2014 December

The Calm Before the Storm

“I just received the following note from one of our Inner Circle members.  Below the note is my response.”


The Calm Before the Storm

Why Volatility Signals Stability, and 
Vice Versa

By Nassim Nicholas Taleb and Gregory F. Treverton


The aftermath of an airstrike in Aleppo, November 2014. (Rami Zayat / Courtesy Reuters)

Even as protests spread across the Middle East in early 2011, the regime of Bashar al-Assad in Syria appeared immune from the upheaval. Assad had ruled comfortably for over a decade, having replaced his father, Hafez, who himself had held power for the previous three decades. Many pundits argued that Syria’s sturdy police state, which exercised tight control over the country’s people and economy, would survive the Arab Spring undisturbed. Compared with its neighbor Lebanon, Syria looked positively stable. Civil war had torn through Lebanon throughout much of the 1970s and 1980s, and the assassination of former Prime Minister Rafiq Hariri in 2005 had plunged the country into yet more chaos.

But appearances were deceiving: today, Syria is in a shambles, with the regime fighting for its very survival, whereas Lebanon has withstood the influx of Syrian refugees and the other considerable pressures of the civil war next door. Surprising as it may seem, the per capita death rate from violence in Lebanon in 2013 was lower than that in Washington, D.C. That same year, the body count of the Syrian conflict surpassed 100,000.

Why has seemingly stable Syria turned out to be the fragile regime, whereas always-in-turmoil Lebanon has so far proved robust? The answer is that prior to its civil war, Syria was exhibiting only pseudo-stability, its calm façade concealing deep structural vulnerabilities. Lebanon’s chaos, paradoxically, signaled strength. Fifteen years of civil war had served to decentralize the state and bring about a more balanced sectarian power-sharing structure. Along with Lebanon’s small size as an administrative unit, these factors added to its durability. So did the country’s free-market economy. In Syria, the ruling Baath Party sought to control economic variability, replacing the lively chaos of the ancestral souk with the top-down, Soviet-style structure of the office building. This rigidity made Syria (and the other Baathist state, Iraq) much more vulnerable to disruption than Lebanon.

But Syria’s biggest vulnerability was that it had no recent record of recovering from turmoil. Countries that have survived past bouts of chaos tend to be vaccinated against future ones. Thus, the best indicator of a country’s future stability is not past stability but moderate volatility in the relatively recent past. As one of us, Nassim Nicholas Taleb, wrote in the 2007 book The Black Swan, “Dictatorships that do not appear volatile, like, say, Syria or Saudi Arabia, face a larger risk of chaos than, say, Italy, as the latter has been in a state of continual political turmoil since the second [world] war.”

On its face, centralization seems to make governments more stable. But that stability is an illusion.

The divergent tales of Syria and Lebanon demonstrate that the best early warning signs of instability are found not in historical data but in underlying structural properties. Past experience can be extremely effective when it comes to detecting risks of cancer, crime, and earthquakes. But it is a bad bellwether of complex political and economic events, particularly so-called tail risks—events, such as coups and financial crises, that are highly unlikely but enormously consequential. For those, the evidence of risk comes too late to do anything about it, and a more sophisticated approach is required.

Thus, instead of trying in vain to predict such “Black Swan” events, it’s much more fruitful to focus on how systems can handle disorder—in other words, to study how fragile they are. Although one cannot predict what events will befall a country, one can predict how events will affect a country. Some political systems can sustain an extraordinary amount of stress, while others fall apart at the onset of the slightest trouble. The good news is that it’s possible to tell which are which by relying on the theory of fragility.

Simply put, fragility is aversion to disorder. Things that are fragile do not like variability, volatility, stress, chaos, and random events, which cause them to either gain little or suffer. A teacup, for example, will not benefit from any form of shock. It wants peace and predictability, something that is not possible in the long run, which is why time is an enemy to the fragile. What’s more, things that are fragile respond to shock in a nonlinear fashion. With humans, for example, the harm from a ten-foot fall in no way equals ten times as much harm as from a one-foot fall. In political and economic terms, a $30 drop in the price of a barrel of oil is much more than twice as harmful to Saudi Arabia as a $15 drop.

