A Complex World Worth Creating

Samuel Arbesman, Zavain Dar, and Bilal Zuberi
Lux Capital

We live in a complex and fragile world. Whether or not you recognized this before a few months ago, our pandemic has made this fact inescapably clear. This crisis has exposed the delicate character of our modern world. It has shown our research, development, testing, manufacturing, and distribution supply chains to be brittle, non-resilient, and too centralized. As economies came to a sudden stop, supply chains spasmed and failed. Meatpacking plants that closed in one state led to meat shortages across the country. Supply chains historically providing wholesale food to restaurants have attempted to adjust to distribute their products directly to consumers. While Twitter blazed with stories of grocery store shortages, huge piles of potatoes, literally and figuratively, were left to rot.

This monolithic nature of modern supply chains not only disabled our ability to efficiently route goods, but also revealed our prior erroneous assumption that tomorrow’s market will be as good, if not better, than today’s. A catastrophic case in point: the cost of oil futures went negative in May as oil demand precipitously dropped and drilling rigs were both too expensive and too risky to turn off. The bizarre result was that the industry continued to extract crude and paid investors to take it off their hands. We live in a vast web of just-in-time supply chains and globalized ties, geared towards efficiency and optimization. But when faced with sudden shocks, this web can’t adapt. Instead, it simply snaps.

While this pandemic has shown the fragility of our interconnected world, we needn’t look hard for other signs of its delicate nature. In 1999, the United Nations’ Food and Agricultural Organization estimated that “75 percent of the world’s food is generated from only 12 plants and five animal species.” If a disease wiped out one of these species, that could devastate our world. Now imagine this problem in various forms for every global system we rely on today. Our global institutions are designed to function cooperatively — whether through multilateral trade agreements or international agencies — yet we have steadily weakened them in recent years. In the last four years alone the United States has pulled out of the Paris climate treaty, various international arms control agreements, and most recently, has threatened to leave the World Health Organization. Countries are increasingly at the whims of others, whether through shutting off the supply of materials, banning imports to countries, or stopping immigration or travel. There are geopolitical tensions wherever we look, from a rekindled battle between democracy and authoritarianism to increased oppression of minorities and speech. When our world depends vitally on the flow of materials, goods, people, and ideas, what happens when they shut off? Without free movement of goods, people, and services, what happens to globalization?

We are living in a world that is efficient and productive, but the furthest thing from resilient. In an endless pursuit of short-termism and cost-optimization, we have reduced redundancies, created external dependencies, and obfuscated complexities. Just six months ago, when everything was cheap and instantly available, the world seemed simple and efficient. We now know it is anything but. To borrow an evocative phrase from the physics of complexity, we have built a world that is “robust yet fragile.” Our world is robust to everything we might have planned for, but incredibly fragile in the face of the targeted or unexpected.

This current pandemic is just one example of the kind of unexpected events that can threaten our current globally interdependent system. In the future, these can be other pandemics, wars, terrorist acts, natural disasters, oil embargoes, adverse climate change-related events, or even as observed most recently, long-overdue pursuits of justice and equality. System-wide shocks come in all shapes and flavors, for the better and the worse. We need to optimize for resilience in face of the unknown.

We must build resilient systems at every level of our civilizational hierarchy — global, regional, national, state, local — as well as across the many interlocking systems of government, academia, media, and industry. What does that mean? We need systems that degrade gracefully. Right now, our just-in-time supply chains are too close to either all or nothing; they either work wonderfully, or are reduced to what seem like shambolic failures. Instead, we need systems that allow for things to adapt and fail a little bit at a time, rather than watching a small problem spiral into a catastrophe. Our society must be a bit more biological in its ability to adapt, enduring injuries and stresses. We must become a society that handles failure better. Because failure is inevitable.

This means having backup systems, having greater diversity and wider sourcing in our supply chains, and greater modularity in our society. More production should occur within individual countries, allowing for greater autonomy of manufacturing. But at the same time, this increase in onshoring should not mean the end of globalization. A company can still be a global operation, but it can have numerous semi-independent centers in order to be less sensitive to shocks. For example, large and small technology companies like Twitter, Square, Facebook, and many others, are promoting remote work to enable a resilient workforce. Manufacturing companies like Desktop Metal and Bright Machines (both Lux portfolio companies) and others are setting up manufacturing partnerships in multiple locations to reduce supply chain risks. And some companies are now assessing the possibility of bringing large-scale manufacturing back to the United States in traditionally outsourced sectors like semiconductor fabrication, 5G networking gear, and medical equipment. There are ways to onshore critical elements of the supply chain without resorting to a zero-sum nationalism that destroys the ability for all countries to participate in and benefit from global markets. And just as companies set up foreign subsidiaries to do business in other regions, perhaps manufacturing capacity of American companies needs to be built in multiple parts of the world, in order to more easily supply local populations, independent of the collapse of any part of our global network.

We need to build distributed systems that can’t be easily corrupted or destroyed using centralized tools of warfare. We must maintain inventories of critical assets as insurance and build capabilities to produce them further as necessary by quickly re-deploying resources from production of product A to product B quickly. For example we might move from assembly-line manufacturing to cellular manufacturing, with robots collaborating in sync with humans for more adaptive manufacturing facilities, and from large scale metal stamping and machining operations to advanced metal 3D printing. Or when our supply of raw materials is interrupted, scientific and technological advances can be harnessed to develop meat that is plant-based or grown in a laboratory, or to bio-based chemical alternatives for when crude oil and natural gas supplies run dry. We must use technology in the service of resilience, rather than at cross-purposes and with a single-minded focus on efficiency and growth.

In addition to changes in how large companies operate and public policy adapts, this new more resilient world would also present many opportunities for novel technologies to be developed and companies to be formed. As workers go remote, and factories become modular and distributed, there will be the potential for novel redundant high-bandwidth communications networks and collaboration tools. We will have to rethink how to automate processes, use satellite and drone imagery to observe and manage supply-chain partners, employ real-time market-making software, and aerial delivery technologies, to circumvent disruptions, and even to use locally available raw materials and supply chains, rather than sourcing mined minerals from halfway across the world. This resilient world will be one of potential and possibility, not just compromise.

This more resilient world might be a bit messier, and perhaps even occasionally provide us with diminished options, something that our insatiable consumer desires might find difficult to manage. But in the face of the unknown — disease, political instability, terrorist attacks, climate change-induced catastrophe — that is a small price to pay. A complex world worth creating is one that can weather the unexpected, those surprising global shocks that will never stop buffeting society. Let’s make it a resilient one, something we can proudly leave for our children.