Further, for a self-employed person, a small (nonterminal) mistake is information, valuable information, one that directs him in his adaptive approach; for someone employed like John, a mistake is something that goes into his permanent record, filed in the personnel department. Yogi Berra once said: “We made the wrong mistake”—and for John all mistakes are wrong mistakes. Nature loves small errors (without which genetic variations are impossible), humans don’t—hence when you rely on human judgment you are at the mercy of a mental bias that disfavors antifragility.
So, alas, we humans are afraid of the second type of variability and naively fragilize systems—or prevent their antifragility—by protecting them. In other words, a point worth repeating every time it applies, this avoidance of small mistakes makes the large ones more severe.
The centralized state resembles the income of John; the city-state model that of George. John has one large employer, George many small ones—so he can select the ones that fit him the best and hence has, at any point in time, “more options.” One has the illusion of stability, but is fragile; the other one the illusion of variability, but is robust and even antifragile.
The more variability you observe in a system, the less Black Swan–prone it is. Let us now examine how this applies to political systems with the story of Switzerland.
Lenin in Zurich
I was recently in a café-turned-expensive-restaurant in Zurich poring over the overpriced menu, with prices at least triple of those in a place of equivalent quality in the United States. The world’s recent crisis had made Switzerland even more of a safe haven than it had ever been, causing its currency to rise dramatically—Switzerland is the most antifragile place on the planet; it benefits from shocks that take place in the rest of the world. The friend, a writer, pointed out to me that Lenin, who lived in town, used to play chess in the café with the Dadaist poet Tristan Tzara. Yes, the Russian revolutionary Vladimir Ilyich Ulyanov, later known as Lenin, spent some time in Switzerland concocting his project of the great top-down modernist state and largest human experiment in centralized state control. It hit me that there was something eerie in Lenin’s presence there, for, a few days before, I had been at a conference in Montreux, on Lake Geneva, that took place in the same lakefront hotel where Vladimir Nabokov, the émigré Russian aristocrat and victim of Lenin, spent the last couple of decades of his life.
It seemed interesting to me that sheltering the reds and the whites, both the Bolsheviks and the aristocratic White Russians they later displaced, seems to be part of the primary business of the Helvetic Confederation. The main cities such as Zurich, Geneva, or Lausanne bear traces of the political refugees who went there for shelter: émigrés, from the Iranian royals thrown out by the Islamists to the latest African potentate executing “plan B.” Even Voltaire spent some time hiding in the place, in Ferney, a suburb of Geneva near the French border (before it even joined the confederation). Voltaire, the perfectly protected gadfly, would rush to Ferney after insulting the king of France, the Catholic Church, or some other authority—what people don’t usually know about him is that he also had an incentive to seek protection there for financial reasons. Voltaire was a self-made man, a wealthy merchant, investor, and speculative dealer. It is worth noting that much of his wealth came from the antifragility of stressors, as he started building his fortune during his early exile.
So, like Voltaire, there are refugees of other types: financial refugees coming from places of turmoil, recognizable by their expensive and boring clothes, bland vocabulary, contrived decorum, and expensive (shiny) watches—in other words, non-Voltaires. Like many rich people, they feel entitled to laugh at their own jokes. These (dull) people are not looking for personal shelter: it is their assets that are seeking refuge. While some political persons might prefer to hide from the risks of their national regime in France or England, more exciting places on Saturday night, it is most certainly in Switzerland that their checking account wants to be. It is economically the most robust place on the planet—and has been so for quite a few centuries.
This great variety of people and their wallets are there, in Switzerland, for its shelter, safety, and stability. But all these refugees don’t notice the obvious: the most stable country in the world does not have a government. And it is not stable in spite of not having a government; it is stable because it does not have one. Ask random Swiss citizens to name their president, and count the proportion of people who can do so—they can usually name the presidents of France or the United States but not their own. Its currency works best (at the time of writing it proved to be the safest), yet its central bank is tiny, even relative to its size.
Do these politicians biding their time before (they hope) returning to power notice such absence of government, accept that they are in Switzerland because of such absence of government, and adapt their ideas on nation-states and political systems accordingly? Not at all.
It is not quite true that the Swiss do not have a government. What they do not have is a large central government, or what the common discourse describes as “the” government—what governs them is entirely bottom-up, municipal of sorts, regional entities called cantons, near-sovereign mini-states united in a confederation. There is plenty of volatility, with enmities between residents that stay at the level of fights over water fountains or other such uninspiring debates. This is not necessarily pleasant, since neighbors are transformed into busybodies—this is a dictatorship from the bottom, not from the top, but a dictatorship nevertheless. But this bottom-up form of dictatorship provides protection against the romanticism of utopias, since no big ideas can be generated in such an unintellectual atmosphere—it suffices to spend some time in cafés in the old section of Geneva, particularly on a Sunday afternoon, to understand that the process is highly unintellectual, devoid of any sense of the grandiose, even downright puny (there is a famous quip about how the greatest accomplishment of the Swiss was inventing the cuckoo clock while other nations produced great works—nice story except that the Swiss did not invent the cuckoo clock). But the system produces stability—boring stability—at every possible level.
