OECD and IIASA - Systemic Thinking for Policy Making

In policymaking, we hear the word system all the time. The economic system. The education system. The financial system. The political system. The social system However, we rarely hear the word system attached to the word approach. But unless we adopt a systems approach, unless we employ systems thinking, we will fail to understand the world we are living in. Our world is made up of complex systems, systems of systems interacting with each other, and changing each other by that interaction and the links between them.

The global economy now has a greater number of links than ever before. The global nature of supply chains; new ways of exchanging goods, services and ideas; increasing migration; and ever-greater digitalisation, all increase our global connectedness. Such interconnectedness, in turn, gives rise to complexity, and this can be good or bad. However, within mainstream economics, the understanding of why and when interconnectedness may increase stability or instability has remained fragmented.

Complexity science helps us to understand the main features of the most important systems we have to deal with. Features such as emergence, when the overall effect of individuals actions is qualitatively different from what each of the individuals is doing. Radical uncertainty is another important aspect. It describes surprisesoutcomes or events that are unanticipated, that cannot be put into a probability distribution because they are outside our list of things that might occur.

But despite radical uncertainty and the unanticipated, the future is born by anticipation. We take decisions and perform actions to influence the future, as individuals, societies or governments. And the imagined, probable, or expected outcomes influence our decisions and actions in the present. Even things that may never happen, or will only happen decades from now, can have an impact on what we do today. That is why we plan our day, buy insurance, and pay into pension funds. That is why we try to forecast everything from GDP to the weather to the results of elections or football matches.

Of course, not all our decisions about the future are in tune with what economic rationality would like us to do. We promote evidence-based decision-making, but of course there is no evidence about the future. Moreover, experience shows that simply extrapolating from the past can be ridiculous, dangerous or at best misguided.

A complexity approach helps us to avoid these errors. We are dealing with a world characterised by nonlinearities, tipping points, and asymmetrical relations where a small cause can have a big effect. In a systems approach, global issues need global solutions. Environmental problems do not respect borders. You need to import some goods and services to be able to export others. The digital revolution is making it hard to define what the domestic in gross domestic product is. Growing inequalities are creating discontent.

If we are to tackle these issues, governments must change the ways in which they design and implement policies. An acceptance of complexity shifts governments from a top-down siloed culture to an enabling culture where evidence, experimentation, and modelling help to inform and develop stakeholder engagement and buy-in.

Unfortunately, bad things will still happen, and this brings us to another aspect of systems, resilience. To traditional economic thinking, resilience means the capacity to resist downturns or to quickly get back to a desirable situation. Today, we need approaches to resilience that focus on the ability of a system to absorb, recover from, and adapt to a wide array of systemic threats and shocks.

That is the motivation behind this publication, and the broader strategic partnership between IIASA and the OECD . By joining forces to work on the environment, growth, inequality, population, energy, future shocks, and other central issues, we gain a more thorough understanding of the systemic and dynamic linkages among the major trends shaping our world, as well as the impact that different policy measures have on them.

The nature of the challenges means that no country can overcome them on its own. And for issues such as climate change or trade, a single country acting alone can potentially make things worse for everyone, including its own citizens. That is why the response has to be co-operative, multilateral and systemic complementary outcomes that collectively contribute to a better world.

In short, the challenges we face have origins and consequences ranging from the individual to the global, the psychological to the political, the social to the economic. That is why we need systems thinking to understand the issues, anticipate the consequences of our decisions, and build resilience. Together we can shape a brighter future, for our economies, our societies, and all of our citizens.