The latest report by the UK-based think tank claims it would take just seven days of terrorist action or repeated earthquakes to bring the UK economy to a complete standstill, forcing government and businesses alike to collapse.
Over the last decade, the frequency of 'high-impact, low-probability' events across the globe has been accelerating, says Chaltham House. Hurricane Katrina, the Deepwater Horizon oil disaster, Eyjafjallajökull's ash cloud and the nuclear crisis and tsunami in Japan all signal the emergence of a new ‘normal’, the apocalyptically named 'crisis trend'.
Governments and businesses are under-prepared to respond to this new, volatile environment, says the report. And the current fragility of the global economy leaves it particularly vulnerable to unforeseen shocks.
It's not just the UK that faces a wholesale collapse in the event of a week of crisis either: as much as 30% of GDP for developed countries would be directly threatened by any sudden disruption. Key sectors such as manufacturing and tourism are the most over-exposed.
'A one week disruption is the maximum tolerance of our 'just-in-time' global economy,' is Chatham House's gloomy conclusion. 'Beyond this threshold, costs start to escalate rapidly as production stalls and businesses start to fail.'
Bernice Lee, one of the authors of the report, says: 'Industries – especially high-value manufacturing – may need to re-consider their just-in-time business model in an interdependent world. Slow-motion crises like climate change and water scarcity will also bring additional risks and vulnerabilities, and experts agree this trend is only set to continue.'
Here's a closer look at this new 'crisis trend':
- The Icelandic ash cloud event of 2010 cloud brought chaos over Europe’s skies. More than 100,000 flights were cancelled and around 10 million passengers were unable to travel.
- It cost the EU between €5-10bn when many countries were still recovering from the economic crisis.
- When asked about the event, 50% of the companies that were affected by the closure of airspace did not have this risk on their register in advance – and for those that did, one week was generally the longest period that had been considered during planning.
- The World Bank estimates that global industrial production declined 1.1% in April 2011 in the wake of Japan’s devastating tsunami and nuclear crisis.
Of course, the point of 'black swan' events are that you cannot prepare for or predict their occurence. While Chatham House is right to call for more contingency planning, a disaster would not be called a disaster if it could be guarded against with a few simple measures...