Why the financial system has the same qualities as cancer

Massive fines for banks, gross misbehaviour, huge bonuses for failure, bailouts at vast expense to the taxpayer: it’s little wonder that politicians and pundits can almost invariably win cheap applause by describing the financial system as being a cancer on society.

But in a deep way, cancer and the financial system do have much in common. They both exhibit qualities which in the scientific jargon are known as “robust yet fragile”. It is a key concept in the new but rapidly expanding field of complexity science, described by Stephen Hawking as the science of the twentyfirst century. Complexity provides the tools which connect many apparently unrelated phenomena. Bright young people in particular need to listen to Hawking’s opinion to equip themselves with the skills which will make them really marketable.

The concept of “robust yet fragile” is relevant to almost any system which evolves over time. Successful systems develop features which enhance their ability to survive. In particular, they need to be able to withstand the continuous shocks and surprises which happen all the time in real life. The subject of last week’s column, Fifa, has just experienced a major shock which may prove terminal for the organisation. But for the most part, unanticipated events are on a smaller scale. Robust systems develop the capacity to absorb these kinds of shocks. It’s pretty obvious, one might think.

The important insight is that it is exactly the ways in which systems evolve to become robust which also makes them fragile. The global financial system during the decades prior to the crisis became increasingly interconnected. A massively complicated network of assets and liabilities developed.

At one level, this was good news. If a particular connection went under and a bank was left with a bad debt, the fact that it now had so many other connections, other contracts, meant it was more able to take the hit. But when confidence started to collapse in 2008, the very fact that financial institutions had become so closely entwined with each other meant that the adverse consequences spread like wildfire. The system was robust to most shocks, but had become fragile. The effects of a single piece of bad news could be transmitted across the dense network very efficiently.

Last week a major breakthrough in the treatment for many cancers was announced, and it illustrates the robust yet fragile nature of cancer. Cancer evolves continuously, thereby defending itself against standard attacks such as targeted therapies. It stays one step ahead and makes itself robust to the shocks designed to kill it. But its evolution has made it vulnerable to a new approach, which harnesses the body’s immune system to attack cancerous cells. The ways in which cancer has changed has made it easier for the immune system to recognise the difference between normal and cancer cells. True, it has required some very smart science to take advantage of this. But the robustness which cancer developed to cope with previous shocks has made it fragile to the latest one.

Paul Ormerod

As Published in City AM on Wednesday 10th June 2015

Image: Ice Sculpture by William Warby under license CC BY 2.0

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ALEX O’BYRNE

Associate

e: aobyrne@volterra.co.uk
t: +44 020 8878 6333

Alex O’Byrne, Associate at Volterra, is an experienced economic consultant specialising in economic, health and social impact, economic strategy, project appraisal and socio-economic planning matters.

Alex has led the socio-economic and health assessments of some of the most high profile developments across the UK, including Battersea Power Station, Olympia London, London Resort, MSG Sphere and Westfield. He has significant experience inputting to EIAs and s106 discussions as well as drafting economic statements, employment and skills strategies and affordable workspace strategies.

Alex is also experienced at economic appraisal for infrastructure. He was project manager of the economic appraisal for the City Centre to Mangere Light Rail in Auckland. He also led the economic and financial appraisals of the third tranche of the Transport Access Program for Transport for New South Wales, in which Alex developed and employed innovative methodological approaches to better capture benefits for individuals with reduced mobility.

He is interested in the limitations of current appraisal methodologies and ways of improving economic and health analysis to ensure it is accessible to as many people as possible. To this end, Alex recognises the importance of transparent and simple to understand analysis and ensuring all work is supported by a robust narrative.

Alex holds a BSc (Hons) in Economics from the University of Manchester and he was a member of the first cohort of the Mayor’s Infrastructure Young Professionals Panel.

ELLIE EVANS

Senior Partner

e: eevans@volterra.co.uk
t: +44 020 8878 6333

Ellie is a partner at Volterra, specialising in the economic impact of developments and proposals, and manages many of the company’s projects on economic impact, regeneration, transport and development.

With thirteen years experience at Volterra delivering high quality projects to clients across the public and private sector, Ellie has expertise in developing methods of estimating economic impact where complex issues exist with regards to deadweight, displacement and additionality.

Ellie has significant experience in estimating the economic impact across all types of property development including residential, leisure, office and mixed use schemes.

Project management of recent high profile schemes include the luxury hotel London Peninsula, Battersea Power Station and the Nova scheme at London Victoria. Ellie has also led studies across the country estimating the economic and regeneration impact of proposed transport investments, including studies on HS2 and Crossrail.

Ellie holds a degree in Mathematics and Economics from the University of Cambridge.