Systemic change ahead
We’re facing a polycrisis that affects multiple systems, spurring a lot of systemic change. We will not always like the results.
We live in uncertain times, but one thing seems certain: there’s a lot of systemic change ahead. NEXT22 made this even clearer, if that was still necessary. The truly scary thing is that these changes will affect almost every part of our lives. But it’s reassuring to know that these changes will be governed by the systemic paradox: systems change to ensure their continuity.
The chaos of change will be mitigated by the systemic forces of stability. In general, systems are unwilling and resistant to change. They are only going to change if forced to. Systems favour continuity, but they will change swiftly if that’s needed for survival. If they fail to do so, they risk their own collapse.
“War is father of all and king of all,” the Greek philosopher Heraclitus famously wrote 2,500 years ago. War sets systems under pressure to change or, if they can’t, lets them collapse. It isn’t driven by reason, as Richard Barrons, a former UK military leader, stated at NEXT22. “It can choose you, even if you would prefer it didn’t.” The war in Ukraine quickly turned into a European and even global systemic war.
The market did its magic
The consequences of the war forced a lot of changes, not limited to a Zeitenwende in geopolitics. In a blazingly fast turnaround, Germany moved away from cheap Russian natural gas. The market did its magic, but the price so far has been high, bringing many industries closer to the brink of collapse. The energy price shock is leading to higher prices in general, and thus inflation. But it also renders the production of, for example, AdBlue unsustainable.
Since diesel trucks need AdBlue to operate, this shortage could soon bring supply chains to a standstill. But will it? That remains to be seen. So far, the interplay of markets and government intervention has solved those kinds of issues. Of course, past performance is no guarantee of future results. Still, it’s a question of trust in our systems. Do we trust our systems to adapt, and adopt the necessary changes?
Let’s take a look at inflation. It is a systemic reaction to shortages. What’s scarce is getting more expensive. The obvious example is natural gas. Whoever needs to pay more to meet their demand is suffering a direct loss of wealth. It gets redistributed to the gas suppliers. Companies that need gas are trying to save gas, and substitute it if possible. But they have to pass on their costs to customers and eventually to consumers. The system adapts.
Inflation also undermines our trust in money. Literally, it means that money loses value over time. Central banks are intervening to curb inflation, raising interest rates. This comes with the risk of a global recession. A recession means that the global economy isn’t growing but shrinking. Another adaption. Would a shrinking economy be good or bad? Depends on whom you ask.
The cake is getting smaller
In general, it means the overall cake of global GDP is getting smaller. Those losses won’t be distributed equally, and the process will be painful. Some people will lose their jobs, but others will even gain from the changes. Those who sell a scarce good and can produce it cheaply benefit from rising prices. At least theoretically, unsustainable businesses will vanish, making room for new, more sustainable ones. Think Schumpeter and creative destruction.
The idea is that resources, including human resources, are set free and can be put to better use in the future. This systemic change — this adaption — can be inconvenient and certainly will be for some people. The process will look more like a systemic crisis. Now, let’s add a few other issues to the mix, and we quickly arrive at the conclusion Richard Barrons made on stage:
“We’re in the deepest of shit,” he said. “The world we all live in is becoming more uncertain and dangerous for our security, our prosperity, and our values.”
We are in the midst of a clash between democracy and autocratic capitalism as an organising force of our societies. This is combined with climate change, the impact of the digital age and the proliferation of nuclear weapons to create a period of instability. We no longer live with a sense of successive generational betterment. Instead, we live with the return of existential peril, after a 30-year respite.
This sense of successive generational betterment was the promise of economic growth, of progress and innovation, of rising standards of living. A recession is a forced change, and even most degrowth advocates don’t argue for this. I don’t think that Barrons expects the end of growth, progress, or innovation. Rather, what he notes is a return to Cold War-era levels of global security, or rather insecurity.
The polycrisis will speed up change
The current war is only the tip of the iceberg. We are facing a polycrisis. What will follow? Les Nemethy puts it this way:
Something will break.
Adam Tooze, who has written several posts on the current polycrisis, has this definition:
A polycrisis is not just a situation where you face multiple crises. It is a situation like that mapped in the risk matrix, where the whole is even more dangerous than the sum of the parts.
The inherent danger is that some systems, while adapting to pressure, can be moving in the wrong direction, adding even more pressure on other systems. For example: burning more coal to reduce gas usage may add to climate change. Or, a recession may slow down investments in clean energy. Warfare and upgrading the armed forces will cost a higher proportion of GDP, which comes at the expense of other sectors. And so on.
Systems will change, but we will not always like the results. Some of the changes will spur further change. And overall, change will speed up further. The pandemic has already been a catalyst of rapid change. We’ve seen exponential change caused by new technologies. We’ve learned that our crises are interconnected, leading to a polycrisis that will only accelerate change, for better or worse.
And maybe both.