For countries, fragility has five principal sources: a centralized governing system, an undiversified economy, excessive debt and leverage, a lack of political variability, and no history of surviving past shocks. Applying these criteria, the world map looks a lot different. Disorderly regimes come out as safer bets than commonly thought—and seemingly placid states turn out to be ticking time bombs.


The first marker of a fragile state is a concentrated decision-making system. On its face, centralization seems to make governments more efficient and thus more stable. But that stability is an illusion. Apart from in the military—the only sector that needs to be unified into a single structure—centralization contributes to fragility. Although centralization reduces deviations from the norm, making things appear to run more smoothly, it magnifies the consequences of those deviations that do occur. It concentrates turmoil in fewer but more severe episodes, which are disproportionately more harmful than cumulative small variations. In other words, centralization decreases local risks, such as provincial barons pocketing public funds, at the price of increasing systemic risks, such as disastrous national-level reforms. Accordingly, highly centralized states, such as the Soviet Union, are more fragile than decentralized ones, such as Switzerland, which is effectively composed of village-states.

States that centralize power often do so to suppress sectarian tension. That inability to handle diversity, whether political or ethnoreligious, further adds to their fragility. Although countries that allow their sectarian splits to remain out in the open may seem to experience political turmoil, they are considerably more stable than those that artificially repress those splits, which creates a discontented minority group that brews silently. Iraq, for example, had a Sunni-minority-led regime under Saddam Hussein that repressed the Shiites and the Kurds; the country overshot in the opposite direction after Prime Minister Nouri al-Maliki, a Shiite, took office in 2006 and began excluding the Sunnis. Indeed, research by the scholar Yaneer Bar-Yam has shown that states that have well-defined boundaries separating various ethnic groups experience less violence than those that attempt to integrate them. In other words, people are better next-door neighbors than roommates. Thus, in countries riven by sectarian divides, it makes more sense to give various groups their own fiefdoms than to force them to live under one roof, since the latter arrangement only serves to radicalize the repressed minority.

Moreover, centralization increases the odds of a military coup by making the levers of power easier to seize. Greece, for example, was highly centralized when a group of colonels overthrew the government in 1967. Italy might have appeared just as vulnerable around the same time, given that it also suffered from widespread social unrest and ideological conflict, but it was saved by its political decentralization and narrow geography. The various economic and political centers were both figuratively and literally far from one another, distance that prevented any single military faction from seizing power.

Just as states composed of semiautonomous units have fared well in the modern era, further back in history, the most resilient polities were city-states that operated under empires that provided a measure of protection, from Pax Romana to Pax Ottomana. But at the tail end of their existence, many empires began to centralize, including Pharaonic Egypt and the Ming dynasty in China. In both cases, the empires tightened the reins after, not before, they thrived, ruling out centralization as a cause of their success and fingering it as an explanation for their subsequent failure.

City-states both old and new—from Venice to Dubai to Geneva to Singapore—owe their success to their smallness. Those who compare political systems by looking at their character without taking into account their size are thus making an analytic error: city-states are remarkably diverse in terms of their political systems, from the most democratic (Venice) to the most enlightened but autocratic (Singapore). Just as an elephant is not a large mouse, China is not a bigger version of Singapore, even if the two share similar styles of government.

Italy is resilient precisely because it has been able to accommodate virtually constant political turmoil.

Again, consider Lebanon. For much of history, the Mediterranean was ringed by multilingual, religiously tolerant, and obsessively mercantile city-states, which accommodated a variety of empires. But most were eventually swallowed up by the modern nation-states. Alexandria was consumed by Egypt, Smyrna by Turkey, Thessaloniki by Greece, and Aleppo by Syria. Luckily for Lebanon, however, it was swallowed up by Beirut, not vice versa. After the collapse of the Ottoman Empire, the state of Lebanon was small and weak enough to get colonized by the city-state of Beirut. The result: over the past half century, living standards in Lebanon have risen in comparison to its peers. The country avoided the wave of statism that swept over the region with Gamal Abdel Nasser in Egypt and the Baath Party in Iraq and Syria, a trend that concentrated decision-making power and created dysfunctional bureaucracies, leading to many of the region’s problems today.