Also note that the hideously glitzy scenes one encounters in Switzerland, in all of Geneva, in some parts of Zurich (the center), and particularly in the ski resorts such as Gstaadt and San Moritz are not the direct product of the country nor part of its mission, but the result of its success, as Switzerland acts as a magnet for the ugly rich and tax refugees.
Note for now that this is the last major country that is not a nation-state, but rather a collection of small municipalities left to their own devices.
BOTTOM-UP VARIATIONS
What I call bottom-up variations—or noise—is the type of political volatility that takes place within a municipality, the petty fights and frictions in the running of regular affairs. It is not scalable (or what is called invariant under scale transformation): in other words, if you increase the size, say, multiply the number of people in a community by a hundred, you will have markedly different dynamics. A large state does not behave at all like a gigantic municipality, much as a baby human does not resemble a smaller adult. The difference is qualitative: the increase in the number of persons in a given community alters the quality of the relationship between parties. Recall the nonlinearity description from the Prologue. If you multiply by ten the number of persons in a given entity, you do not preserve the properties: there is a transformation. Here conversations switch from the mundane—but effective—to abstract numbers, more interesting, more academic perhaps, but, alas, less effective.
A cluster of municipalities with charming provincial enmities, their own internal fights, and people out to get one another aggregates to a quite benign and stable state. Switzerland is similar to the income of the second brother, stable because of the variations and noise at the local level. Just as the income of the cab driver shows instability on a daily basis but annual stability, likewise Switzerland shows stability at the aggregate level,
as the ensemble of cantons produces a solid system.
The way people handle local affairs is vastly different from the way they handle large, abstract public expenditures: we have traditionally lived in small units and tribes and managed rather well in small units.1
Further, biology plays a role in a municipal environment, not in a larger system. An administration is shielded from having to feel the sting of shame (with flushing in his face), a biological reaction to overspending and other failures such as killing people in Vietnam. Eye contact with one’s peers changes one’s behavior. But for a desk-grounded office leech, a number is a just a number. Someone you see in church Sunday morning would feel uncomfortable for his mistakes—and more responsible for them. On the small, local scale, his body and biological response would direct him to avoid causing harm to others. On a large scale, others are abstract items; given the lack of social contact with the people concerned, the civil servant’s brain leads rather than his emotions—with numbers, spreadsheets, statistics, more spreadsheets, and theories.
When I expressed this idea to my co-author Mark Blyth, he blurted out the obvious: “Stalin could not have existed in a municipality.”
Small is beautiful in so many other ways. Take for now that the small (in the aggregate, that is, a collection of small units) is more antifragile than the large—in fact the large is doomed to breaking, a mathematical property we will explain later, that, sadly, seems universal as it applies to large corporations, very large mammals, and large administrations.2
There is another issue with the abstract state, a psychological one. We humans scorn what is not concrete. We are more easily swayed by a crying baby than by thousands of people dying elsewhere that do not make it to our living room through the TV set. The one case is a tragedy, the other a statistic. Our emotional energy is blind to probability. The media make things worse as they play on our infatuation with anecdotes, our thirst for the sensational, and they cause a great deal of unfairness that way. At the present time, one person is dying of diabetes every seven seconds, but the news can only talk about victims of hurricanes with houses flying in the air.
The problem is that by creating bureaucracies, we put civil servants in a position to make decisions based on abstract and theoretical matters, with the illusion that they will be making them in a rational, accountable way.
Also consider that lobbyists—this annoying race of lobbyists—cannot exist in a municipality or small region. The Europeans, thanks to the centralization of (some) power with the European Commission in Brussels, are quickly discovering the existence of these mutants coming to manipulate democracy for the sake of some large corporation. By influencing one single decision or regulation in Brussels, a single lobbyist gets a large bang. It is a much larger payoff (at low cost) than with municipalities, which would require armies of lobbyists trying to convince people while embedded in their communities.3
Consider, too, the other effect of scale: small corporations are less likely to have lobbyists.
The same bottom-up effect applies to law. The Italian political and legal philosopher Bruno Leoni has argued in favor of the robustness of judge-based law (owing to its diversity) as compared to explicit and rigid codifications. True, the choice of a court could be a lottery—but it helps prevent large-scale mistakes.
I use the example of Switzerland to show the natural antifragility of political systems and how stability is achieved by managing noise, having a mechanism for letting it run its natural course, not by minimizing it.
Note another element of Switzerland: it is perhaps the most successful country in history, yet it has traditionally had a very low level of university education compared to the rest of the rich nations. Its system, even in banking during my days, was based on apprenticeship models, nearly vocational rather than the theoretical ones. In other words, on techne (crafts and know how), not episteme (book knowledge, know what).
