Complex systems, such as the global financial system, are inevitably going to undergo crises. While crises are unavoidable, we can take steps to lessen their frequency and negative impacts. To do so, we need to develop tools to make the financial system more resilient and capable of self-healing. Knowledge management principles and practices can help to develop those tools and to use them wisely.
By knowledge management (KM) I mean:
… a multi-disciplined approach to achieving organisational objectives by making the best use of knowledge. KM focuses on processes such as acquiring, creating and sharing knowledge and the cultural and technical foundations that support them. The aim is to align knowledge processes with organisational objectives.
Research suggests that the organisations that are most likely to achieve long-term survival can reconcile the conflicting forces for change and stability and can maintain a dynamic fit with their environment.
Any significant uncertainty in the world of finance is amplified into economic disruption and social instability. The efficient functioning of global supply chains is then threatened, as governments, companies and individuals retreat from risk and cut back on demand.
Reduced demand drives a vicious deflationary cycle, which develops its own momentum and produces negative consequences far greater than the original shock to the system might seem to warrant. Middle-of-the-road, sensible politics tend to be pushed aside, often replaced by extremist left or right solutions.
A fundamental objective must be to reduce uncertainty. We can do that by lessening complexity or by reducing unpredictability. Because we can do little to lessen complexity, we must focus on reducing unpredictability. Because we cannot predict the future, we must make the system better able to adapt and to react appropriately to external shocks and to the consequences of its own failings, using KM principles. This requires the system (and the markets it supports) to operate with much greater openness and transparency. We have seen the damage that secrecy and opaqueness can inflict on the world.
What I propose is a federated network of trust as an alternative to cumbersome transnational regulation and as a replacement for the inadequate arrangements currently in place. This would provide us with a regulatory framework that encourages and rewards openness and transparency, punishes secrecy and opaqueness and self-heals.
If you want to see how this would be done, see my article in Contracting Excellence,
here.
Patrick Callioni is a former senior public servant, with the Queensland and Australian Governments, and is now the Managing Director of consulting company, Enterprise Intelligence Pty Ltd, which specialises in helping business to do business with government and vice-versa. www.enterpriseintelligence.net.au His book Compliance Regulation and Financial Services is available at Amazon
