Searching for answers amongst dead leaves and butterfly wings…

“The law of unintended consequences is the only real law of history.” – Niall Ferguson.

Humans navigate a nonlinear reality with a disposition for the linear. As we have evolved, we tend to build systems that functions well during linear progression but when faced with non-linear events, at best they drift into flux or at worst collapse. All too often we find that the trusted map does not reflect the territory. In chaos theory, the butterfly effect is the sensitive dependence on initial conditions in which a small change in one state of a deterministic nonlinear system can result in large differences in a later state. The sound of butterflies flapping their wings around the world has interrupted our best laid plans in recent years. It seems an opportune time for us to review our key operating-systems and identify where they are on collision course with a changing reality. For Investors getting a grasp on how these forces may playout is crucial.

As always, this will not be an exercise meant to tell the reader what to think, but ideally it makes them think further about these important dynamics. Let’s explore it for some insights and lessons that may help us navigate the path ahead as investors, entrepreneurs and stakeholders.

Finding answers in Nature’s systems…

In the article; ‘The life that springs from dead leaves in streams’ the author starts by sharing some ponderings from a walk in nature;

“I have never visited this seven-acre patch of the woods before, so I soak up its newness. The moist twigs lit by dappled sunlight, the large clumps of dead leaves damming up eddies. All this debris may look like a mess, but it’s actually a sign of health. A mucky stream breeds new life; a sterile stream breeds nothing. I stare at one brown leaf, hanging and wagging in the current. Where’s it headed? What new life will it brew? What will come of this dead leaf?”

As she goes in search of answers she speaks with Jane Marks, a biologist at Northern Arizona University who studies leaf litter. Reading the article brought me to think about our broader systems, our economy, financial markets and societies. Have we veered into a value-system that creates ‘sterile streams’? What are the digital “dead leaves” in our digital reality? In our pursuit of optimization and ease-of-use have we lost the ingredients that ensures renewal that are the basis for ongoing evolution?

Let’s continue with some lessons from nature via the exploration of ‘the life that springs from dead leaves in streams’;

“Dead leaves, Marks explains, provide a primary food base for life all the way up the food chain in and around streams, from the fungi and bacteria that initially colonize the leaves, and the insects that chew them, down to the birds and fish that eat those insects and so on. Different organisms prefer different types of leaves, so the greater variety of trees along a stream bank, the greater the variety of life they support. These “brown” or “dead” food webs can be far more expansive than the “green” food webs a leaf nourishes when it’s still alive, Marks says. A fresh leaf might feed caterpillars or beetles that in turn feed insect-gobbling carnivores, but the pool of nutrients that dead leaves release by decaying in water adds another dimension to their contribution. “Understanding what happens once it’s dead,” she says, “is actually as important or more important than understanding what’s happening when it’s alive.”

She points me to a paper that refers to aquatic food chains as “tangled webs” and she talks about rivers and streams as the “plumbing” of our continent. Now on my daily strolls in the woods, the connections bubble up when I pause to take in a mucky scene. The old tree that has fallen across the stream near my home isn’t just a thing in the way – it is a dam for leaves that stores food all winter for the fungi and bacteria, the shredders and the gatherers that emerge in the spring, and the adult insects and the birds that eat them. Without those dams, this stream would be like a lifeless pipe.

For a while, Marks says, pipes are what many people thought they wanted out of streams. As the world industrialized, they wanted streams to be easy to get water from, or easy to get boats through. They cleared away the fallen branches and let those leaves wash away.

The same could be said of many of our systems. Have we cleared away “the fallen branches” and let the “leaves” that nourish our broader systems wash away? Increasingly we have created centralized systems with a focus on short term gain and efficiency, seeking homogenous and bland outcomes, stretched out just-in-time supply-chains, capitalism without bankruptcy, democracy without a center – dominated by the loudest voices of partisan tribes without room for dissenting views, rule of law with predetermined outcomes hidden behind a veil of never-ending laws, financial ‘markets’ with no signals and all noise managed for our ‘safety’ at the extremes, a digital reality build for ease-of-use but not respect of individual rights nor security. A ‘free’ press increasingly operating as a click-bait-driven infotainment racket. The list goes on.

In the article they provide the following poetic logic; “Today, river restoration projects often deliberately drop dead trees into streams to dam up the leaves and keep them in place. “We have since realized all this natural complexity is really, really important to everything that lives in it.” Marks says. Dead leaves, and the nourishment they store, remind us that there’s beauty and life to be found in disorder and decay.” Perhaps it’s time to heed these lessons and apply them at a broader level before it’s too late.   

Understanding the “and”…

In her book, ‘Thinking in systems: A primer.’ Donella Meadows states; “You think that because you understand “one” that you must therefore understand “two” because one and one makes two. But you forget that you must understand “and”. In our neat spreadsheet driven world of 1 and 0s we may have lost track of the “and”.

Stu Kauffman collects many ideas from Biology, Mathematics, Complexity Science and Physics proper and provides us with some rules that are worth considering as part of our exploration of the state of current systems. Below are a few that stood out to me:

• Everything is connected to everything else. Real life is lived in a complex world system where all the subsystems overlap and affect each other. The common mistake is to deal with one subsystem in isolation, as if it didn’t connect with anything else. This almost always backfires as other subsystems respond in unanticipated ways.
• You can never do just one thing. This follows from the rule #1: in addition to the immediate effects of an action, there will always be other consequences of it which ripple through the system.
• There is no “away”. Another corollary of #1. In natural ecosystems, in particular, you can move something from one place to another, you can transform it into something else, but you can’t get rid of it. As long as it is on the Earth, it is part of the global ecosystem. (Risk managers and central planners take note.)
• Nothing grows forever. The exponential growth curves produced by positive feedback keep growing only in mathematics. In the real world, growth always stops sooner or later, and the faster the growth, the sooner it will stop. (Investors takes note.)
• There are no simple solutions. Real-life systems are big, messy, complicated things, with problems to match. Genuine solutions require careful thought for their effect on the whole system. Anyone who tries to sell you a simple answer – “All we have to do is…and everything will be perfect!.” Is either honestly dumb, or dishonest and probably running for office. (Electorates take note.)
• There are no final answers. As Ken Boulding put it, “If all environments were stable, the well-adapted would simply take over the Earth and the evolutionary process would stop. In a period of environmental change however, it is the adaptable, not the well-adapted who survive.” This applies to social systems as well as natural ones. In a time of rapid change, like the present, the best “solution” to a problem is often one that just keeps the problem under control while keeping as many options open for the future as possible.
• Loose systems are often better. Diverse decentralized systems often seem disorganized and wasteful, but they are almost always more stable, flexible and efficient in the long run than “neater” systems. In Boulding’s terms, highly adaptable systems look sloppy compared to systems that are well-adapted to a specific situation, but the sloppy-looking systems are the ones that will survive. In addition, systems which are loose enough to tolerate moderate fluctuations are more efficient systems.

The path ahead…

Buckminster Fuller said: “You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.”  While we have many challenges and this decade has the feel of one of those periods where the world goes through rapid transition – a departure from the past – to something yet to be defined, there are many signs that ideas for “new models” are starting to take shape. For investors this means both risk and opportunity. This is a time for the adaptable and the builders.

Disclaimer

This piece (Strategic Thoughts) does not constitute an offer to sell, solicit, or recommend any security or other product or service by Strategic Capital Advisors or any other third party regardless of whether such security, product or service is referenced. Furthermore, nothing in this piece is intended to provide tax, legal, or investment advice nor should it be construed as a recommendation to buy, sell, or hold any investment or security or to engage in any investment strategy or transaction.