All crises are events. We remember events because bad things happen. But we forget how crises often arise through gradual processes of change that blow up in our faces. And then we relearn that reform is often a long-drawn-out process of pain before we see any glimmer of gain.
The Chinese have a long experience with the process of change, dating back to the Book of Changes (I Ching, circa 1050 BC). They appreciate that all change comes in cycles that require a time for transition, in which each generation learns lessons through a process that requires time to reflect, digest and ingest before moving on.
Bad things happen after good times and you simply have to have a process to manage change. Either manage change or be changed — that is the choice of history.
This is why foreign advisers who offer China instant solutions are often asked to be patient — they have to go through the transitionary phases first. At the World Bank or IMF, the Ivy-league, university-trained economist typically thinks in terms of free market models that are timeless, universal and context-free.
In the 1990s, the Bretton Woods advice to China was: “If you privatise the state-owned enterprises, productivity will increase.” The Chinese commercialised the state-owned enterprises without losing ownership. This was because they still remembered that privatisation in the post-Soviet era in Russia and the former Soviet economies had resulted in massive kleptocracy — oligarchs who robbed the people blind. At the time, this was blamed on “market failure” or “bad corporate governance”.
The Bretton Woods solution in a rule-based system was to change the laws.
But the Chinese also had irrefutable questions: “How can you write a law where no one understands how the market works? Furthermore, how do you build a judiciary overnight to enforce such complex laws?”
As the UK now faces in Brexit, “how do you write laws to deal with the future, when no one knows how the future will play out?”
We live in times when even experts cannot explain what is happening and the confused public knows what it does not want but has no idea what it really wants. So even in the case of Britain, where there are good institutional processes to deal with change, Brexit has resulted in Prime Minister Boris Johnson trying to bypass parliament and the august house voting down his efforts.
Processes are, therefore, part of the system to keep order but when order breaks down, established processes cannot cope. We are now in the phase of managing chaotic change.
As I Ching states, “the Tao (process or way) that can be spelt out cannot be the eternal Tao”. No process, rule or law can be forever. Change is the only certainty.
We need to understand processes because they form the core of what happens in all systems. In their simplest form, processes comprise a series of steps or actions that result in a product or end result. Therefore, all processes involve actors, inputs and outputs. Human processes involve other human beings to achieve a social goal — create a product or service, or build a social enterprise or organisation. Engineering processes involve workers, engineers, managers or consumers who convert materials with energy into new products or constructions. Biological processes convert energy into organic forms of life through chemical reactions. But at the basic level, all processes need information to enable them to manage, control and transform inputs into outputs.
This is why we live in the Information Technology age. Once Alan Turing realised that he could make a machine process information, and Claude Shannon discovered how you could transmit information accurately, the information revolution was born. What is a computer program but a process to calculate information (sometimes called algorithms)?
At the next level, you have programs to manage programs, such as Windows to control software such as PowerPoint, Word or Excel. Complex systems, therefore, have complex processes to manage interconnected processes. This is why we have now invited artificial intelligence and big data to manage global information systems, supply chains and financial networks.
But as systems became more complex and interconnected, they became more fragile because the failure of one part led to failure in another. Harvard sociologist Charles Perrow discovered that if systems become too complicated and “tightly coupled”, meaning closely knit with very little room for error, then they could suffer crises or meltdowns. Such system failures could be triggered by a minor fault that cascades throughout the whole system, like a house of cards. In viral terms, contagion can spread and bring the whole system down.
To prevent this, all systems need resilience, redundancy and adaptability in order to survive or operate under different circumstances. The human body is a very resilient, redundant and adaptable system. It is extremely complicated but we learn how to survive in very different conditions. This is because we have two kidneys, two parts of the brain and so on, which enables the body to function even if one organ fails.
Furthermore, mankind has dominated Mother Nature because man has learnt how to quickly adapt to changing circumstances. For example, many engineering systems are modular, in the sense that capacity could be added modularly — just like how we add computer memory chips to our devices to handle faster or greater memory needs.
At a deeper level, processes are vital feedback mechanisms because for the system to be sustainable, there must be information feedback to report accurately and in a timely manner whether all parts of the system are functioning or need urgent repair and maintenance.
As we have discovered, both democratic and autocratic systems fail when the feedback mechanism functions defectively. Autocratic systems fail when the top only hears what it wants to hear, not what is the reality. Similarly, even free information democratic societies begin to malfunction when there is misinformation, disinformation and fake news.
This is where positive and negative feedback loops play such an important role in systems. The first is a situation where a small input creates a loop where the output is amplified. You hear this when you put a microphone near a speaker — the loud noise is bad feedback. But positive feedback can be of two types — a win-win situation or a lose-lose downward spiral.
Free trade is often cited as the best win-win situation for all countries. The current US-China trade war of escalating tariffs against each other is one where everyone, including the US and China’s trading partners, loses.
A negative feedback loop is when the shock to the system declines in magnitude over time so that the system reverts back to equilibrium. For example, the free market neo-classical economic theory assumes that the free market is essentially stable because of negative feedback. This was proved false by the last few financial crises; financial systems are complex systems that are vulnerable to positive feedback. This is exactly why the central bank lender of last resort process is in place.
In short, a globalised trade, finance and information system can melt down if we do not pay attention to the feedback processes.
The global news network has been transformed by the rise of social media. There are more people today who get their news from their mobile phones rather than from reading the newspaper or watching television. This means all news has become trivialised — compressed into sound bites that are either black or white. The algorithm of likes and dislikes means that the smartphone will only feed you information that you like — information that you dislike is filtered out. This happens to all the advertisements on your mobile phone or tablet. The feedback mechanism of social media amplifies your biases and preferences.
This is why society has become so polarised. If you are only fed news that confirms your beliefs without getting information from another side, you end up being more polarised. You shut out alternative views, believing that the other side is the enemy and cannot be trusted. Consequently, on many social issues, there is a breakdown in communications with little hope of compromise.
This inter-generational feedback mechanism has surfaced in the Hong Kong protests. No one expected one of the richest cities in Asia to see such an escalation in protests that descended into violence. Few would dispute that the underlying economic reason is the growing inequality as the youth cannot hope to afford proper housing or get good jobs. But the resentment over social inequality has escalated into anger and humiliation that the protests are being ignored by the establishment. So, anger feeds on anger through social media, leading to a violent mental loop of a “I burn, we burn” co-destructive mindset.
Various studies show how social media gives power to the individual through a dopamine effect on the mind that amplifies collective behaviour through network connectivity. This is a double-edged sword that can be a force for good or for destruction.
The French Revolution started with a few thousand protestors marching on the Bastille. Today, the protest crowds are in the hundreds of thousands, if not millions. Social media is French Revolution protests on steroids. If we wish to live in a harmonious society, we need feedback processes that get us back to equilibrium, not escalate us to disaster.
No one knows whether change is good or bad. All we know is that we, being part of the system, have an inescapable responsibility for its stability. If we do not manage that process, we will pay the price of going into crises with our eyes wide shut.
Tan Sri Andrew Sheng writes on global issues from an Asian perspective