AWAY FROM EXTREMISTAN
Let us now examine the technical aspects of the process, a more statistical view of the effect of human intervention on the volatility of affairs. There is a certain mathematical property to this bottom-up volatility, and to the volatility of natural systems. It generates the kind of randomness I call Mediocristan—plenty of variations that might be scary, but tend to cancel out in the aggregate (over time, or over the collection of municipalities that constitute the larger confederation or entity)—rather than the unruly one called Extremistan, in which you have mostly stability and occasionally large chaos—errors there have large consequences. One fluctuates, the other jumps. One has a lot of small variations, the other varies in lumps. Just like the income of the driver compared to that of bank employee. The two types of randomness are qualitatively distinct.
Mediocristan has a lot of variations, not a single one of which is extreme; Extremistan has few variations, but those that take place are extreme.
Another way to understand the difference: your caloric intake is from Mediocristan. If you add the calories you consume in a year, even without adjusting for your lies, not a single day will represent much of the total (say, more than 0.5 percent of the total, five thousand calories when you may consume eight hundred thousand in a year). So the exception, the rare event, plays an inconsequential role in the aggregate and the long-term. You cannot double your weight in a single day, not even a month, not possibly in a year—but you can double your net worth or lose half of it in a single moment.
By comparison, if you take the sale of novels, more than half of sales (and perhaps 90 percent of profits) tends to come from the top 0.1 percent, so the exception, the one-in-a-thousand event, is dominant there. So financial matters—and other economic matters—tend to be from Extremistan, just like history, which moves by discontinuities and jumps from one state to another.4
FIGURE 3. Municipal noise, distributed variations in the souks (first) compared to that of centralized or human-managed systems (second)—or, equivalently, the income of a taxi driver (first) and that of an employee (second). The second graph shows moves taking place from cascade to cascade, or Black Swan to Black Swan. Human overintervention to smooth or control processes causes a switch from one kind of system, Mediocristan, into another, Extremistan. This effect applies to all manner of systems with constrained volatility—health, politics, economics, even someone’s mood with and without Prozac. Or the difference between the entrepreneur-driven Silicon Valley (first) and the banking system (second).
Figure 3 illustrates how antifragile systems are hurt when they are deprived of their natural variations (mostly thanks to naive intervention). Beyond municipal noise, the same logic applies to: the child who, after spending time in a sterilized environment, is left out in the open; a system with dictated political stability from the top; the effects of price controls; the advantages of size for a corporation; etc. We switch from a system that produces steady but controllable volatility (Mediocristan), closer to the statistical “bell curve” (from the benign family of the Gaussian or Normal Distribution), into one that is highly unpredictable and moves mostly by jumps, called “fat tails.” Fat tails—a synonym for Extremistan—mean that remote events, those in what is called the “tails,” play a disproportionate role. One (first graph) is volatile; it fluctuates but does not sink. The other (second graph) sinks without significant fluctuations outside of episodes of turmoil. In the long run the second system will be far more volatile—but volatility comes in lumps. When we constrain the first system we tend to get the second outcome.
Note also that in Extremistan predictability is very low. In the second, pseudo-smooth kind of randomness, mistakes appear to be rare, but they will be large, often devastating when they occur. Actually, an argument we develop in Book IV, anything locked into planning tends to fail precisely because of these attributes—it is quite a myth that planning helps corporations: in fact we saw that the world is too random and unpredictable to base a policy on visibility of the future. What survives comes from the interplay of some f
itness and environmental conditions.
The Great Turkey Problem
Let me now move back from the technical jargon and graphs of Fat Tails and Extremistan to colloquial Lebanese. In Extremistan, one is prone to be fooled by the properties of the past and get the story exactly backwards. It is easy, looking at what is happening in the second graph of Figure 3, before the big jump down, to believe that the system is now safe, particularly when the system has made a progressive switch from the “scary” type of visibly volatile randomness at left to the apparently safe right. It looks like a drop in volatility—and it is not.
FIGURE 4. A turkey using “evidence”; unaware of Thanksgiving, it is making “rigorous” future projections based on the past. Credit: George Nasr
A turkey is fed for a thousand days by a butcher; every day confirms to its staff of analysts that butchers love turkeys “with increased statistical confidence.” The butcher will keep feeding the turkey until a few days before Thanksgiving. Then comes that day when it is really not a very good idea to be a turkey. So with the butcher surprising it, the turkey will have a revision of belief—right when its confidence in the statement that the butcher loves turkeys is maximal and “it is very quiet” and soothingly predictable in the life of the turkey. This example builds on an adaptation of a metaphor by Bertrand Russell. The key here is that such a surprise will be a Black Swan event; but just for the turkey, not for the butcher.
Antifragile: Things That Gain from Disorder Page 11
