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Expert Opinion: What COVID-19 can teach us about risk and uncertainty

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Within a short matter of weeks, the spread of the COVID-19 virus has shattered the illusion that ever-increasing global prosperity and stability are permanent fixtures of modern, peacetime societies. In spite of humanity’s scientific and technological prowess and the unfathomable resources at our collective disposal, the coronavirus has halted our normal ways of living and crippled our economies.

In doing so, this pandemic has demonstrated the difference between a risk and the unexpected, driving home the point that it’s impossible to anticipate major crises with specificity. 

As we work to recover from COVID-19, we are again confronted with the paradox of studying the past, in order to prepare for uncertainty and unexpected events in the future. Though we know that our efforts will be imperfect, the catastrophic loss of lives and livelihoods, we currently see, shows us that the cost of inaction is far too high.

"Life can only be understood backwards, but it must be lived forward." Søren Kierkegaard (1813-1855)

In order to better prepare for the future, we must avoid a myopic risk analysis approach and focus on what could happen if the unexpected occurs. We should adopt the mindset that continuous investments in the robustness of our critical societal infrastructure will serve us well no matter what the future holds.

How we handle risk and uncertainty

A continuous focus on preparing for the unexpected is needed because we know that we are far from perfect when it comes to accurately assessing risks. We need only look to the World Economic Forum’s (WEF) Global Risks Report 2020, with its Global Risks Perception Survey, for a recent example of this point. WEF states that it surveyed an "extensive network of business, government, civil society and thought leaders" in order to produce its Global Risks Landscape, which is presented at the beginning of the overall report. To their credit, "rapid and massive spread of infectious disease" is listed as a risk. Unfortunately, the survey respondents assessed its likelihood to be quite low.

Also, while respondents did believe that if an infectious disease pandemic occurred the impact could be very high, they also believed that the impact of other risks would be much higher: cyberattacks, natural disasters, water crises, extreme weather, biodiversity loss and climate action failure. (Note that most of these risks were popular topics in the news during 2019, evidence that an availability heuristic bias may have been at work here). 

In fact, an infectious disease outbreak did not make the list of top ten most likely risks and though it did make the list of top ten risks in terms of impact, it was at the very bottom of the list, at number ten. The respondents were also asked which risks would likely increase in 2020 compared to 2019. Not even a quarter of the respondents believed that the risk of an infectious disease outbreak would increase in 2020.

Now, with the benefit of hindsight, it looks like WEF’s survey respondents got it all wrong. They did, but this should come as no surprise because it is not possible to predict the future with certainty, hence the need to prepare for the unexpected. (In all fairness, in this very same report, WEF did state the following: "no country is fully prepared to handle an epidemic or pandemic. Meanwhile, our collective vulnerability to the societal and economic impacts of infectious disease crises appears to be increasing." On this point they were very correct.)

Preparing for the unexpected

So, if we can fully accept that a risk-based approach still leaves us vulnerable to calamities like the current pandemic, then we are left with the question what can we do to help prevent a similar event, while also preparing ourselves and our global economy for an unknowable future?

It has raised important questions about which sectors of the economy are most critical. To the extent that we may have forgotten it, our public health and healthcare systems have undoubtedly emerged as critical societal infrastructure. Afterall, for people who experience the most severe symptoms of a COVID-19 infection, the virus literally robs them of their ability to breathe, which is an essential need. Robust healthcare systems help ensure that people are able to fulfil their other needs.

We can now clearly see that some parts of our economy are more important than others. There are certain things we simply must have (food, water, sanitation and clean air) and there are other things we can live without (movie theaters, gyms and holiday travel). The must-have parts of our economy (healthcare, agriculture and food, and public utilities like water, electricity and nowadays data connectivity) require continuous monitoring and investment in their robustness to ensure they will be there for us when the unexpected occurs.

But this isn’t the full picture. Financial capital is needed in order to make the necessary investments in critical infrastructure and also to prop up entire economies when disaster strikes. We can see this now in the massive amount government spending around the world, much of it aimed at filling in gaps in our healthcare systems. If banks and other financial institutions fail, how would governments disperse the financial help they are offering? Also, how would any of us pay for those essential goods and services we need to survive during this or another crisis? As such, our global financial system is also critical societal infrastructure, meaning that we must pay constant attention to its robustness.

There are certainly other parts of our economy that would count as critical societal infrastructure but the key point is that we can assess and anticipate some risks – but we can never fully assess or control the unexpected. The best we can do to prepare for an uncertain and unpredictable future is make sure these areas are robust and resilient.

By Joris Winters, sector leader property & investment, Arcadis

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