The price of chaos

Here below the last issue of our LinkedIn newsletter (subscribe here).

In a recent newsletter, we mentioned the “Butterfly effect“, which is in turn strictly interconnected with the chaos theory. The butterfly effect, as an underlying principle of chaos, describes how a small change in one state of a deterministic nonlinear system can result in large differences in a later state (a butterfly flapping its wings in Brazil can cause a tornado in Texas”).

Therefore, since I am starting to read two books written by Nassim Nicholas Taleb (“The Black Swan“, about how unpredictable and unexpected events can change our world, and “Antifragile“, which should offer some hope to build systems a bit more resilient to such events), I went online and did some simple research about such theories.

According to Wikipedia chaos theory is an interdisciplinary scientific theory and branch of mathematics focused on underlying patterns and deterministic laws, of dynamical systems, that are highly sensitive to initial conditions, that were once thought to have completely random states of disorder and irregularities. Chaos theory states that within the apparent randomness of chaotic complex systems, there are underlying patterns, interconnectedness, constant feedback loops, repetition, self-similarity, fractals, and self-organization. 

Chaos theory concerns deterministic systems whose behavior can, in principle, be predicted. Such chaotic systems are predictable for a while and then ‘appear’ to become random. The amount of time for which the behavior of a chaotic system can be effectively predicted depends on three things: how much uncertainty can be tolerated in the forecast, how accurately its current state can be measured, and a time scale depending on the dynamics of the system.

Speaking of our supply chains and our economic situation, our once apparently stable system is experiencing out of the blue;

  • a pandemic (not fully solved);
  • a war with the potential to scale up at the global level (far to be solved);
  • inflation unseen since the ’70;
  • consequential spiking costs of raw materials, packaging, energy and every other production input;
  • looming bigger issues like climate change, aging of the population (often unhealthy population, e.g. see data about the obesity epidemic, NCDs…), demographic stagnation and “great resignation” (=lack of workforce).

I guess that no chaos theorist could help us in making sense of what will happen next; even if, under the right conditions, chaos should spontaneously evolve into a lockstep pattern.

I can just hope so and give credit to chaos gurus about this, while remembering myself that “life can only be understood backwards; but it must be lived forwards” (Søren Kierkegaard).

Until now, I guess we can be just happy that only a shortage of infant formula manifested in USA (in part also due to the closure of a plant producing 1/5 of North American powdered milk). For the rest, the food supply chain holds…for now. But I guess it’s not a case that we experts are noticing clearly signs of an increase in food fraud.

In the amount of horrific data that you can find online and on the media, I’d pick a couple to chew on:

1. listening to a Tim Ferris podcast (here in Youtube version) with Jane McGonigal (future forecaster and world-renowned designer of alternate reality games that improve real lives and solve real problems, Director of Games Research & Development at the Institute for the Future) I learned that from several surveys emerged that more than 50% of our youth is totally disengaged with our capitalistic economic and social model. Mostly for the indecisive action of our governments in tackling climate change, but overall I’d say for the lack of visions of the future offered by our leaders; this seems to be a recurring topic in my newsletters and keeps puzzling me, and for a good reasons. If younger generations are completely disconnected from the actual idea of the world (and this explains in part the “great resignation”), the only possible consequences are disruptive innovation burning down the old models, or social unrest. I’ll take the first.

If you want to dig more into the topic the EU Commission just published a study about COVID19 impact on young people in EU, identifying 4 key areas of “damage”:

A) Employment“As 2019 came to a close, the European economy had completed a long recovery from the economic crisis, which had had lasting effects on young people, leaving many of them outside the labour market. The crisis had set back the whole millennial generation, to the extent that they became the first generation not to improve on the previous one in terms of wealth, income and future prospects(NB: and life expectancy) […] A series of e-surveys conducted by Eurofound measured a significantly larger rate of job loss among young people than among people aged 30 or over”

B) Financial and social impact: the report explains how the people under 30 years of age were not so impacted by the COVID19 financially…since they mostly live with their parents. And if you look at point A) they will have hard choices ahead.

C) Mental well-being: “the pandemic seems to have had a more direct impact on young people’s mental well-being, as a result not of loss of jobs and educational opportunities but also of restrictive measures resulting in reduced social contact and delayed future plans.

By spring 2021, nearly two-thirds of young people were at risk of depression. Young women in particular were likely to have negative feelings such as anxiety, loneliness and downheartedness, which increased as the pandemic progressed.” 

D) Trust in institutions: Young people’s trust in government was reduced significantly during the pandemic, with a drop in each survey round, but the analysis did not confirm an association with the various restrictive measures examined. The lowest levels of trust were measured in eastern European Member States.” (NB: this could pave the way to new populists political waves)

2. Italian top economic journal “Il Sole 24 Ore” recently focused several articles on a worrying spread. The spread between the average cost of production of consumer goods (+37% as an average from the start of the year) and the average increase of prices of the same consumer goods (inferior to actual inflation, which depending on countries could be around 6-8%).

Who’s paying the difference? Do we think that companies might absorb this spread and internalize all costs coming from the above-mentioned crisis/factors? Maybe for a while, but surely they cannot held much longer, especially since this gap is keep spreading. This could led in turn to a decrease in demand = slowing cash flow for companies = and sure recession.

Good news? Not many over the horizon, but from a business perspective – since I do not know precisely how, but we keep thriving – I can just keep stressing two concepts:

  1. innovation and efficiency will be the key to survival. Clients today are open to working with consultants that can be seen as “business partners”, not as bloodsuckers. Give added value to the client. Do what they do faster, better and overall in a cheaper way, and you’ll be rewarded. Of course, if you keep your costs under control and if you are loaded with cash like Berkshire Hathaway crisis are more manageable…but who is?
  2. offer the new generations a purpose, a perspective, a decent salary, culture and workplace (remote, not remote, hybrid…whatever) and you’ll be surprised to see that the “great resignation” won’t be a problem anymore. Nor even employees retention.

Coming back to our food news, here is some recent juicy stuff:

  • On 28th June, 11 AM CEST, I will moderate an even on Front-of-Pack Labeling with the following speakers: Giovanni Colombo, Senior Public affairs manager at EIT Food, MEP Salvatore De Meo, Sophia Krügel, Public Affairs advisor at Independent Retail Europe, & Mélanie Grivier, Scientific and regulatory affairs at ATLA, member of the European Dairy Association. The event is organized by Noesis and Ridens and you can register for free here
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It is never time to get bored!

Cesare

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