Shock proof?

OECD Observer

©Reuters/Mainichi Shimbun

Managing risk could absorb more policy time around the world in the 21st century. How can policymakers be prepared?

In July 2010, Russia was in the throes of its most severe heat wave in 130 years. The resulting drought unleashed hundreds of tenacious wildfires that raged across 120,000 square kilometres of forest and farmland, killing 34 people. The flames consumed enormous swathes of wheat fields, and grain prices climbed by almost 20%. To head off a shortage, the Russian government banned grain exports, and other countries, fearing a repeat of the 2008 food crisis, began hoarding wheat. Speculating that prices would climb even higher, less scrupulous farmers in Russia went so far as to revoke pre-paid contracts.

Agriculture was not the only casualty of Russia’s wildfires. Several Russian automakers, including the state-owned AvtoVAZ OAO, stopped production and sent employees on enforced summer holidays. The crisis might have ended there, except that the high price of wheat, buoyed by floods in Australia and fierce winters in the US, are now thought by some to have fanned the revolutions in Egypt and Tunisia. In the jasmine, there was a scent of the burning taiga.

In short, Russia’s wildfires were a “global shock”. Barrie Stevens, co-author of a recent OECD report on global shocks, defines them as “major rapid-onset events with severely disruptive consequences that cover at least two continents”. In little over a decade, events like the terrorist attacks on the World Trade Centre, the H1N1 pandemic, tsunamis and earthquakes in Indonesia, New Zealand and Japan–not to mention the revolutions in the Middle East and North Africa–have reverberated around the world with a speed and power surpassing all attempts to contain them. Mr Stevens says we should be prepared for more shocks in the future.

Global shocks by definition do not give society time to adjust. The unprecedented degree of interdependence in today’s world makes it harder both to foresee their consequences and identify their sources. Factors along the way may amplify their impact. In North Africa, the frustration of young people faced with high unemployment and political repression was amplified through their use of social networking sites to organise demonstrations. In the financial crisis, technological and market interconnectivity has meant that a negative rumour about debt levels in one relatively small country can lead to share prices collapsing worldwide.

The OECD, through its Futures Programme, conducted case studies of five types of events: financial crises, pandemics, cyber risks, social unrest and geomagnetic storms. The programme also identified five catalysts of global shocks.

The first is the trend towards concentration, whether of people, information or infrastructures. “The growing concentration of assets and populations perhaps increases vulnerability,” says Mr Stevens. Urban populations are growing. By 2025 there will be 40 megacities, 17 with populations exceeding 10 million. Dense populations place more people at risk in a natural disaster and enable certain diseases to spread rapidly. The same is true of transport. The bulk of international cargo is handled by only four air freight carriers organised around hubs in the US, Europe and Pacific Asia. The plume of ash spewed by an Icelandic volcano in 2010 paralysed air traffic across northern Europe.

Or take electricity. Tighter integration of cross-border transmission of electricity in the EU, US and Canada has increased the distance over which electricity is transmitted; longer transmission lines act as antennas during geomagnetic storms, raising the risk of major power outages. The 2003 blackout in the US caused certain retail banking operations to shut down for two days, endangered medical and emergency systems and transport of just-in-time delivery of food supplies.

Heightened mobility opens another risk. Again, this is not only in terms of people–migration, international tourism and business travel–but of goods and capital flows. The global financial contraction provoked the sharpest decline in trade since the beginning of World War II, but countries still managed to export over US$12 trillion worth of goods and $3 trillion of services in 2009. In fact, export growth has steadily outstripped production since the 1980s, facilitated by the growth of the Internet.

Heightened mobility means not just how far information can travel, but how fast. The use of supercomputers in high-frequency trading, in which hundreds of securities can be bought and sold within seconds, precipitated the “flash crash” of 6 May 2010. Traders’ stomachs were in their mouths when the Dow Jones Industrial Average plunged 7% in 15 minutes. High-frequency trading accounts for nearly two-thirds of US equities traded, and as much as a third in the UK.

Faced with such complexity, can anything be done to anticipate future global shocks? The modelling of complex systems offers some lessons. A system is “complex” when it exhibits characteristics that cannot be deduced from the observation of its parts. It would be unwise, for example, to judge whether a dog was docile or vicious merely by studying its anatomy.

Agent-based models (ABMs) are among the best tools available to anticipate the conditions that give rise to global shocks. With ABMs, risk managers run thousands of simulations to determine how a change of behaviour in its “agents” (say, people taking part in a street demonstration) affects the outcome. Demonstrators may be there for different reasons: to protest high unemployment, or the high cost of education, or even for the chance to smash shop windows. Whatever emerges from their collective action could never have been predicted from their individual behaviours.

The study of complex systems is often aided by the use of various maps. Besides physical maps (topological, demographic, etc.), useful in natural disasters, there are “conceptual maps” depicting less tangible systems, such as patterns of human interaction. An example would be the Internet, where user behaviour displays a characteristic called a “power-law distribution”. This means that users do not surf the whole of the net as is commonly thought, but cluster around a few sites, such as Google, Facebook or the BBC, and around a few personal favourite pages on those sites. Finally, “process” or “organisational” maps are used to visualise hierarchies, chains of decision-making and domino effects.

Of course, modelling is still a mathematical simplification of reality and is only as reliable as the data fed into it. One of the biggest hurdles to anticipating global shocks is that information lags behind technological capability. Advances in technology can also raise new barriers. The sophistication of models and maps can make governments and corporations nervous, as it exposes them to scrutiny. In some cases, uneasiness is justified. Much critical infrastructure is today in the hands of the private sector. While sharing data on those infrastructures is necessary to reduce their vulnerability, if information falls in the wrong hands it could be put toward nefarious purposes.

