On the surface, April 2020 was apocalyptic. You could walk the sunny streets of Oxford and barely see a soul: shops closed, roads empty, just the occasional pedestrian nervously crossing to the other side of the street. Of course, it wasn’t just Oxford. The International Labour Organization estimated that, globally, more than 80 per cent of all workers were under some pandemic-related restriction that April.
Behind closed doors, however, the economy was surprisingly resilient. Looking at data from five leading European economies plus the US and Japan, the economists Janice Eberly, Jonathan Haskel and Paul Mizen calculate the extent of that surprise. They find that output from conventional workplaces fell by 23 per cent between the first and second quarters of 2020. Yet actual output fell by just 13 per cent — severe, but less than half of what one might have expected. This was economic resilience in action.
The shocks, however, have kept on coming. So, should we be reassured by the resilience shown in early lockdowns? And is there a way to strengthen it in future?
With hindsight, the relatively small fall of two years ago is easily explained: many people found ways to do their jobs from home. Home internet connections originally purchased to allow gaming and streaming, kitchen tables typically unused during working hours, portable computers and phones, posh sheds . . . these and other assets were pressed into double duty as business equipment. Eberly and her colleagues call this “an unprecedented and spontaneous deployment of ‘potential capital’”.
“Potential capital” has been unlocked before. Over a decade ago, people started describing “the sharing economy” or “the peer-to-peer economy”, in which technology was making it easy to arrange carpooling or to link tourists with people in travel hotspots who had spare rooms. The attraction was obvious enough: underutilised assets were matched with people who wanted to use them. The case for peer-to-peer matches was particularly strong in instances where demand fluctuates, from Friday-night rides to rooms near a popular sporting event.
Few people would describe Airbnb or Uber as paragons of “sharing”, and in the intervening years these business models have been thoroughly professionalised. But the point remains: technology seems to make it easier to unlock or repurpose assets.
Does the ability to unlock potential capital increase resilience? Undoubtedly, in the short term. If the same pandemic had struck in the 1990s, it is hard to imagine working from home would have been feasible for so many people. Internet connections were too sparse, software too inflexible, computers too clunky.
But over time, as potential capital is more routinely deployed, slack is squeezed out of the system. Resilience may fall rather than rise. John Doyle, a mathematician at Caltech, has coined the phrase “robust-yet-fragile” to describe systems that deal well with certain shocks and badly with others. The distributed, information-rich, working-from-home economy that coped so well with lockdowns might be extremely vulnerable to certain cyber attacks, or to problems with the electricity grid. If we could all head back to the office in a crisis, then nothing would have been lost. But if offices themselves become an endangered ecosystem, we would be selling flexibility to buy efficiency, and new vulnerabilities would appear as a result.
Such new vulnerabilities are hard to anticipate. Andrew Zolli and Ann Marie Healy give some vivid examples in their book Resilience. Jamaica’s coral reefs were stressed during the 1960s and 1970s by overfishing, but seemed to cope well. Although fish were scarcer and less diverse, long-spined sea urchins thrived in a similar evolutionary niche, feeding on algae. The coral reefs themselves were fine. Even the ferocious Hurricane Allen, in 1980, was survivable. It devastated the shallower reefs but soon the coral appeared to be recovering. Then, in 1983, some pathogen killed almost every long-spined urchin. Within months the reef was overwhelmed by algae. The urchins were no longer around to keep it in check, and the back-up — fish — were also depleted. The corals were destroyed.
The moral of the story is that because the sea urchins were so good at eating algae, their success masked the fact that they were the last line of defence and that the coral system was in a precarious situation. Is the internet the long-spined sea urchin of the modern economy? Or is the electricity grid? These things are usually clear only with hindsight.
At this point I should thump the table and demand that our leaders think more about resilience. And they should. But I wouldn’t pretend that the solution is straightforward. Some sources of resilience, such as redundant capacity, are expensive and turn out to be useless. (In March 2020, I declared that we needed to scramble to build more ventilators. Did we?)
Some sources, such as flexible computing assets, or globally optimised supply chains, can hide vulnerabilities, or create new points of failure. And others, such as thriving, empathetic communities, are things we would want at any time, but don’t necessarily know how to create. We can’t simply buy resilience by the yard. But if we value it highly enough, we may be able to cultivate it.
Copyright The Financial Times Limited 2022
