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Reconstructing Economies in a Post-COVID World | Excerpt

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The Resilient Society by Princeton University economist Markus Brunnermeier describes how individuals, institutions and nations can successfully navigate a dynamic, globalized economy fi­lled with unknown risks.

Written for business leaders, economists, policymakers and politically interested citizens, the book argues that the concept of resilience can be a compass for developing a social contract that benefi­ts all people. Read an excerpt from the introduction to the book.

The Covid-19 pandemic has made us feel fragile. As individuals, we discovered that we could suddenly be hit by a rapidly spreading, unknown disease. It upended our perception that medical progress would prevent such events. Societies around the world faced disruptions on an unprecedented scale. The pandemic paralyzed recreational activities, stretched public services to the limit, left the poorest and most vulnerable unattended, turned our homes into workplaces, stopped our kids from going to school, disrupted our family lives, and forced us to connect with friends through screens. And we lost many lives.

The pandemic has also given us reason to be confident in the power of medicine and technology. Indeed, we can only marvel at the speed and efficiency of vaccine discovery, which occurred less than a year after the virus was identified. But what about social fragility and vulnerabilities? Will our societies quickly recover, or will they bear permanent scars? Most importantly, will they be able to overcome similar shocks in the future? This book seeks to address that question.

The key concept in this book is resilience. The term refers to an ability to rebound, which is different than the idea of robustness, which is an ability to resist. Sometimes robustness is not the best way forward. Resilience is about being able to weather a storm and recover, as described in the famous poem by Jean de La Fontaine titled The Oak and the Reed.”1 The oak is robust. It is mighty and looks indestructible in the face of normal winds. By contrast, the reed is resilient. Even light breezes bend the reed. But when a strong storm erupts, the reed declares: “I bend but do not break.”

That phrase incorporates the essence of resilience. The reed bounces back when the storm is over. It fully recovers. The robust oak can withstand strong winds, but it breaks when the storm becomes too severe. Once it has fallen, no recovery is possible. Its lack of resilience prevents restoration. The reed, always in motion, might look vulnerable, but it is much more resilient than the oak.

This is a nice metaphor from nature, but it does not fully describe the challenges we face. There are, of course, purely “physical” pillars of resilience. For instance, in daily life we depend on the proper functioning of numerous networks and infrastructures. Just imagine life without telecoms, the internet, and roads. So, if we want those elements of our physical infrastructure to rebound after a shock, we might need to build them with redundancies, buffer stocks, duplications of structures, and added capacities. Doing so implies a possible need to sacrifice efficiency in exchange for greater resilience.

So far, societies have sought to manage production systems according to a “just in time” principle; that is, to maximize flows and minimize stocks, which is the objective of global value chains. By contrast, the concept of resilience leads us to emphasize a “just in case” approach, which would give us the ability to recover speedily after a shock. For that to occur, we must give priority to resilience, which turns redundancies into a virtue rather than a vice. Safety  buffers  are  useful  because  they  allow  us  to  absorb  shocks.  A  mindset of resilience provides a new way of looking at cost-benefit calculations.

Another  way  to  understand  the  difference  between  resilience  and robustness is to consider an electric circuit with numerous light bulbs.  The  most  cost-efficient  way  to  set  this  up  would  be  a  series  circuit like those used in old-style Christmas tree lights. In this case, if one light bulb failed, the entire Christmas tree would turn dark. A more resilient alternative is a parallel circuit. In this case, each light bulb is connected to a main circuit, which is the norm for lighting a staircase. If the second-floor light bulb fails, the lights on the first and third floors stay on. The total cost of the wiring is higher because more wire is needed, but the parallel circuit is more resilient. Resilience  is  also  different  than  risk,  which  refers  to  the  frequency and size of shocks.

Resilience is about the ability to react after a shock hits—the ability to bounce back or, in formal terms, to “mean-revert.” This ability to rebound implies the need to facilitate adaptation.  If  we  are  able  to  adapt  and  change,  we  will  strengthen  our  resilience.  With  improved  resilience,  we  will  be  able  to  take  more chances and embrace more opportunities—because the shocks will be less detrimental. Resilience is also an essential component of sustainability. In the absence of resilience, a society can become unsustainable. Severe shocks  might  push  society  over  the  cliff,  leading  to  detrimental  adverse feedback loops. The Covid-19 pandemic has taught us that resilience requires more  than  individualistic  thinking.  A  society  relies  on  healthy  collective  functions,  which  are  created  (or  not)  by  the  quality of our social  contract. This  contract  emerges  from  the  recognition  that  our  individual  conduct  will  impact  others.  Economists  call  these  impacts  “externalities.”  Without  a  social  contract,  people  often impose negative externalities on each other. As a result, some citizens become trapped or pushed close to tipping points. Taken as a whole, negative externalities increase social fragility and undermine resilience, particularly when a shock like the recent pandemic hits.

In  this book,  I  argue  that  resilience  can  serve  as  the  guiding  North Star for designing a post-Covid-19 society.2 This overarching principle can help us think about how to prepare society and foster cohesion that enables us to better react to future shocks. Throughout, I apply an economist’s perspective on health and the social contract.

Granting to people the personal freedom they need to dream, experiment, strategize, plan, and possibly fail is essential for societal progress.  It  is  my  view  that  that  this  freedom  is  also  essential  for  human dignity. However, people should not be trapped or fall into poverty. They should have the ability to rebound and try again after they have learned from their failures. Personal bankruptcy protection serves  precisely  that purpose.  Hence,  rather  than  shielding  people  from possible failure, society should encourage experimentation and curiosity while also making individuals resilient.

The Resilient Society
About the Book - The Resilient Society

People in a resilient society are able to bounce back from shocks, such as pandemics and economic crises. ­Lacking resilience, societies, families and individuals can reach tipping points from which they cannot recover.The Resilient Society by Princeton University economist Markus…

To read more, order your copy of The Resilient Society, by Markus Brunnermeier today!

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