As the financial crisis took seed, U.S. banks and other businesses were running scenarios for a bird flu pandemic. A Google search provides a trail of evidence. The headlines from the time include “World Bank Says Flu Pandemic Could Cost $3T,” “Threat of Major Global Recession Tied to Bird Flu,” and “Not Enough Countries Have Tested Their ‘Bird Flu’ Response.”
My point isn’t that with the coronavirus we again were focused on the wrong risks; it’s that we foresaw the possibility of something like COVID-19. So, why were the United States government, the healthcare system, and many other sectors caught flatfooted? Nicholas Nassim Taleb says the pandemic doesn’t qualify as a “black swan,” because those are unpredictable. He’s right. We imagined the scenario, even talked about it, but we still didn’t take many actions.
Part of the reason coronavirus took us by surprise (if, indeed, it did) is that “perceiving risk is all about how scary or not the facts feel,” according to risk consultant David Ropeik. “A risk in the future feels a lot less scary than a risk that’s presented right now.” (Climate change proponents, take note.) We scoff at the people who get ready for Armageddon by building underground bunkers in their backyards.
In business, risk management departments may surface risks that have devastating human and economic consequences, but that doesn’t mean C-suites will spend the money to be ready. What CFO wants to explain to investors that instead of adding $100 million to a share buyback program, the board of directors has voted to spend the capital on preparing for a global flood?
Once the coronavirus outbreak is contained and a couple of years go by, the fear of pandemics will fade (if we’re lucky). A new threat will emerge. Perhaps a large-scale cyberattack that takes down our nation’s energy infrastructure?
It doesn’t even matter if we get it right. Large corporations just don’t have a strong incentive to be catastrophe-proof. Some risks just cost too much to insure against; some you can’t insure against. And, after all, when a widespread risk is realized, the government is always there — as it is this time — to socialize the losses.