Governance at the Leading Edge: Black Swans, Wild Cards, and Wicked Problems

ETHOS Issue 04, Apr 2008

OF BLACK SWANS AND WILD CARDS

Much of the current practice of good governance assumes that a high level of predictability and order exists in the world. This is a dangerous assumption, because it encourages simplifications that are useful in ordered circumstances but which can lead to leadership failures if they are applied in more complex or chaotic situations, where unexpected yet highly significant occurrences are more likely to appear.

At a Pentagon briefing in 2002, Donald Rumsfeld, then Secretary of Defense, said

"Reports that say that something hasn’t happened are always interesting to me because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns–the ones we don’t know we don’t know."

His remarks attracted some ridicule for not coming straight to the point. But “unknown unknown” is a legitimate and indispensable concept in decision analysis that we should expect a Defense Secretary to understand very well. In fact, Rumsfeld also said that “the absence of evidence is not evidence of absence.”

Nassim Nicholas Taleb’s book The Black Swan is about “unknown unknowns”. A ‘black swan’ is a rare, large-impact, hard-to-predict and discontinuous event beyond the realm of normal expectations. Before black swans were discovered in Australia, people believed all swans were white—an incontrovertible view confirmed by available empirical evidence. “The sighting of the first black swan,” wrote Taleb, “...illustrates a severe limitation to our learning from observations or experience and the fragility of our knowledge.” The discovery of a single black bird invalidates millennia of confirmatory sightings of only white swans.

Black swans have three traits. First, it is an outlier: it lies outside the realm of regular expectations, because nothing in the past points to its possibility. Second, its impact is extreme. Third, in spite of being an outlier, human nature makes us concoct explanations for its occurrence after the fact to render it explainable and predictable.

Taleb argues that black swans account for almost everything in our world, from the success of ideas to the dynamics of historical events and our own personal lives. He further asserts that the impact of black swans has been accelerating since the Industrial Revolution.

In the same vein, futurologist John Petersen writes about “wild cards”. These are major surprises: high-impact events which come out of the blue. They are characterised by their scope, and a speed of change that challenges today’s capabilities. Wild cards develop very fast, and challenge governments, societies and nations to respond effectively since there is a tendency to react to warning with discussion and compromise, rather than rapid, cohesive response.

Singapore has had its own wild cards and black swans: the Asian Financial Crisis of 1997, the severe acute respiratory syndrome (SARS) crisis of 2003, and perhaps the sub-prime mortgage crisis of 2007 and the rice “shortages” of 2008. Black swans are probably more frequent than commonly perceived—the human mind has a tendency to underestimate such events. Clearly, we must make an extra effort to brace ourselves to deal with greater uncertainty and unpredictability.

Of course there are also good black swans and wild cards, like the emergence of the Internet, Google, and the economic resurgence of China and India. If we are able to identify them early and understand their significance, we must then be able to exploit them to our advantage.

THE PROBLEM OF WICKED PROBLEMS

Wild cards or black swans generate what the political scientist Horst Rittel first called “wicked problems”. Wicked problems are large, complex and intractable issues with no immediate solutions, and which involve multiple stakeholders who see the problem in many different ways. A high degree of process knowledge about creativity and collaboration is required in order to make even a dent in wicked problems. A good example of how to deal with a wicked problem is the way we addressed the problems with our education system in the late 1970s.

Singapore’s one-size-fits-all, mass-production approach to education in the 1970s was ill-suited to the needs of a country undergoing rapid economic change. So Dr Goh Keng Swee and a group of systems engineers studied this wicked problem and recommended a new efficiency-driven education system where students of different abilities could be developed differently. The education system we have today still bears the imprint of these changes made in the late seventies and early eighties.

There are many wicked problems that Singapore has to deal with today, such as our birth rate, a greying population, the environment, long-term energy security, and affordable healthcare. When these were first noticed as problems, they had all the characteristics of black swans or wild cards, although they would not be regarded as such today.

BEING COMFORTABLE WITH UNCERTAINTY

The key challenge for good governance going forward is how to identify black swans and wild cards, and then how to deal with their consequences: wicked problems. We need to be good at strategic foresight as well as strategic planning.

Few, if any governments are thinking about how to organise and prepare themselves for the more uncertain world that we will have to face. The Singapore Public Service must develop its own new and unique capabilities in governance. And we should have the confidence to do so, because we have an impeccable track record in policy innovation.

The first of these new capabilities is managing complexity and disruptive change. Tools like scenario planning and horizon scanning enable us to detect emerging trends, threats (as well as opportunities)—the wild cards and black swans—that are beginning to appear on the horizon. The Risk Assessment and Horizon Scanning (RAHS) system is one such tool to help us do this better. As a shared platform, it has the potential to connect silos, and encourage greater collaboration between different agencies. It should facilitate a more Whole-of-Government, networked approach to strategic planning and thinking about the future.

