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Archive for November, 2018

De-Risking

Companies and corporations, as I witnessed at various conferences and summits is exemplary for “the BioEconomy”, have increasingly called for “de-risking”. Now what is meant by de-risking?
De-risking refers to the idea that the “risks” that any new venture enters into are lessened. That does sound, of course pretty good and only reasonable, but on the other hand, not all if any risks can be made to disappear. So, what does de-risking effectively mean?
Risks, we should bear in mind, are first of all not referring to events that could happen, they are not the events themselves (as Ulrich Beck has pointed out most emphatically). Now for ventures in, for example, the Bioeconomy sector, these “risks” involve investments that may fail with the criteria of what constitutes a “failure” also being part of this discussion: An investment fails, for example if a venture cannot be turned into (the benefit of) profit at all or does not bring the expected profit (which can refer to “profit” being made from either the sale of the commodity or the financial market returns of the ventured product as an asset) or if a venture causes damage and/or harm. In terms of the bioeconomy, where often (biotechnological) research is involved, de-risking can mean several things: One issue is the question of the time it take to bring a product “from lab-bench to work-bench” or “from lab-bench to market”, which often hinges on fulfilling regulations and navigating bureaucracies created and performed up by national state and supranational governments (for example through process of trials and certifications, e.g. regarding safety), (expected) profit of a product (whether as commodity or asset) can be time sensitive for a variety of reasons (a product’s marketability can depend on a temporary trend or situation, or on when, which and how market competition is to be expected, etc.);the more a venture depends on “fundamental”/“frontier” science the more investment intensive the science may be and the higher the risk of the project to fail (although given that, for example in the pharmaceutical market novelty items or new markets require high marketing costs, the argument has often been made that the bigger problem are these costs not the research, i.e. what has been called the question of “invention of diseases”; this is, as Joe Dumit or Nate Greenslit among others have deftly illustrated, an important topic of its own, though, and also too complex for any naive and overly simple generalisation here); another issue are the question of damages and harms a product may inadvertently cause, requiring restitution and compensatory payments. Of course, investors, entrepreneurs, and (shareholder-owned) corporations want to reduce those risks, and are making the case that – on all these fronts, which certainly are not to be seen as an exhaustive list of risk categories – states, who do have an interest in the promotion of BioEconomy and respective venture, should de-risk to allow innovation to happen, productivity to increase, and growth to occur (whether this simple and near-mythical “economic narrative” holds up at all and/or can be sustained in actual reality is another matter). Yet, as I said, the so de-risked risks do not disappear, the burden is merely shifted onto states and, in consequence, onto society. De-risking means many things in practice: For example, yes, the speeding up of regulatory process – by deciding faster, dropping regulations, not being as thorough (what the anti-bureaucratic stance, that bemoans the shackles of overregulation often forgets is that most regulations have originally emerged and are maintained for valid reasons), etc. -; but also subsidising especially fundamental research or start-ups (directly through funding or indirectly through reduced taxes); as well as by reducing the liabilities businesses would have in case of damage and harm, from advance relieving them of compensation to pay for damages/harm caused or the state taking over the costs for preventative measures. In short, one could say that de-risking means not the reduction of risks but the shifting of risks from entrepreneurs/corporations to society. And while it seems only “rational” for investors, entrepreneurs, and corporations to seek that, there is an inconsistency with the logic of what can be called the “moral economy” in play: Investors&c. in general public discourse warrant profit margin – for example generated through high prices such as in the pharmaceutical market – by giving the reason that they take do after all take risks (generally understood as failure, i.e. the possibility of the loss of the investment or the diminishing of the [expected] returns [with a certain probability]: de-risking, thus and as we have seen, does not reduce the probability of the event occurring, but it means that the risk is shifted to someone else with at least the same probability of the event [the research fails, a damage happens, etc.] occurring, yes, it is even possible that the probability of the event described in the risk occurring is even increased because the more expansive the shifting of the risks entailed is, the more careless [riskier] and with less precaution the undertaking may be pursued). In the 2008 financial crisis, we have seen an illustration of an event occurring, wherein high risks were taken, but we could also see a strange temporal occurrence, because within the “banks too big to fail” rescue of banks by the state, a de-risking after the event had already occurred was performed: The risks taken were, a posteriori shifted onto society. The lesson learned by investors from this crisis is precisely the emergence of de-risking, i.e. the possibility that risks can effectively be shifted to society while upholding the warrant to price and profit at the investors leisure [mind you investors’ warrant has now, however, shifted from warrant qua justification to warrant qua entitlement].

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