When Safety Sucks

Safety is good. Except when it’s not.

Most of the time, we equate making something safe with making things better. But what if that isn’t the case? What if we’re actually making things worse?

Greg Ip has a number of examples that force you to re-examine your assumptions in his recent book ‘Foolproof. Like the stats that prove car drivers with snow treads consistently drive faster as the weather gets worse. Not unlike the crew of the Titanic who sailed fearlessly through icy waters, believing it to be invincible…

The theory of Risk Compensation suggests that people adjust their behaviour in response to the perceived level of risk. They take more care where they sense greater risk – and less if they feel more protected. Take American Football as an example: the players wear helmets yet the sport appears to suffer from more frequent serious injuries than other comparable contact sports, such as rugby and Aussie rules football. It’s the same line of thought that led to the removal of headguards in amateur boxing in recent times. In some ways it’s similar to the recent stories about the school playgrounds that are intentionally creating more dangerous surroundings for kids, in order to give them the opportunity to learn.

The problem is that we consistently fail to take into account the feedback loop. In other words, how does our behaviour change when new measures are introduced?

Now, individual risks are one thing. But across an industry, they become far more significant and become systemic risks. Take life insurance as an example. It works because not all policyholders die at the same time. But of course that needs to be wrapped up into a different package to be palatable. That’s seen by the fact that industry markets itself to appeal to emotions and feelings, instead of accurately selling itself on the basis of probabilities. Yet as modern life becomes more complex, we face big problems when risks become correlated. And that situation deteriorates rapidly if that correlation is only visible in extreme situations.

Predictably the financial services industry leads the way in providing us with a powerful example of how things can go wrong. The global financial crisis of 2007/2008 had many causes. But in reinforcing an industry with a belief that others would step in to support organisations because they were ‘too big to fail’, it’s certain that risks were taken that shouldn’t have been. That’s exactly why the decision to let Lehman Brothers fail had such an impact – because it shattered the belief that existed at the time about the invincibility of financial institutions. And by definition, that wasn’t a risk that was seen as likely at the time.

We often take out insurance to guard ourselves against existential risks – whilst forgetting the fact that by definition, no system can ever insure itself against total collapse. So, can we blame the insurance industry? After all, the whole point of insurance is that someone else bears the cost if things go badly.  Does insurance actually just encourage others to act in a riskier acting way?

After all, flood and earthquake insurance enables more people to live in areas where those events are likely. And the constant stream of financial insurance products make it easier for more investors to pile into markets. The result? The bad events that we’re insuring against become both more likely and severe.

So should we be dismantling some of these safety barriers? In many cases, it depends on your own motivations. Unfortunately, the reality in the City is that the greatest rewards are returned to those who pursue the greatest risks. Somehow we’ve created a system where those who pursue higher (leveraged) risk make the most money.

But the question should be posed in many different situations. Take forest fires as an example. Man has tended to view fire as an event that should be suppressed. And yet it has become increasingly clear in recent times that teh opposite is often true: we need regular fires in order to clear away some of the lower levels of vegetation that accumulate. So by making things ‘safer’, when the inevitable fires do come, we’re now seeing them turn far more quickly into unstoppable ‘megafires’ – because they have far more fuel to burn.

So we need to ask: should we actually be chasing a good disaster now and again to reset the system? Perhaps. But most times, that’s not a decision that’s politically acceptable for a whole number of reasons.

Take flying as an example. Flying is now so safe (the highest risks are at takeoff and landing) that there are fewer opportunities for pilots, regulators and others in the industry to ever learn from accidents. It’s a ‘problem’ that’s compounded by the fact that with the more mundane incidents recognisable and under control, any accidents will increasingly be of the truly mysterious, unimaginable variety (e.g. 9/11, the disappearance of Malaysia Airlines 370 in 2014).

And how many people would be happy with ‘a few more crashes’ to help us improve. As an aside, it’s worth looking into how the aviation industry has become so safe. As the book explores, the industry is interesting because it’s full of ‘high reliability organisations’ (which have a preoccupation with failure).

Ultimately, the somewhat counterintuitive result is that any efforts to make the surroundings safe triggers behaviour that frustrates those efforts. So lenders who expect to be bailed out in a crisis will lend more cheaply – but that in itself encourages more investment.

There’s no easy answer here. Perhaps things will become clearer as we gain more visibility about connections between systems work in the modern world. I doubt it though. It feels like the world is becoming even more complex. And the fact that very few saw the financial crisis in 2008 is indicative. As Ip writes in the book, the Dutch who have a history of a thousand years of building dams to prevent their country from flooding have an expression: “There are two types of levees: those that have failed. And those that will“.

More people globally are now living and working in areas that are either risky or unsuitable due to a range of reasons. As a result, environmental disasters (such as floods) are now more destructive than ever before.

If we accept danger, does it make us ultimately more prosperous and safe? If so, perhaps we shouldn’t be working to prevent these things happening. Perhaps this is the price that we pay for living in desirable and productive places. Maybe the focus is better spent on minimising the damage when they inevitably do.