Several businesses in recent months have experienced a sharp drop in sales turnover, owing to unmet revenue targets caused by the global Covid-19 pandemic. Another risk that materialized was the lower than anticipated productivity from remote working employees, the inability to interact face to face with vendors, clients and distributors as well as the challenges to acquire new clients from a business development perspective.
Added to this, was that most companies shut down their marketing initiatives as well, to conserve cash flow during these unprecedented times.
Several clients have asked me whether the global pandemic can be coined a “black swan” event. Since the “black swan” metaphor was coined in the 2007 book of the same name by Nicolas Taleb, it is valuable to remember the qualifying criteria for an event to be labeled as such.
To quote:
“First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme ‘impact.’ Third, despite its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.”
So, the simplified three criteria of a true black swan event are:
The event must be a surprise (to the observer).
The event must have a major impact.
After the fact, the event is rationalized by hindsight as if it had been expected.
Let examine Covid against these criteria then.
a) Is the pandemic an outlier?
Pandemics are well recorded in history and have consistently outperformed world wars and natural disasters in scale and mortality. Case in point is the 1918 flu outbreak that killed more than 50 million people worldwide with over 500 million infected.
In addition to that, the pandemic can hardly be described as a surprise, as Bill Gates (2015), George Bush (2005) and Barack Obama (2014) have warned publicly against the risk of resurgent pandemics in the last two decades.
Before Trump took office in January 2017, the out-going Obama administration role-played a fictitious outbreak of H9N2 — an influenza virus — with effects not unlike what we have seen with SARS-CoV-2 as a strategic exercise. Even the current USA Department of Health carried out a simulation in 2019 of a viral outbreak originating in China, potentially killing 600 000 people. Google “operation Crimson Contagion” for further details.
It would therefore be dis-ingenious to say that nobody could foresee Covid-19 happening in the future.
b) Does C-19 have an extreme impact?
Whilst the event is unfolding, it is difficult to quantify the impact on the global economy. It would be fair to say it will not come close to the 1918 Spanish Flu in terms of mortality but will still have an extreme impact on both people and economies going forward.
c) Can it be rationalized afterwards?
“Normalizing” a black swan event, in effect means that the initial shock of the event is casually dismissed.
The danger in doing that is that rejecting the inevitability of a pandemic like COVID-19 also enables us to reject the likelihood of future pandemics and the need to be better prepared.
This propensity to rationalize trauma is a typical blind spot in human cognition, but it would be too early in this global pandemic to predict this “normalization”
So, taking the above criteria in consideration, C-19 does not qualify as a true black swan event. In mathematical terms the odds of another pandemic of this nature occurring again in the next 50 years are statistically rated at approximately 40 % which makes for sober reading indeed.
For those of you interested in the background data on that number, here is an interesting link:
Some food for thought then.
This being our final newsletter for 2020, enjoy the well-deserved break over the festive period, thank you for your continual support of First Technology and stay safe!
Warm Regards
Johan de Villiers
CEO, First Technology Western Cape