The second new capability is risk management. As more black swans appear, they will transform the world we live in, in unrecognisable ways that we cannot fully predict. While we may not have formulated a complete set of strategies to replace existing ones, that is no reason for inaction. Rather than plan exhaustively for every contingency before we move, we should adopt a “search and discover” approach: act before the window closes, and act boldly in areas where we sense opportunities. We must be prepared to experiment, even if we cannot be entirely certain of the outcome. The approach is to probe, sense patterns, and to act, even in the absence of complete information. We must learn to operate not in a “fail-safe” mode, but instead in a “safe-fail” mode.

Many black swan events and wild card situations offer opportunities even as they present threats and challenges for us. Climate change is potentially a big black swan. We will not escape the wicked problem of its impact. But undoubtedly, there are also opportunities, such as in the area of water management, where Singapore has built up considerable expertise, or in clean technology research and green financing. If we recognise and seize the opportunities early, we will have first-mover advantage.

But there are also risks, for example, in going into unfamiliar markets such as the Middle East. This means we must have an organisational framework that allows us to take risks, but without betting the whole house and our future on a wrong throw of the dice. Ministries are now beginning to employ enterprise risk management as a tool to manage strategic risk. The Ministry of Finance has also developed an integrated risk management framework for the Whole-of-Government level.

Systems thinking, whether in Dr Goh’s solution to the education system or in designing our road transport system, remains a very important tool in dealing with inter-connected problems. However, as complexity increases, we will need to develop solutions that draw from an understanding of the entire system and all its inter-related dimensions—social, political, economic, and so on.

We must also build on our existing efforts to strengthen the innovation culture in the public sector such that we not only have the capability to innovate incrementally, but also to innovate in disruptive ways, all the while maintaining a climate that is open to change and new opportunities. If innovation is the engine of progress for our society, we will also need the work of entrepreneurs to create bridges between the fruits of discovery and the realisation of value.

Finally, leadership must serve the vision. Certainly we must strive for ever higher levels of efficiency and effectiveness as a public sector, to ensure the security and prosperity of Singapore, but our growing capabilities must serve a higher purpose, and must relate to our evolving national idea.

Leaders must also practise a new skill-set, creating an appropriate sense of urgency and empowering their people to drive change and strategy. They must nurture organisational agility by being flexible with resources, willing to make useful exceptions, placing and defending talent, and championing an open, supportive climate that is conducive to innovation. We should “have strong opinions but hold them lightly”.

A NEW PARADIGM FOR GOVERNANCE

Our Public Service will have to assume new levels of entrepreneurship with its attendant risks and uncertainties. It will need to become expert at conducting bounded experiments. A government that explores will also, at times, have to sacrifice some degree of efficiency in service of discovery. Indeed, the complex issues of the 21st century call for a new paradigm in governance—one that is networked, innovative, exploratory and resilient in the way it confronts the challenges of our time.

Certainly the world we operate in is too complex and mutable for the people at the top to have the full expertise and all the answers to call all the shots. For us to survive and thrive, we must have horizontal reach in a networked government, and the readiness to discover and experiment, in order to gain insight, decision and action. We must take advantage of the diversity of our talent base and harness the value of new entrepreneurial and brokerage roles within the public sector.

Strategic initiatives like World•Singapore are mechanisms that involve people from different parts of the system to create a new common language, re-codify information into common insights and a shared sense of destiny. Bringing people from different agencies together to look at complex strategic issues facilitates the horizontal flow of information and the integration of experience, expertise and ideas. It defines, communicates, and reinforces our common purpose. In this way, we can better cope with uncertainty, and better operate in a complex, interconnected world.

GOVERNANCE AT THE LEADING EDGE

That Singapore is operating at the leading edge in many areas of governance means that it is no longer sufficient for our policymakers just to copy and adapt from elsewhere. As we enter a more turbulent, complex and even chaotic era, Singapore will have to evolve its own strategies and approaches to deal with the many emergent issues we will face. To achieve real breakthroughs, we will have to depend more and more on our own policy innovations.

On its own, the private sector—short on the relevant scale, reach and regulatory leverage—lacks the capacity to cope with the disruptions and discontinuities of black swans, wild cards and wicked problems. In time, a new framework of governance will be needed that spans private and public sector skill-sets. The traditional virtues of good governance must be complemented by new capabilities in managing complexity and risk. We should also resuscitate old competencies like systems engineering and strengthen existing ones like leadership and innovation. All these should be brought into the core capabilities of present and future civil servants in Singapore.

In the meantime, governments can choose either inaction—and become the de facto insurers of worst-case outcomes—or address these challenges ahead of time with the boldness, exploratory mindset and innovation of an entrepreneur. Choosing the latter approach will be critical for the Singapore Public Service as we navigate a constantly changing and inherently unpredictable future.