Creating Optionality
This was sparked by coming across (again) Nassim Taleb’s essay on the WSJ, titled “Learning to love volatility” What caught my eye were the first two rules:
Rule 1: Think of the economy as being more like a cat than a washing machine.
Rule 2: Favor businesses that benefit from their own mistakes, not those whose mistakes percolate into the system.
Re Rule 1, as an EDB officer who previously did industry development and who is a owner of two cats, I think Taleb’s metaphor is apt but not quite there. The economy is definitely not a washing machine, which is mechanistic (“do X and you get Y” almost every time). But it’s also not quite a cat, which can be trained and conditioned to be relatively predictable. Instead, I think the economy is like a herd of cats: each cat is unpredictable, and the interactions across them are… well, good luck predicting.
As EDBians, we tend to see ourselves as custodians and planners of the Singapore economy, and consequently, we need to plan each and every industry, with the subsequent levers we use to develop them, down to the level of “rolling out X screens of companies that are using our industry automation index”. I think it’s great that we’re going down to the level of detail to actually move things on the ground; we just need to be mindful that this doesn’t create side effects of learned helplessness, and reducing the vitality of economic agents.
A more apt analogy might actually be of the economy as a garden patch, with EDB as gardener. A gardener tweaks the conditions of each plant bed or pot; a good gardener might even know each individual plant well. But it’ll have to be a stupid gardener that uses his hands to pull the plant to make it “grow faster”.
Rule 2 is an interesting one from an EDB perspective. The analogy that Taleb used in the essay was the airline industry, which comprises of individual airlines that are fragile but which benefit the entire industry with each bankruptcy, air disaster, etc. So the industry benefits from the failure of the individual mistake, and it’s a lot less critical that you need each and every company to do well. I think Singapore’s F&B sector is a great example of an industry with weak component companies but overall an antifragile industry.
In contrast, if you look at tightly-coupled industrial systems like petrochemical parks or national powergrids, there are all sorts of dependencies: the failure of one can very literally lead to a daisy-chain cascade of failure throughout the entire system. So you need to get a lot of details right. A good example is the Chernobyl disaster (I strongly recommend Midnight in Chernobyl).
To use the garden analogy, you basically want to create a garden that isn’t too dependent on you, the gardener. So a hydroponic urban farm with automated sprinkler systems and power etc. is going to be great, until the humans are gone. In contrast, a permaculture garden-system with natural irrigation methods, mushroom compost, natural pesticide systems, etc. could very well last for a long, long time even if humans are gone.
So with these two rules, a corollary is to focus on creating optionality, which can be manipulated or harvested by elements of the economy, and are less dependent on the planner/developer.
An example from architecture might be useful to illustrate what I mean. Most urban planning currently tends to be top-down, with the urban planner and architect “playing God” (as my architect classmate once said). The top-down aspect includes planning the following:
- what type of zone
- who can rent or stay there
- what type of activities are allowed
- (sometimes) how the building can look, and whether it is in harmony with the rest of the neighbourhood
etc.
All this, before the first brick is laid. You have to have a LOT of foresight to get a lot right… it doesn’t help that the building interiors, which is the main interface with the inhabitants of the building, are almost aways an afterthought (my sense is that a lot of architects treat interior designers as an inferior-class; the good architects don’t draw as sharp a distinction).
And then you start building the building from the ground up, outside in.
And the functions of the building are then stuck forever in concrete. Both good AND bad.
In contrast, the architect Cedric Price played with the concept of non-planning, or creating spaces that allow optionality. His idea of a Fun Palace, which manifested his non-planning idea was never built. But it was a daring concept to create the space and enablers for experimentation.
But the closest real-life approximate to Price’s Fun Palace is probably the Centre Georges Pompidou in Paris (picture above), whose architects were heavily influenced by Cedric Price. The building flipped a typical building inside-out, to allow for maximum optionality within the building. Here’s a description from the website:
Could these concepts be something extended for EDB’s industry development purposes? Or could we build a “Centre Pompidou” equivalent for different industries, to allow different industries to pop-up-plug-and-play for trial periods of time?
Updated date 4 May 2020