The second soft spot is the absence of economic diversity. Economic concentration can be even more harmful than political centralization. Economists since David Ricardo have touted the gains in efficiency to be had if countries specialize in the sectors in which they hold a comparative advantage. But specialization makes a state more vulnerable in the face of random events.

For a state to be safe, the loss of a single source of income should not dramatically damage its overall economic condition. Places that depend on tourism, for example, are particularly susceptible to perceived instability (as Greece discovered after its economic crisis and Egypt discovered after its revolution), as well as unrelated events (as Hawaii found out immediately after 9/11) and even just the vagaries of fashion, as new hot spots replace older ones (as Tangier, Morocco, has come to recognize). Another common source of fragility is an economy built around a single commodity, such as Botswana, with its reliance on diamonds, or a single industry that accounts for the lion’s share of exports, such as Japan’s automobile sector. Even worse is when large state-sponsored or state-friendly enterprises dominate the economy; these tend to not only reduce competitiveness but also compound the downside risks of drops in demand for a particular commodity or product by responding only slowly and awkwardly to market signals.

The third source of fragility is also economic in nature: being highly indebted and highly leveraged. Debt is perhaps the single most critical source of fragility. It makes an entity more sensitive to shortfalls in revenue, and all the more so as those shortfalls accelerate. As Lehman Brothers experienced when it collapsed in 2008, as the confidence of investors wanes and requests for repayment grow, losses mount at an increasing rate. Debt issued by a state itself is perhaps the most vicious type of debt, because it doesn’t turn into equity; instead, it becomes a permanent burden. Countries cannot easily go bankrupt—which, ironically, is the main reason people lend to them, believing that their investments are safe.

Leverage raises risks in much the same way. Dubai, for example, has plowed money into aggressive real estate projects, increasing its operating leverage and thus making any drops in revenue extremely threatening. Profit margins there are so thin that shortfalls could easily accelerate, which would rapidly push the emirate’s companies into the red and drain state coffers. This means that Dubai, in spite of its admirable structure and governance, can rapidly go insolvent—as the world witnessed after the 2008 financial crisis, when Abu Dhabi had to bail it out.


The fourth source of fragility is a lack of political variability. Contrary to conventional wisdom, genuinely stable countries experience moderate political changes, continually switching governments and reversing their political orientations. By responding to pressures in the body politic, these changes promote stability, provided their magnitude is not too large—more like the gap between the Labour Party and the Conservative Party in the contemporary United Kingdom than that between the Jacobins and the royalists in revolutionary France. Moderate political variability also removes particular leaders from power, thus reducing cronyism in politics. When a state is decentralized, the variations are smoother still, since municipalities distribute decision-making power and allow for a plurality of political views.

It is political variability that makes democracies less fragile than autocracies. Italy is resilient precisely because it has been able to accommodate virtually constant political turmoil, training citizens for change and incubating institutions able to correct for mild instability. So far, perhaps predictably, none of the former dictatorships touched by the Arab Spring has demonstrated any such capacity. Egypt has reverted to military rule, and the others have fallen into varying degrees of chaos. Some states that emerged from autocratic rule without devolving into turmoil were able to develop means of accommodating change. Spain under Francisco Franco, for instance, over time became more and more an autocratic façade behind which the institutions of civil society could develop.

The fifth marker of fragility takes the proposition that there is no stability without volatility a step further: it is the lack of a record of surviving big shocks. States that have experienced a worst-case scenario in the recent past (say, around the previous two decades) and recovered from it are likely to be more stable than those that haven’t. In part, this marker is simply providing information: countries that sustain chaos without falling apart reveal something about their strength that could not be discovered otherwise. But this marker also involves the idea of “antifragility,” the property of gaining from disorder. Shocks to a state are educational, causing them to experience posttraumatic growth.

