The Takeaway From Recent Crisises

As the tragedy continues to unfold in Japan, we are seeing a global sell off in the major equity markets. For me, it is very difficult to be concerned purely about the markets. The news flow coming out of Japan has kept me glued to any source of information, be it the internet, Blackberry or the TV over the last few days.

Taking a step back, it is not very difficult to recall events that could be considered to be ‘Black Swans’ in the past few years. Let’s put together a list of such events -

• Hurricane Katrina
• The World Trade Center bombing
• The earthquake in Haiti
• The tsunami in South-East Asia
• The earthquake and the resulting tsunami in Japan

These events in and out of themselves can be considered to be Black Swans. However, given that these events have occurred in a span of a decade, it makes you wonder if the definition of the Black Swan needs to be changed. I will not even get into the other Black Swan type events that have occurred in other areas such as the economy, finance etc.

If there is a common thread that connects these tragedies, it would be our inability, as humankind to cope with these events in a timely, effective manner. Haiti is still recovering from its devastating earthquake. New Orleans is still a ghost of its former self. Japan will most likely take years to rebuild – if a nuclear disaster can be averted. Developed countries often like to talk about law and order, their level of preparedness to deal with situations, the safety of their cities etc. However, these events expose just how fragile civilization can be.

This begs another question. What if a bigger event were to occur in a developed country? The world has become so interconnected over the past few decades that it can be argued that we are citizens of a global metropolis. Proper functioning of every part of the global metropolis is required for the global economy to work. As Japan continues to deal with its tragedy, an important cog in the global supply chain has been impacted. A meltdown would impact this global supply chain in a manner which, arguably, could take years to recover.

Another situation, which is now developing under the radar of most people is in the middle east. A butterfly which flapped its wings in Tunisia threatens to bring the global economy to a standstill if the supply of oil is disrupted. How prepared are we as a people? Do we need to reconsider our procedures and safety measures? What alternatives do we have and what level of disruption can we handle? Do these events underscore that we need to be self reliant on many levels or should we continue specializing ourselves to infinity?

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