There’s a review in the November 8, 2007 New York Review of Books of a book by the Turkish Nobel laureate Oran Pamuk, Other Colors: Essays and a Story. The reviewer quotes from an essay by Pamuk:
It is by reading novels, stories, and myths that we come to understand the ideas that govern the world in which we live; it is fiction that gives us access to the truths kept veiled by our families, our schools, and our society; it is the art of the novel that allows us to ask who we really are.
In another section, the reviewer again quotes Pamuk, “an imaginative novelist … can look directly into the center of things the way that only children can.” The child’s view is unconditioned by adults who may not see the obvious, or if they see it may have good reasons for keeping quiet about it. You’ll recall in the story of the Emperor’s Clothes that it was a child that revealed the veiled truth about the not so veiled Emperor, that he was buck naked.
Certainly, regulation is an idea or really a model that civilized society uses to manage behaviour. The danger within this model lies in the veiled truth that seasoned regulators know about and are sometimes quiet about; that regulation can really control societal risk. I know this sounds like heresy. Clearly, I think regulation can be an effective discipline on a jurisdiction. I also know that the systematic approach of risk management can help regulation be more effective. However, the danger lies in the naive belief that regulation alone sufficiently protects society’s interests. Citizens and regulatees also figure large in the protection equation. Everyone needs to have their antennae up when it comes to managing risk. The danger is in believing that because we have good regulation and that we do effective risk management we can feel safe.
Michael Power of the Centre for Risk and Regulation (CARR) at the London School of Economics labels this as the Risk Management of Everything. This is the title of a paper that cautions readers on over reliance of the corporate governance system. (And I would add, any method of self-certification.) Increasingly regulators rely on the effectiveness of the enterprise risk management systems of organizations. Certainly, it’s a good thing for organizations to have effective control measures in place. However, it’s equally important to know that underlying assumptions could very well undermine the entire artifice. The important assumptions relate to Pamuk’s notion about “truths kept veiled.”
This is also the ludic fallacy that Nassim Nicholas Taleb presents in The Black Swan. The fallacy is that we misinterpret the model for reality as reality itself. We’re too inside the box to see that high consequence outliers , black swans, can make a mockery of the carefully constructed model. The precise probabilities and defined rules in a model such as a game of chance don’t reflect the real world.
What’s the solution? Value experience over theory. Maintain skepticism. Seek outside views that challenge your assumptions. Read more imaginative fiction that reveals veiled truths.