Look at Indonesia, Malaysia, the Philippines, South Korea, and Thailand. The fact that these countries weathered the 1997–98 Asian financial crisis suggests that they were robust enough to survive—and their impressive subsequent performance suggests that they might even have been antifragile, adjusting their institutions and practices based on the lessons of the crisis. Likewise, the fact that the former Soviet states have recovered from the collapse of the Soviet Union suggests that they are also relatively stable. The idea is analogous to child rearing: parents want to protect their children from truly serious shocks that they might not survive but should not want to shelter them from the challenges in life that make them tougher.


These five markers function best as warning signals. They cannot indicate with high confidence whether a given country is stable—no methodology can—but they certainly can reveal if a given country should cause worry. Those countries that score poorly on multiple criteria are particularly concerning, since these markers are compounding: qualifying as fragile on two counts is more than twice as dangerous as doing so on one. When it comes to overall fragility, countries can vary from exhibiting no signs of fragility to being very fragile.

Saudi Arabia is an easy call: it is extremely dependent on oil, has no political variability, and is highly centralized. Its oil wealth and powerful government have papered over the splits between its ethnoreligious units, with the Shiite minority living where the oil is. For the same reason, Bahrain should be considered extremely fragile, mainly on account of its repressed Shiite majority.

Egypt should also be considered fragile, given its only slight and cosmetic recovery from the chaos of the revolution and its highly centralized (and bureaucratic) government. So should Venezuela, which has a highly centralized political system, little political variability, an oil-based economy, and no record of surviving a massive shock. Some of the same problems apply to Russia. It remains highly dependent on oil and gas production and has a highly centralized political system. Its one redeeming factor is that it surmounted the difficult transition from the Soviet era. For that reason, it probably lies somewhere between moderately fragile and fragile.

Some countries are best categorized as fragile but possibly doing something about it. Greece holds enormous quantities of debt and has an inflexible political system, but it has begun to undertake an economic restructuring. (Time will tell whether this is the beginning of a new era of responsibility or a false start.) Iran has an effectively centralized government that exhibits little variability and an economy tied to oil and gas production, yet the regime has been tolerating (although only implicitly) a measure of political dissent. And although Iran is nominally a theocracy, unlike Saudi Arabia, it appears to have an extremely adaptive form of Islam that may accommodate modernization. Greece and Iran could transform into more robust states or lapse into fragility.

Moderately fragile states include Japan, given its highest-in-the-world debt-to-gdp ratio, long-term dominance by a single party, dependence on exports, and failure to fully recover from its “lost decade”; Brazil, which is growing increasingly centralized and bureaucratized; Nigeria, which is highly centralized and dependent on oil yet has rebounded from the economic and political turmoil of the 1980s and proved somewhat adaptable in the face of new threats, such as the Islamist insurgent group Boko Haram; and Turkey, which is highly centralized and has no track record of recovery. (In addition, Turkey’s dependence on foreign investment is incompatible with its aggressive pro-Islamist foreign policy, which turns off Western investors.) India is perhaps best considered slightly fragile. Its political system is relatively decentralized and has adapted to rapid population growth and uneven economic progress, and its economy is somewhat reliant on exports.

Italy, paradoxically, shows no signs of fragility. It is effectively decentralized and has bounced back from perennial political crises. It also experiences a great deal of harmless political variability, cycling through 14 prime ministerial terms in the past 25 years. France, by contrast, is more fragile—centralized (in spite of the lip service it pays to decentralization), indebted, and without a demonstrated comeback. The country is at risk of economic trauma, which would raise the danger of erratic political reactions. Those, in turn, would likely enhance the appeal of right-wing factions and radicalize the country’s significant Muslim minority.

Then there is the China puzzle. China’s stunning economic growth makes its future hard to assess. The country has recuperated remarkably well from the major shocks of the Maoist period. That era, however, ended nearly four decades ago, and so the recovery is hardly a recent comeback and thus less certain to protect against future shocks. What’s more, China’s political system is highly centralized, its economy is dependent on exports to the West, and its government has been on a borrowing binge as of late, making the country more vulnerable to slowdowns in both domestic and foreign growth. Are the gains from past turmoil big enough to offset the weakness from debt and centralization? The most likely answer is no—that what gains China has accrued by learning from trauma are dwarfed by its burdens. With each passing year, those lessons recede further into the past, and the prospects of a Black Swan of Beijing loom larger. But the sooner that event happens, the better China will emerge in the long run.


