The August Riots: A Network Perspective

What can complex systems and network theory tell us about the summer riots?

There was clearly a great deal of copying going on, of imitating other people’s behaviour. This was both within a given community and across communities. Social network media did not cause this, they facilitated it. The incidents received much wider coverage in the traditional media.

But ex ante, it is extremely difficult to predict which events will give rise to ‘cascades’ across networks in this sort of way. Which events will lead to general riots, which will lead to local disturbances, and which will experience no problem at all.

This is a key insight of network theory. Networks are ‘robust yet fragile’. They are robust in the sense that most shocks, most bits of new information, most events are contained by the network, and their influence does not spread. But they are at the same time fragile, in the sense that an incident similar to others which have not spread, suddenly gets traction and spreads.

There are lots of examples of perceived police insensitivity towards minority communities, real or imagined. But in general these do not lead to widespread looting in British cities. There was nothing unique about the shooting of Mark Duggan, and his immediate family called for calm. But in this instance, the network was fragile. Rioting and looting spread.

Once an event happens, however, whenever copying or imitating the behaviour of others across networks is important, it becomes easier to predict whether it will really take off. The complex network structure which makes ex ante prediction very hard, paradoxically makes it easier to assess the eventual scale of the outcome than it would be if networks were not present. So, for example, early diffusion of activity across different communities is a much more powerful predictor than the initial scale of activity. Sometimes, locally large disturbances remain confined and do not spread.

Finally, although a key insight of network analysis is to break the common sense link between the size of an event and its eventual outcome, it is only broken in part. We now know that in networks, small events can have large consequences. This is where ‘common sense’ breaks down.

But a large event still has large consequences. So when riots and looting spread, you have two strategy options. First, to try lots of different small scale interventions and see if one of them takes off, if it is able to exploit the fragile property of networks. Second, to do something on a dramatic scale. For example, call in the Army and shoot 20 looters dead. But what you do not do is what it appears the police did, which was to be reactive only, not proactive. And if you want to follow the first option, time is of the essence. You want to experiment, so you had better do your experiments very quickly before the looting spreads out of control.

By Paul Ormerod

Healing the Finances of the NHS

The financial problems of the NHS are extremely serious—but more like anaemia than haemorrhage. It is the financial equivalent of a long-term medical condition.
The NHS Commissioning Board has just appointed Professor Malcolm Grant as chair and must now determine the likely funding, costs and demand over the next five years. Not just the cost commitments that are already there for example from PFI schemes, but also from increasing numbers of medical graduates, and rising energy and food prices.
Trusts' financial problems have probably been under-estimated. The Department of Health names 20 trusts it is concerned about, but 18 others with PFI schemes and at least three in the London area with known financial problems can be added to that list. Most of the 40+ trusts with problems are in or near London.
The NHS has to redesign services while facing deep uncertainty about budgets. By 2013 the 250 new clinical consortia will have allocated budgets but it will be 2014 at the earliest before they can be confident these are realistic.
There is a danger of funding for new programmes being blocked. Managers are preoccupied with short term survival and consultation activities when the service is faced with urgent funding and design problems, with great uncertainty about responsibilities, funding and service development. There are also problems looming regarding quality of care, especially for elderly patients.
PCTs have data on activity and cost which will not exist for new boundaries, and PCT clusters can work as development agencies for the consortia during their brief remaining life. A three way partnership between clinical consortia, PCT clusters and local government, in its new and positive public health role, is needed, with close co-ordination due to the four different funding streams: the clinical consortia, the National Commissioning Board, the health and wellbeing boards, and social care funding.

Local strategy must be defined first. As the old and wise maxim says, strategy has got to come before structure. New services are going to have to be paid for by savings on the old ones, but the incentives to make them would be much greater if people had some idea of what the money would be spent on.
The new consortia must make a start in developing these strategies well before 2013. Service redesign can use the new four-staged model of healthcare - prevention, early diagnosis, ambulatory treatment and care programmes.
Many current services are obsolete, provider dominated and the wrong side of the digital divide. We need a process of change that will take years but has to start with a clear statement from the new commissioners of what they want. They should signal their intent to use patient choice and willing providers as key resources in getting change. International evidence supports a new approach to hospital admissions. From 1999/2000 to 2009/10 hospital admissions rose 38 per cent in England, compared to 1.6 per cent in Sweden. Both nations have ageing populations yet admissions for the over 75s increased 66 per cent in England compared to 0.6 per cent in Sweden. Reduction in growth of admissions is essential to the improvements in quality of hospital care and should be a major priority for the new consortia.
The Nicholson challenge needs to be redefined in terms of 10 a per cent reduction in costs – and not just for hospitals. The immediate goal is for £15-20bn of savings but all of this cannot come from acute hospitals when they account for only 39% of PCT purchasing of services and the rest goes on primary care, community and mental health services.
Some savings need to be re-invested in better care for elderly patients and new drug therapies, where spending has been rising 10% a year. Such cost cutting is important as per patient costs will rise in response to reduced admissions.
Finally a bonfire of controls must be lit. The general aim of moving commissioning closer to patients is a good one but it will be tough to kick the central planning habit. Local commissioners and providers must regain their initiative and flexibility. The NHS has attracted many talented staff in the last ten years. Let's use them to get back to solvency.
by Nick Bosanquet, Director Volterra Health as featured in the Health Service Journal 10/11/2011

Demand for high quality residential properties in prime London remains strong despite the uncertainty surrounding the wider economy …