So co-operation is crucial. Withholding information could propagate a global shock. In a recent stress test of European banks, a simulation was run of a double-dip recession and stock market crash to assess banks’ resilience to a financial cataclysm worse than the collapse of Lehman Brothers in 2008. Despite current anxieties over sovereign default, many banks failed to disclose their full holdings of government debt.

Stress tests should be applied to all systems, not only the banking sector. Policymakers should also pay heed to redundancy, making sure that critical infrastructures such as water, electricity, telecommunications, etc., have adequate back-up systems. Mr Stevens points out that since the Fukushima nuclear disaster, the Japanese government has ordered severe cutbacks to energy consumption, and this has taken a toll on output. Sufficient back-up systems are necessary to keep the country running, but redundancy is expensive.

“Governments and the private sector should put more into monitoring and surveillance,” says Mr Stevens. To anticipate future global shocks, risk managers should create databases of vulnerable “hubs”, estimate the costs of disruption and consider how steps to prevent or buffer shocks increase risks elsewhere. This information should be shared under secured conditions among governments and operators of critical infrastructure. As for the Cassandras of the world, they should be reminded that global shocks are not necessarily bad; they stimulate creativity, leading to solutions that could avert future crises.

For more on future risks, visit contact


OECD (2011), Future Global Shocks: Improving Risk Governance, OECD International Futures Programme, Paris. See also

Clarke, R (2002), “Risky future”, in OECD Observer No 235, December

©OECD Observer No 286, Q3 2011

Economic data


Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Suscribe now

<b>Subscribe now!</b>

To receive your exclusive print editions delivered to you directly

Online edition
Previous editions

Don't miss

  • IMF Finance and Development Magazine, December 2015

    Powering the Planet: The Quest for Sustainable Energy

    Read the magazine here
    Visit their website
  • In Iceland, geothermal power is being used for almost everything. Scientists and engineers from around the world are participating in a course at the United Nations University (UNU) to learn how to use geothermal energy in their own countries.
  • They are green and local--It’s a new generation of entrepreneurs in Kenya with big dreams of sustainable energy and the drive to see their innovative technologies throughout Africa.
  • Pole to Paris Project
  • Send a message from #EarthToParis.
  • From the World Bank: Managing the Impacts of Climate Change on Poverty
  • Black carbon causes millions of deaths every year and contributes to the warming of the planet. The United Nations Environment Programme explains how reducing black carbon can save lives and help combat climate change.
  • In order to face global warming, Asia needs at least $40 billion per year, derived from both the public and private sector. Read how to bridge the climate financing gap on the Asian Bank of Development's website.
  • How can cities fight climate change?
    Discover projects in Denmark, Canada, Australia, Japan and Mexico.
  • 10 climate-friendly habits everyone should adopt: Although the main aim of COP21 is to reach an international agreement on climate change between government stakeholders, it is also the perfect opportunity to remind citizens of how everyone can help to reduce greenhouse gas emissions in their day-to-day lives.
  • Climate: What's changed, what hasn't, what we can do about it.
    Lecture by OECD Secretary-General Angel Gurría, hosted by the London School of Economics and Aviva Investors in association with ClimateWise, London, UK, 3 July 2015.
  • Do you know the OECD’s web ending? Or which Serbian American engineer is famous for his electric cars? Try our latest OECD Observer crossword. It’s full of fun facts, simplex in style, and gives you the solution at the tip of a button. You can time yourself too.
  • French Economy Minister Emmanuel Macron came to the OECD on 18 September for a webcast discussion on economic reforms, inequality and the outlook, with OECD Secretary-General Angel Gurría. You can watch the event by clicking on the photo.

  • Climate change: “We should not disagree when scientists tell us we have a window of opportunity–10-15 years–to turn this thing around” argues Senator Bernie Sanders.

  • In the long-run, the EU benefits from migration, says OECD Head of International Migration Division Jean-Christophe Dumont.
  • Is technological progress slowing down? Is it speeding up? At the OECD, we believe the research from our Future of ‪Productivity‬ project helps to resolve this paradox.
  • An employee prepares breakfast in front of the Eiffel tower at the Parisian luxury hotel Le Plaza Athenee. Nowhere in the world has more accommodation available on Airbnb than Paris. Now the home-sharing website that has transformed budget travel is giving super-deluxe hotels a fright too.
    ©REUTERS/Stephane Mahe
  • Is inequality bad for growth? That redistribution boosts economies is not established by the evidence says FT economics editor Chris Giles. Read more on
  • Low interest rates here to stay for half a century, says OECD director Adrian Blundell-Wignall.
  • Bill Gates visited the OECD on 26 June. He met with the Secretary-General Angel Gurría to discuss areas of collaboration with his foundation and participated at a briefing session on official development assistance modernisation with OECD experts.
  • The People’s Republic of China decided to enhance longstanding collaboration with the OECD and to join the OECD Development Centre, in a historic visit by Chinese Premier Li Keqiang on 1 July to the OECD in Paris.
    Read about it on
  • Catherine Mann, OECD Chief Economist, explains on Bloomberg why "too much bank lending can slow economic growth".
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at .
  • Come va la vita in Italia? How's life in Italy? The OECD Better Life Index is an interactive online platform in seven languages that goes beyond GDP by offering important insights into measuring well-being and quality of life. Try it for yourself!

Most Popular Articles


What issue are you most concerned about in 2015?

Euro crisis
Global warming
International conflict

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2015