Date: September 20th, 2012
Cate: Finance, Risk & Stability, Systems

Organizationally induced catastrophes by Charles Perrow

Charles Perrow is an excellent and original systems thinker.  Perrow’s book Normal Accidents should be required reading for engineers, designers and anyone responsible for the safety and risk management of a large system, physical, financial or social.

Perrow’s understanding of tight coupling, contingency, complexity and hidden paths in systems is top notch. He uses real world examples to bring these concepts to life.  One thesis posited by the paper is that as small systems integrate and become tightly coupled they form a larger discrete system which becomes prone to collapse and catastrophe than the original smaller isolated systems. Integration of this type in pursuit of economic efficiency, power and influence leads to the ultimate collapse of a large system.

The implicit argument is that decentralized (federated/discrete) systems are longer term stable and resilient than monolithic systems.  Historical and contemporary study of overly centralized homogenous governments, banking and social systems tightly coupled acting in unison provide numerous examples of this critical failure thesis.

My personal concern is the global unified banking risk system known as Basel 3.

Here is a paper Perrow posted many years ago. Some other of his papers can be found here.

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