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Managing the risks of distributed models

Managing the risks of distributed models

When all else fails, who will be left holding the bag?


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Who will be the provider of last resort?

Technological disruption is enabling markets to become more distributed and fragmented which, in turn, has given consumers more choice and, in time, will bring more dynamic pricing. But what happens if (or when) those distributed models fail? 

In some sectors, the result may be fairly benign. If the Airbnb system goes down, for example, millions of travelers may be impacted, but there is little chance that lives will be lost or that property will be destroyed. However, in other scenarios, the impact could be much more dire.

As the risks rise, what role should government play in ensuring that basic services are maintained and secure? And at what price?

The reality is that regardless of how the services are provided, governments have an obligation to ensure their citizens have access to basic services. Private sector providers can be encouraged to augment government services and this can certainly lead to better pricing and improved services. However, government still needs to ensure that the services remain available, even if the private markets fail. It cannot escape that imperative.

Consider, for example, national energy markets. Over the past few years, we have seen a significant shift toward renewable energy generation (wind and solar power in particular) and, as the technologies mature, prices have fallen; in some cases lower than that of coal or nuclear. However, that does not mean that we can stop building or maintaining these larger and more stable forms of power generation, even if the cost for the base load/residual supply seems uneconomic.

A similar scenario could be painted for national healthcare systems. All signs suggest that technology could soon start to play  a  significant role in  the  provision of  elder and social care. But what happens if a failure or a cyber-attack renders those systems inoperable. Should the government maintain a base load/residual supply capability that could immediately step in? Is that a reasonable expectation?

Ultimately, it comes down to who the provider of last resort is. And, if it is the government (which it invariable is), should they be taking that risk?

In this context, we suspect governments will need to continue to invest into large, potentially uneconomic assets, such as nuclear power plants and hospital systems, until viable and secure alternatives can be developed.

The bottom line is that, for the time being at least, the advance of technology and the development of distributed models will not necessarily mean that government can absolve itself of responsibility or investment. When all else fails, they will be the ones left holding the bag.

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