Black Swan events in Korea?

By Lee Chang-sup

A large water bird, the Black Swan, is living mostly in part of Australia and the species almost disappeared in New Zealand. The book titled the Black Swan authored by Nassim Nicholas Taleb is on the lips of many people in Seoul coffee shops these days.

He coined the Black Swan theory, a metaphor which features the concept that the event is a surprise to the observer and has a major impact. After the fact, the event is rationalized by hindsight.

Japan’s tsunami is one of the Black Swan event which put manual-oriented Japanese at a loss. The quake was a surprise to the world. It has a deadly impact on the world’s third largest economy with nuclear radioactivity blanketing the Fukushima area, larger than Seoul. In hindsight, people analyze that the damage of the uncontrollable tragedy could have been minimized.

Except for al-Qaida terrorists, including Osama bin Laden, the 9/11 attack on the U.S. including the Twin Towers in New York City in 2001, was a Black Swan event. The unimagined terror attack has shocked the world. Following the movie-like assault, pundits say the United States might have prevented it.

As the author says in his book, the disproportionate role of a high-impact, hard to predict, and rare event is beyond the realm of normal expectations in history, science, finance and technology.

Taleb, professor of risk engineer at a New York University, said, “The Black Swan is the first attempt in history of thought to provide a map of where we get hurt by what we do not know, to set systematic limits to the fragility of knowledge and to provide exact locations where these maps no longer work.”

The author has a natural disrespect for economists, statisticians, risk raters and Nobel economic laurels. He is provocative enough to categorize them as the great intellectual fraudsters. Their reliance on economic theorems and risk ratings has spawned occasional financial crises worldwide. He chided them for having the psychological biases, making people individually and collectively blind to uncertainty and unaware of the massive role of the rare event in historical affairs.

He said owing to the very nature of small probabilities, the Black Swan event has the non-computability of the probability. He believes the Fukushima accident took place due to the criminal stupidity of statistical science or the intellectual fraud dressed up with mathematics. Nobel laureate Daniel Kahneman said, ``The Black Swan changed his view of how the world works.''

Taleb said a Black Swan event is deemed improbable but causes massive consequences. He says Black Swan events explain everything about the world, but experts are blind to them. He says he offers tools to navigate and exploit a Black Swan world. At the risk of amplifying public anxiety and nervousness, Koreans can take a few improbable but high-impact Black Swan events on the Korean Peninsula.

The unification issue can be debated under the Black Swan theory. Koreans on both sides of the DMZ can make the unification, the Black Swan, the Gray Swan or the White Swan event.

Under the Black Swan scenario, the unification will come chaotically, suddenly and unexpectedly. Unprepared Koreans will be at a loss over how to cope with the historic incident. Kim Jong-il may decide to attack the South with nuclear bombs, killing hundreds of thousands of Seoulites. The South and the United States would counterattack the North with nuclear weapons, annihilating the dictator and his family members completely.

Following this exchange of the deadly bombs, the South takes control of the North. In hindsight, South Korean leaders can analyze that the super-tragic war might have been prevented unless Seoul has not taken the Cold War-like approach to contain the Kim regime. If this Black Swan scenario should take place, the Seoul government must adopt a more hawkish approach toward the North than what President Lee Myung-bak has been doing now.

Under the Gray Swan scenario, the improbable and less damaging event will occur in the North. Suddenly, people’s revolt explodes with the assassination of Kim Jong-il. Hundreds of thousands of North Koreans cross the DMZ, making it almost impossible for the South to control their exodus from the North. The two Koreas would see the reunification following the implosion of the Kim Dynasty in the North.

Few analysts expect the implosion of the Communist country, at least in the foreseeable future. Is the South prepared for this scenario? Under the White Swan scenario, Koreas can see the unification highly predictable and less damaging. They can even agree on the unification date and terms. This is the least damaging formula for Koreas. Through a joint diplomatic maneuvering, they can also persuade the neighboring powers, including China, the United States and Japan, to believe that the reunification will be helpful both for Korea and the powers surrounding the peninsula.

The Black Swan book gives Koreans the time to ponder over the future of the peninsula. A possible explosion of Mt. Baekdu or a nuclear accident either in the North or the South is not a Black Swan event as the similar accidents took place outside Korea. Governing party lawmaker Park Geun-hye’s victory or loss in the next presidential election will also not be a Black Swan event. Her decision not to run for presidency may be a Gray Swan event.

Lee Chang-sup is the chief editorial writer of The Korea Times. He can be reached at editorial@koreatimes.co.kr.