One persistent argument arising from the financial crisis has been the issue of firms labeled "too big to fail". It is easy to look at investment firms and banks and count the zeroes in their financial statements and come to the conclusion they are so big their failure could trigger catastrophic "knock on" failures.
Although these explanations can help account for how individual banks, insurers, and so on got themselves into trouble, they gloss over a larger question: how these institutions collectively managed to put trillions of dollars at risk without being detected. Ultimately, therefore, they fail to address the all-important issue of what can be done to avoid a repeat disaster.Answering these questions properly requires us to grapple with what is called "systemic risk." Much like the power grid, the financial system is a series of complex, interlocking contingencies. And in such a system, the biggest risk of all - that the system as a whole might fail - is not related in any simple way to the risk profiles of its individual parts. Like a downed tree, the failure of one part of the system can trigger an unpredictable cascade that can propagate throughout the entire system.It may be true, in fact, that complex networks such as financial systems face an inescapable trade-off - between size and efficiency on one hand, and global stability on the other. Once they have been assembled, in other words, globally interconnected and integrated financial networks just may be too complex to prevent crises like the current one from reoccurring.
Rather than waiting until the next cascade is imminent, and then following the usual modus operandi of propping up the handful of firms that seem to pose the greatest threat, it may be time for a new approach: preventing the system from becoming overly complex in the first place. [More]
While complexity is not the same thing as size, it certainly seems as size increases for any business, the complexity of their connections and risk management rises as well. Noting the last sentence (which the author goes on to cogently flesh out), it is interesting to speculate whether agriculture has its own "TBTF" entities.
I would suggest we do, and we also have our own systemic risks. Consider the failure of ADM or Cargill, for example. The huge dairy or supply coops. Or Deere. If you can't quite picture such a thing, that is one hint as to how their sizes make them seem invulnerable, but if nothing else, we have learned that very large businesses can almost inadvertently expose themselves to more risk than they think they really are facing. Also recall, not long ago most Americans would have felt the same way about GM.
Consequently, as regulators begin bandying about solutions the the complexity/size risk problems, we might be surprised how that could suddenly change our commercial landscape.