Resilience, put in layman’s terms, is the capacity to withstand shocks, or impacts. For an engineers it a very useful characteristic of materials, just like Young’s modulus, the Poisson ratio of the coefficient of thermal expansion.

But high resilience doesn’t necessarily mean high performance, or vice versa. Take carbon fibres, for example. They can have Young’s modulus of 700 Gigapascals (GPa) and a tensile strength of 20 GPa while steel, for example, has Young’s modulus of 200 GPa and a tensile strength of 1-2 Gpa. And yet, carbon fibers (as well as alloys with a high carbon content) are very fragile while steel is, in general, ductile.

High resilience doesn’t necessarily mean high performance

Basically, carbon fibres have fantastic performance in terms of stiffness and strength but responds very poorly to impacts and shocks.

What has all this got to do with economics?

Our economy is extremely turbulent (and this is only just the beginning!) and chaotic, which means that it is dominated by shocks and, sometime, by extreme events (like the unexpected failure of a huge bank or corporation, or default of a country which needs to be bailed out, like Ireland, Greece, Portugal, or natural events such as tsunamis). Such extreme events send out shock waves into the global economy which, in virtue of its interconnectedness, propagates them very quickly.

This can cause problems to numerous businesses even on the other side of the globe. Basically, the economy is a super-huge dynamic and densely interconnected network in which the nodes are corporations, banks, countries and even single individuals (depending on the level of detail we are willing to go to). It so happens that today, very frequently, bad things happen at the nodes of this network. The network is in a state of permanent fibrillation. It appears that the intensity of this fibrillation will increase, as will the number of extreme events.

Basically, our global economy will become more and more turbulent. By the way, we use the word ‘turbulence’ with nonchalance but it is an extremely complex phenomenon in fluid dynamics with very involved mathematics behind it – luckily, people somehow get it! And that’s good. What is not so good is that people don’t get the concept of resilience. And resilience is a very important concept not just in engineering but also in economics. This is because in turbulence it is high resilience that may mean the difference between survival and collapse. High resilience can in fact be seen as s sort of stability. It is not necessary to have high performance to be resilient (or stable). In general, these two attributes of a system are independent.

To explain this difficult (some say it is counter-intuitive) concept, let us consider Formula 1 cars: extreme performance, for very short periods of time, extreme sensitivity to small defects with, often, extreme consequences. Sometimes, it is better to sacrifice performance and gain resilience but this is not always possible. In Formula 1 there is no place for compromise. Winning is the only thing that counts.

But let’s get back to resilience versus performance

Let's try to reinforce the fact that the two are independent. Suppose a doctor analyzes blood and concentrates on the levels of cholesterol and, say, glucose. You can have the following combinations (this is of course a highly simplified picture):

Cholesterol: high, glucose: low
Cholesterol: low, glucose:high
Cholesterol: low, glucose: low
Cholesterol: high, glucose: high

You don’t need to have high cholesterol to have high glucose concentration. And you don’t need to have low glucose levels to have low levels of cholesterol.

Considering, say, the economy of a country, we can have the following conditions:

Performance: high, resilience: low
Performance: low, resilience:high
Performance: low, resilience: low
Performance: high, resilience: high

Just because the German economy performs better than that of many countries it doesn’t mean it is also more resilient. This is certainly not intuitive but there are many examples in which simplistic linear thinking and intuition fail. Where were all the experts just before the sub-prime bubble exploded?


ABOUT THE AUTHOR - Jacek Marczyk, author of nine books on uncertainty and complexity management, has developed in 2003 the Quantitative Complexity Theory (QCT), Quantitative Complexity Management (QCM) methodologies and a new complexity-based theory of risk and rating. In 2005 he founded Ontonix, a company delivering complexity-based early-warning solutions with particular emphasis on systemic aspects and turbulent economic regimes. He introduced the Global Financial Complexity and Resilience Indices in 2013. Since 2015 he is Executive Chairman of Singapore-based Universal Ratings. Read more publications by Jacek Marczyk

3 Comments »

  1. AN optimum doesn’t exist and you must always tradeoff between resielience and performance, especially in a dynamic, constantly changing context such as the economy. Nothing is in equilibrium, nothing is ‘efficient’. If we lived in a static world one could seek optimal solutions and implement them. Unfortunately, if you do that today, you optimal solution is OK for a few days, then it’s obsolete (and potentially harmfull) and you must start over.

  2. So, does an optimum exist? or, must one sacrifice one for the other depending on the objective e.g.. Formula One.

Leave a Reply