Banishing the black swans in Madrid
Published February 2nd, 2017
We have had four presidents, one vice president, six Nobel Peace Prize winners, one mad scientist, and one queen. This year, however, the guest speaker whom we have invited to the Global Water Awards is someone whose main contribution to humanity is to have coined a phrase. He is a Lebanese American whose career has bounced between trading on the financial markets, academia, and writing a series of four books, the second of which, The Black Swan, made him famous. He is Nassim Nicholas Taleb.
Black Swan has become shorthand for an extremely unlikely and unforeseen event (former US Defense Secretary Donald Rumsfeld described such things as unknown unknowns). However, the idea behind the phrase is in fact far more interesting and complex. It provides a new framework for the understanding of risk and our response to it, which has become compelling with each lurch, judder and switchback of the global economy since the book was published in 2007. It is no surprise that sales of The Black Swan, and the other three titles in Taleb’s oeuvre, have been increasing year on year, rather than following the normal downward trend after launch.
So what has he got to do with water? Well, it seems to me that managing risk is the biggest challenge our industry is facing in 2017. Water is an incredibly capital-intensive industry. It typically requires around $5 of capital invested in order to deliver $1 of revenue, whereas the average for other businesses is around $0.50. It means that we are particularly exposed to the vagaries of interest rates and exchange rates, political insouciance, and geopolitical upsets. At the same time, there is a resilience on the demand side of our industry – people will always need water – which ought to compensate for this economic fragility.
Taleb’s narrative begins with the observation that the world is unfathomably random, and the most dangerous people in the world are those who have made some lucky guesses and therefore think they are smart (Fooled by Randomness). This danger is made worse by the fact that we are all particularly bad at guessing the probability of bad events and their broader impact, and as a result we make improbable events both inevitable and catastrophic (The Black Swan). The solution to this is not resilience or avoiding risks, it is about creating structures which thrive on risks (Antifragile). I haven’t read the other book in the series, The Bed of Procrustes (a selection of aphorisms), but on Tuesday when we spoke, Taleb told me he is currently working on a fifth book – Skin in the Game. This will take the arguments of Antifragile one step further to look at why participation in risk is such a compelling proposition (even to the extent that it gets Donald Trump elected as President of the United States).
Besides all this high thinking, Taleb has a sharp eye for the paradox, and is in fact an immensely entertaining speaker. We have just closed the early bird offer for delegate passes for the Global Water Summit with a record-breaking number of registrants. The programme is still coming together: signing up 130 speakers always takes a bit of time, and although I know that most of you just come to meet each other, it will break my heart if you don’t find some time to attend the sessions as well. Every intricate dynamic which makes the global water market work has a platform for discussion: your contribution to that discussion is the best way of ensuring that our swans turn from black to grey to white.