Mike’s response

Very interesting piece!


2014 November

SDi Level 2 Livewire Docs and Links

“I just received the following note from one of our Inner Circle members.  Below the note is my response.”


Enclosed are some documents and links that were asked to be shared with you from SDi Level 2 livewire presenters:

Fred Krawchuk has written two pieces on Multi-stakeholder Collaboration that are attached.

Mike Jay would like to offer you access to his latest paper: BEHAVIORAL MetaDYNAMICS – An Exposé in Leader Development:

If you provide your name and email, you’ll automatically be subscribed to an email series which goes into more depth about CAPABILITY DYNAMICS.

Best wishes,


Ben Levi  |  151 Wildcat Lane  |  Boulder, CO  80304  USA  |  Tel: 303-546-0679  |  Skype: benleviboulder
5 Deep Boulder • Spiral Dynamics Integral Training and Consultancy • Web-based Assessments
1: Behaviors/Actions ->

2: Systems/Structures ->

3: Mind ->

4: Codes ->

5: Life Conditions

“Providing leadership which fosters healthy life conditions for all beings to thrive, and therefore to evolve.”


“Mike’s response…”

Ok, my EXPOSE is live, note link below:

I passed these two articles on from Fred, as he is giving live wire also…

here is the summary of FRED’s long doc: the short doc is good read and promotes the ideas of collaboration

Now that the key components of, and challenges to, a successful MSC enterprise have been discussed, let us step back and appreciate a synthesis of the different elements. In the early stages we consider the issues, stakeholders and their intentions, and the complex environment in which they mesh. During this co-exploration stage we integrate the components of people, purpose, place, and pre-MSC process to broaden our apertures and create new understanding. As the exploration ripens, we move into a co-design phase. Here we take our understanding and transform it into new possibilities. In co-designing, we blend people, process, purpose, and place in order to translate ideas into action. This can take the form of developing future scenarios, pilot projects, or prototyping experiments. This process of scenario development and prototyping pilots can be an effective way to help build relationships across organizational and cultural borders. To maintain momentum and deepen learning, we share stories, practice new skills, and assess the outcomes of our initiatives. During co-learning we integrate the people, purpose, post-MSC process, and practice components. Throughout the entire process designers and facilitators brainstorm contingencies to exploit successes and mitigate challenges that emerge. As we learn by doing, members of the MSC endeavor to continuously refine and adapt the five components to support achieving superordinate goals.

A look at the 5Ps together as a whole shows the importance of aligning committed stakeholders, resources, and the needs of the group in a focused fashion. Connecting the projects with people who are committed to their completion promotes collective action. Stakeholders who demonstrate personal alignment enhance trust-building within the group. Structural alignment supports resilience and efforts to build continuity for the MSC endeavor. Designers make the effort to analyze and integrate the different parts of the MSC enterprise in order to close gaps and synergize collaborative action.

Synthesizing the various aspects of the multi-stakeholder collaboration helps each part of the enterprise learn from every other part. This fusion enables leaders “…to see the emerging forms of things to come and outline what should be done to meet or anticipate them…[and] constantly reappraise what was being done…[given that] policies acquired their own momentum and went on after the reasons that inspired them had ceased.”88 This may include generating new initiatives or partnerships. It could also mean completing actions or terminating projects that no longer serve the group. New practices or support systems may be necessary to help stakeholders move forward. Stepping back and reflecting on synthesis can help designers and stakeholders see how the whole system is evolving and consider what steps can be taken to further sustain the MSC effort.

Complex MSC challenges require comprehensive approaches that do not necessarily follow a linear sequence. Different challenges will require a different mix of components at different times. Integrating the various parts and aligning them in support of a superordinate goal promotes synergistic action. Unique scenarios will require different applications of this approach. Managing an MSC enterprise is like leading an orchestra. Depending on what is needed, designers will call upon different arrangements of the five components. When leaders conduct the five instruments of MSC in concert with each other, stakeholders benefit from new opportunities for increased harmony and coordination.


