King and his colleagues do is take these scenarios and run public policies through them to see what are highly resilient, ie operate across the maximum number of scenarios. I asked whether thay had:

(i) worked out relative probabilities of these occurring in the UK
(ii) worked out a Nash Equilibrium (ie the state most likely to occur in game theory)

He said no, but later comments on work they've done to date made me suspect they have looked at these issues, and that it is either a bit sensitive or not yet finalised (or both )

Another thing one could do with these scenarios is run the Collapsonomics hypothesis against them.

“Collapsonomics” is a term recently coined to describe the sort of modelling a number of entities at the Tuttle Club (ourselves included) and others (eg Umair Haque) are doing on likely impacts and ways out of The Crunch. (See weblink just set up here) In general terms, the concepts are:

(i) This is going to be worse (deeper, longer) than most conventional Economists think it is (or more likely are prepared to admit publicly, for various reasons).
(ii) “More of the Same” is not the answer, we need to wind up at a new endgame or we hit Peak Water, Peak Crops, Peak Fish, Peak Bee etc
(iii) Use of modern technology will be a key part of the solution

Collapsonomics is coalescing around running scenarios around 5%, 10%, 15% and potentially 20% reductions in national GDP (the UK is at 4.5% reduction officially, probably higher, right now) and looking at the resulting impacts (For what its worth our own work involved what could one do in a scenario where there was a 10% reduction in the amount the UK government had to spend. Of the roughly £600bn they spend annually, a 10% reduction would take out the entire Defence and Local Government budget)

The key point is number (i) above however – the “worse” situation is far more probable than a lot of the “official” stuff – from Govt and Meedja etc – are prepared to admit, but its evident in some of their other actions. In other words it’s the “Elephant in the Room” that is no one mentions (except obliquely, such as here).

The reason the Government cannot admit it is that it has a very large impact and would necessitate hard choices they don’t want to take this side of an election – ie its treated as a “Black Swan” but is actually far more likely than that to occur – what Lloyd Davis coined as a “Black Elephant” event.

Hence this post on “Black Elephant” strategic planning – passing the Collapsonomics thesis through the Government models.

Lets take the 10% reduction in public spending case for example. That’s c £60bn – once upon a time a huge number, now noise of course given our commitment to the banks is 10x that so it may be worse, but….

Anyway, doing things like scrapping new defence spending, or cutting back on local councils, or even not paying MP’s has minimal effect. There are two huge budgets:

- Social Services, in all its ramifications
- Health, ditto.

The interesting thing then is to say assume 10% reduction in Health and Welfare and then run it through the 4 models and see what the possible outcome is:

- The Perpetual Motion model would suggest dismantling state supported services (NHS etc, reduced welfare) and outsourcing/offshoring that what can be done more cheaply elsewhere.

- The Shaken Open model would suggest that at the very least solutions may be worked through at an EU level, maybe a “best of breed” used or shifting resources where they can be well used .

- The “Self Service” model would imply in-country privatisation rather than offshoring, and probably a “Perpetual Motion Lite” approach.

- The Protective Collection Model would probably just degrade existing services without attempting any reforms - and is in my hypothesis of the UK default.

What becomes clear is that none of these outcomes are particularly appealing – thus the Collapsonomc view is that a different approach needs to be used, using new technologies and approaches to “tunnel through the cost base”. The issue if one does not is that it is only possible at best to arrive at local optimal solutions which are not likely to yield stable outcomes.

For example, we know that using networked technologies in government could yield major benefits, but there are major barriers. Ditto, changing the energy usage profile of the country or how and where healthcare is administered would have major impacts

- Reducing energy consumption reduces need for foreign energy and thus realpolitical necessities such as “Petrol Duty” in Iraq as well as reducing pressure on grid costs, nuclear and coal stations and new investment.
- Reducing health cost at from fixing health at “point of illness” and moving it to preventative care, and designing policies that nudge people towards more healthy decisions.

These are just high level thoughts, and there is much that has been – and could still be – done, but “Black Elephant” strategic planning tells us it this is more critical than anyone is officially admitting today, and the risk of not doing it risks muddling our way into some fairly unpleasant places..