The riots in London set a sombre mood in the capital earlier this year. Alongside this America was downgraded amid concerns that the government is not doing enough to balance the books. The biggest issue at the moment however is the Eurozone crisis which continues to cause significant concern in the markets and dominate the news. The recovery from the recession was being bolstered by growth in the emerging economies but even this has begun to slow.
Forecasts for growth in the UK economy have been steadily falling over the past six months and the consensus is now for growth of just 1% in 2011, in contrast to the 2% being forecast at the start of the year. Forecasts for just 1% over the whole of 2011 would require only slight growth in the final quarter. The preliminary estimate for GDP growth in the third quarter of 2011 was 0.5% which was higher than some expectations.
Forecasts for growth in 2012 have been dramatically downgraded in recent months. In August commentators were still forecasting growth of 2% for 2012 but this has been revised down and now the consensus is for growth of just 1% next year as well. However this median position hides a wide range of opinions, with some forecasters expecting less than 1% growth and others forecasting closer to 2% growth. In reality all this really tells us is that considerable uncertainty exists at the moment.
However, despite this very uncertain outlook for the UK economy with economic performance being, at best, mediocre in 2011, prime residential property has still seen incredibly strong returns up until the end of the third quarter.
Despite national house prices remaining stagnant in 2011, London prices are 3.9% up so far in 2011 and as much as 8.4% in prime parts of the capital such as Westminster. House prices nationally remain 11% below their pre-recession peak levels, prices across London have returned to their previous peak but prices in Westminster and Kensington & Chelsea are now up to 13% higher.
Indeed transactions of prime properties in London priced £2m-£5m have hit record levels every quarter this year and Volterra now expect that prices will finish the year at least 6-8% above 2010 levels with growth exceeding this in the really prime central parts of London.
It is clear that the prime central London housing market is very different from the rest of the UK. While in most regions of the UK prices are mainly driven by the performance of the regional economy and the availability of mortgages, this is less true in central London. The prime central London market sees considerable numbers of cash purchases, largely because it attracts international investors. Therefore it depends more on the global economy than that in the UK and, despite the UK economy not being the strongest, it is still perceived as a safe haven for property investment especially with the current concerns over the health of the Euro. Buyers from emerging economies are growing in importance and this has been particularly evident in prime locations such as Knightsbridge where international demand and cash purchasers are much more prevalent.
There remains a shortage of good quality stock in prime locations. Demand is being driven by predominantly overseas, equity rich purchasers, particularly for higher value properties.

The uncertainty around troubles in Europe and wider economic concerns are now resulting in a more nervous sentiment which suggests that we may see a relatively stagnant final quarter; however, this does not take away from the fact that the market has still been one of the best performing sectors in an otherwise difficult economy.

By Ellie Evans

Paul Ormerod: Why Are Markets So Volatile?

Mainstream economic thinking has considerable difficulty in explaining the massive degree of volatility of financial markets over the past few months. Both shares and bonds exhibit large fluctuations on an almost daily basis.
The problem is particularly acute for the concept which is fundamental to a great deal of modern macroeconomics, based on the so-called ‘representative agent’. This would not matter if it were purely a piece of esoteric reasoning, but models which embody this concept proliferate in central banks and international financial regulatory bodies.
The simplifying assumption is made that the workings of the economy can be explained in a model in which there is just a single decision maker, deemed to ‘represent’ the behaviour of everyone.
The ‘representative agent’ is certainly a curious assumption to make in the light of the financial crisis, when much of the focus is on the differing behaviours of creditors and debtors. In the Euro area crisis), for example, it makes no sense at all to speak of the ’representative agent’, the German government has quite different behavioural rules and constraints from that of, say, the Greek and Italian administrations.

Kenneth Arrow, a Nobel Laureate, wrote in 2004 that the representative agent assumption cannot explain the fundamental existence of markets at all! ‘if we did not have [agent] heterogeneity, we would have no trade’. In other words, if people did not have different opinions about the value of a share or a bond, why would trade take place at all?

Keynes put it a different way. If all traders think identically, market prices will fluctuate between zero and infinity!

And here we have the explanation for market volatility. The more that traders follow the herd, the more the market as a whole begins to think as a single agent. And so prices fluctuate more.

Traders form their views on a mixture of their private opinions and on market sentiment. You may think the Italian government’s finances are sound, but if most other people disagree, it takes a very brave soul to stick to his or her private opinion.

In the current circumstances, when there is considerable uncertainty, traders are giving much more weight to market sentiment than to their private opinions. The more the world looks like the world of mainstream economic theory, the more volatile it becomes!

By Paul Ormerod

Paul Ormerod: Expansionary Fiscal Contraction

To many people, this phrase is an oxymoron. How can fiscal contraction be expansionary?
But the evidence suggests that this is exactly what has been happening in the United States.
In terms of national output, GDP, the trough of the recession was reached in the second quarter of 2009 (2009Q2). We have now had nine successive quarters of positive growth, and in 2011Q3 the level of output is above that of its peak level before the recession started. Growth has not been as strong as would be desirable, but there has been consistent growth. On any measure, the recession is over.
Where has the growth come from? Not from public spending! Between 2009Q2 and 2011Q3, current public expenditure in real terms fell by $38 billion, or by some 1.5 per cent.
The private sector grew, the public sector contracted. Private consumption rose by $450 billion, nearly 6 per cent, and capital spending by firms rose by $200 billion, or nearly 13 per cent. There was a slight deterioration in the net export position, but overall the private sector delivered growth.
The employment figures tell the same story. Employment changes tend to lag what happens to output, and the lowest level of total employment was not reached until February 2010, when 129,200,000 people were employed.
Between then and September 2011, public sector employment fell by nearly 500,000. But private sector employment rose by over 2.5 million, to give a net increase of almost 2.1 million.
The lessons for Europe are to have a co-ordinated fiscal contraction.

By Paul Ormerod