2014 November

Fully alive: Discovering What m\Matters Most


“I just received the following note from one of our Inner Circle members.  Below the note is my response.”

That is the title of Timothy Schriver’s, head of Special Olympics, new book.

Coined the phrase difabilities. Different abilities.

Mike’s response:


2014 November

Interesting Quote

I feel this is where RO is weak.
the company’s needs come first and then you optimize for the employee.

While it’s clear the structure of work must be designed to get results, there is a lot of flexibility that RO doesn’t have because it ignores personality/talent/attitude, etc.

Take a look at the 1981 summary from Graves, look particularly at A’N’ (yellow) and see what he says about organizational use of human resources (my words)…

I’ll attach it also in another thread because I promised Mark I would send it to confirm my A = need, and N = neurobiology “lesson” hehe.

The interesting idea about Bennis quote was the introduction of “implicit” genetic factors and leadership has railed at this during the rein of ER-ORANGE and particularly now with FS-GREEN.

This is also the reason why I am “sensitive” (if that’s possible;) to the radical construction ideas where they do NOT explicitly state anything about the subconscious, rather than making assumptions without noting the implicit ground of BS that we live within, both in science and religion (ER and DQ)…

So, my delusions come from the “ground” of BS and not the ground of other things (@F-L-O-W) being one.

If someone doesn’t state that things are largely sub, or nonconscious, then the assumption is implicit @BS, that people can do this stuff with consciousness because anyone can be, do, have, become or contribute anything.

At least I got that bug out of my head, hehe.



2014 November

Traveling Through Multiple Europes

Has it occurred to everyone else that people don’t want to be integrated?

Over the next few years, we will see the EU come apart at the seams, as we are now beginning to set the stage also, for a middle eastern civil war–contrary to the lines drawn by conquerors…

And we in the USA still suffer from integration (not the racist kind, omg, lest you think so)…

Was the USA a good idea, was the EU a good idea…?

It seems that only time will tell, but there is something to be said for “separate, for fractionalized, which may be necessary, but not sufficient in terms of the world “living peacefully”…but what if the world is not supposed to live peacefully?

What if conflict, heartbreak, poverty, divides, ethnic groups are all apart of life, living and what comes next?

Sometimes, these questions are clearly not asked as we continue down an end goal which says we have to be x, y and z.

I will say one thing….getting out of the world @BS and seeing how each values basin attempts to “attract” and repel and immunize itself is an amazing part of living…and a troubling one also.

Europe–the countries in it–such as Switzerland where friend mark resides (8 million) is an amazing place, but while internationally thought of, it guards itself well from integration, and remains neutral…each of the European enclaves has been hewn out of conflict for thousands of years…and you don’t see them running around the world trying to make democracies with force…but being careful not to “raise the ire of others…”

Putin can push tanks and weapons across the Ukraine border for any number of legitimate reasons, and even those illegitimate ones, no one in Europe is going to raise a hand…

Yet, we the pugnacious have to run around fighting everyone because we don’t think they conduct their affairs as they should…

I’m starting to question this kind of social doctrine…not as legitimate, but whether or not, it is any more efficient, effective and sustainable than say…a Canadian approach, or Japanese approach, or even a Philippine approach

Aquino, et al have been criticized for their “slow” response to delivering aid to Yolanda (Haiyan) victims…but there defense is…we are going slow on purpose (because of course it is a corrupt bureaucracy)…touting the building of 22 kilometers of national road in a year (10 miles) with another 110 to go (some small parts under construction), yet, billions poured in…

The majority of the people affected, still affected…but instead, they go slow…

I’m uncertain at this point because our judgment (time span of discretion) is too small for the problems, but I travel and look at Europe and while they are cratering under the credit/money bubble…life just doesn’t look all that bad there…

While life ain’t bad in the ole USA either, and I’m not complaining, I’m just wondering going forward…is this all a todo about nothing, to keep people who are less complex occupied laterally in “good intentions” without an understanding of what life is all about, but an interpretation that seems to be sold wholesale to all those who reside…

What goes round, comes round…I have some fear that we are making tragic mistakes…and unfortunately, it’s what we do…