How can we, as a society, better endure crises of all varieties?
This was the backdrop for the Center for Global Business’ Fourth Annual Forum at the University of Maryland’s Robert H. Smith School of Business. This year’s event featured a conversation with Markus Brunnermeier, author of “The Resilient Society,” and Maryland Smith’s Kislaya Prasad, CGB academic director and discussion moderator.
With the COVID-19 pandemic, the 2008 financial crisis, as well as growing climate change threats and cybersecurity vulnerabilities, there is no shortage of ways another major shock to global systems may take place in the imminent future. And when one shock occurs, it’s rarely alone, Brunnermeier explained during the event – which is why resisting them at all is a futile endeavor.
Instead, he said, the goal should be striving for resilience. But how does that differ from robustness or avoiding shocks altogether? Robustness is actually withstanding the shock and not moving, Brunnermeier said, and resilience is being hit by the shock and then bouncing back. As opposed to withstanding a shock, Brunnermeier suggested that first giving into a shock and then bouncing back may offer the most viable road to recovery.
“Think of the oak, which is a very strong tree. If there's wind, the oak doesn't move much, but in contrast, the reed, which moves all the time, bounces back and forth,” said Brunnermeier. “So the oak is more of a robust mechanism, while the reed is a more resilient mechanism. And what it means is that when you are resilient, you have to be agile and you react to shocks.”
Regardless of whether something is robust or resilient, different buffers or redundancies are required to help mitigate shocks. However, Brunnermeier said, resilient societies, compared to robust ones, need fewer redundancies as they can be adjusted based on the severity of the shock.
An equally important aspect of resilience, Brunnermeier said, is identifying potential traps – poverty, economic liquidity, etc. – and negative feedback loops, like environmental issues, which follow a negative trajectory and may culminate in tipping points with irreversible consequences.
Interpersonal dynamics and social norms also play a major role, he said, because resilience, at its core, is about helping people get back on their feet. That may manifest itself at the personal level as financial compensation in the form of insurance, or reskilling and educational programs for unemployed people. On a broader level, government intervention may be required, he said.
However, Brunnermeier noted, whether a society is more homogenous or heterogenous makes all the difference in terms of whether it's able or willing to help others. It’s a tradeoff, he said, with very homogenous societies having people more willing to help each other, whereas a heterogeneous society may have the means to help others but lacks the willingness to do so. In the finance world, idiosyncratic and systemic risk follow the same principle.
“Essentially, if we are all the same, we will be shocked the same way,” he said. “We might not be able to ensure each other, but we can offer support. With heterogeneous societies, shocks may hit some people more and others may even be beneficiaries of that shock. People may be better ensured that way, but then there may also be less willingness to help. There must be an optimal mix between the two.”
Every country, business and person has a different form of resilience, Brunnermeier said, and going through a crisis is an invaluable way of learning to manage other crises in the future.
“All countries that went through the SARS crisis were much better equipped to handle COVID-19 because they already had experienced some of that,” he said. “Going through those smaller crises actually makes you better at managing them and being more resilient down the road.”
The Center for Global Business’ Annual Forum is a springtime event that brings together distinguished voices from the academic policy, diplomatic and business communities to speak on a different scene each year.
This event is supported in part by CIBE, a Title VI grant administered by the U.S. Department of Education.
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About the University of Maryland's Robert H. Smith School of Business
The Robert H. Smith School of Business is an internationally recognized leader in management education and research. One of 12 colleges and schools at the University of Maryland, College Park, the Smith School offers undergraduate, full-time and flex MBA, executive MBA, online MBA, business master’s, PhD and executive education programs, as well as outreach services to the corporate community. The school offers its degree, custom and certification programs in learning locations in North America and Asia.