This article first appeared in Forum, The Edge Malaysia Weekly on March 8, 2021 - March 14, 2021

In mid-February, two severe winter storms swept across the US. Texas was especially hard hit, with more than 4½ million homes and businesses left without electricity. At its peak, the storm left over five million people without electricity, some for more than three days, with outages felt disproportionately in lower-income and minority-ethnic areas.

Texas Governor Greg Abbott initially blamed the cause of the electricity outages on frozen wind turbines. Other Republican officials piled on, targeting renewable energy more generally, suggesting that the overall collapse of the electricity system was due to the failure of wind and solar power. Abbott said, “It just shows that fossil fuel is necessary for the state of Texas as well as other states to make sure we will be able to heat our homes in the winter times and cool our homes in the summer times.”

As it turns out, while some wind turbines did freeze, regulators later stated that the primary cause of the electricity loss was due to natural gas pipelines freezing, making it difficult for plants to get their required fuel. Indeed, both coal and nuclear plants saw a drop in production. Yet, this is a symptom of a larger problem — why was such key infrastructure not protected against freezing in the first place?

One crucial reason is that Texas practises a highly deregulated electricity market. Electricity providers on the private market can supply electricity to Texas customers, but they are not required to and do not face punishment for failing to deliver during a crisis. Texas electricity regulators do not require power plant owners to invest extra capital in infrastructure to prevent disruptions during more extreme weather conditions.

Events such as the state of Texas freezing over are “tail” events. These are extremely low-probability events and thus belong in the “tails” of any probability distribution. The 2008 global financial crisis was such an event. And so is Covid-19. As we have seen, and indeed lived through, the world was ill-prepared for the pandemic as Texas was for Winter Storm Shirley.

About one year after Malaysia’s first Movement Control Order (MCO), we are fortunate indeed that we are in the early stages of a vaccination programme. But in that one year, ordinary (and extraordinary) Malaysians went through a lot — loss of loved ones, Covid-19 health complications, job losses, business closures, salary cuts. Can we prevent this from happening again?

At first glance, the answer is “no”. I doubt that we will ever be able to fully prepare against tail events. These are extremely unlikely, after all, and we may lack the imagination to conceive all the tail events. One place to start is science fiction — I mean this seriously. Science fiction is typically based on extending a fundamental tenet of our present reality to its uttermost extreme. Indeed, with technological advances being what they are, even existing technologies, when taken to the extreme, can result in tail events in society. The series Black Mirror is a masterful adaptation of this.

This article is not going to espouse science-fiction possibilities (but I do encourage everyone to read science fiction!). Nor is this meant to be an exploration into possible tail events. Rather, it is to address the question of preparedness. Legendary science fiction writers Neil Gaiman and Terry Pratchett once wrote, “A butterfly flaps its wings in the Amazonian jungle, and subsequently a storm ravages half of Europe.”

The “butterfly effect” is a popular analogy for chaos theory. Chaos theory states that changes to initial conditions, even for small things, in a complex system may have no effect or may have a massive one, and it is virtually impossible to know which will turn out to be the case. That last clause is crucial. In a complex system — as is the case of human society, be it sociopolitics or socioeconomics — every lever we pull has unintended consequences.

Chaos theory does not say small changes will always have a big impact. It says it is possible, but we cannot know for sure. Now, amplify that to “future-proofing” Malaysia. We live in a social environment which, disappointing though it may be for theoretical economists, cannot be modelled like physics equations. Our social system is built on millions of people, with a near-infinite set of norms and practices. Anyone who tells you they can repeatedly and accurately predict the future is almost certainly a charlatan.

To be clear, some areas of research may be able to point out rough trends through history that may be useful. But they must be interdisciplinary. A good example is cliodynamics — the integration of cultural evolution, economic history, sociology and mathematical modelling of historical processes. According to Peter Turchin, a University of Connecticut professor who is a founder in the field, “cliodynamic theory can tell us specifically how demographic, economic and cultural variables relate to one another, and how their interactions generate social change”.

We need more of this, but I must confess to be sceptical that any amount of research can precisely predict specific futures for us. What we can do is to take positive steps towards creating a more resilient Malaysia.

There are three aspects of this that immediately come to mind. The first is learning squarely from the Texas experience. We need to invest in more resilient infrastructure — whether it is to crazy amounts of heat, to floods or both — and we cannot leave it solely to an unregulated private sector to do so.

This is true not just for electricity but also utilities such as water, which has been a serious issue in the Klang Valley in recent months, and telecommunications. Pure private players, as in the case of Texas, may be frenemies who, as defined by the New Radicals, “when you’re down, ain’t your friends”. State participation is a must.

The second is economic resilience. As I have pointed out before, the economic structure of Malaysia makes our economy particularly vulnerable to shocks like the pandemic. A large proportion of our workforce is in high touch, low economic value-added services, which do not permit working from home.

We need to create the kinds of jobs that are more location-neutral and would not result in pay cuts or job losses from being unable to work in the workplace. We also need to invest in the kinds of industries whose goods and services are more globally inelastic and therefore more irreplaceable, thereby ensuring consistent ongoing global demand.

The third, and most important, is social protection. Even if we could create a better economy, and even if we could improve our infrastructure resilience, some members of our society may not benefit from these efforts. No one living in Malaysia should ever be forced to go hungry, worry about not having shelter or be unable to provide basic necessities.

We need to engineer a more comprehensive social protection system, covering angles such as public health, housing, social welfare benefits and job support. Ultimately, while we must certainly care about infrastructure and the economy, it is real lives and real people that form the centre of our preparations towards more frequent tail events.

Nicholas Khaw is an economist at the Khazanah Research Institute

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