Michele Wucker, The Gray Rhino: How to Recognize and Act on the Obvious Dangers We Ignore (St. Martin's press, 2016) $17.94. (Amazon.com).

By Dr. Scott MacDonald

Risk remains a constant factor in global markets and economic affairs. Every day investors face a myriad of factors that are capable of upending well-constructed portfolio management strategies, while economic policymakers' budgets come under strain from unexpected costs. Black swans constitute one such form of risk - rare, unexpected event risk (outliers).

Another form of risk is what Michele Wucker calls the "Gray Rhino", which she defines as "...probable, high-impact occurrences that, to a certain extent, are predictable." The problem is "not weak signals but weak responses to those signals." Thus investors, corporate planners and policymakers are aware of many of the risks, but often demonstrate a preference to muddle through as opposed to really tackling the problem.

Chicago-based Wucker is a thought leader in such areas as global finance, global economic trends, global risk, debt crisis, global immigration trends, economic impact of immigration, citizenship regimes, migrant worker remittances, Latin America, Dominican Republic, Haiti, Europe, emerging markets, and leadership. She was also Vice President of Studies at The Chicago Council on Global Affairs, and is the author of several books. The Gray Rhino comes after a number of years of reflection on the risks that face the global economy and a concern about how to deal with those risks.

The Gray Rhino showcases a substantial number of risks that fit the book's title category - disruptive technology, climate change, the massive level of youth unemployment in Africa or the build-up in debt in advanced economies in the aftermath of 2008. These Gray Rhinos represent both risks and opportunities. Indeed, Wucker notes: "Getting out of the way of a Gray Rhino can mean many things. It can mean embracing a threat and turning it into an opportunity. Yet it can also mean avoiding damage or, at least, minimizing it. Acting in time can make a situation dramatically better." Failure to act allows a crisis to unfold.

Sadly there have been too many Gray Rhinos that have been ignored until too late. According to Wucker, there were many signals that the world was heading toward the financial crash of 2008. As she notes: "The signals leading up to 2008 were there, but the people with the power to do something different didn't act on them because they refused to recognize that these signals were real."

She uses plenty of other examples of Gray Rhinos, including an interesting discussion of the bridge collapse in Minneapolis on August 1, 2007, which left 13 people dead. As she states: "The I-35 bridge had received a "structurally deficient" rating from the U.S. Department of Transportation in each inspection since 1990. In 2006, inspectors noted cracking and fatigue: a disaster waiting to happen for the people riding in the 140,000 vehicles that crossed the bridge each day. Yet it was still not a candidate for replacement until 2020."

Anyone looking at U.S. infrastructure can clearly see a Gray Rhino - or perhaps a herd of Gray Rhinos. According to the American Society of Civil Engineers (ASCE), U.S. infrastructure rates a D+, with significant (D-) problems in levees and inland waterways and D ratings for dams, drinking water, aviation and wastewater treatment. The ASCE calculated that from 2013 to 2020 $3.6 trillion is required to improve such basic infrastructure as roads, harbors and schools. It also made noted that what is needed is "bold leadership and a compelling vision at the national level." Gray Rhino anyone?

Wucker offers a well-written book on risk, offering up a common sense approach. In many ways, it is what many investors, business people and policy makers should be doing, but often seems to fall between the cracks, allowing for new Gray Rhinos to become major problems. Probably the most straightforward advice is learn to spot the Gray Rhino and avoid it through a combination of by avoiding group think, developing new ways of thinking about problems and recognizing the value of the long term.

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Editor: Dr. Scott B. MacDonald, Sr. Consultant

Deputy Editors: Dr. Jonathan Lemco, Director and Sr. Consultant and Robert Windorf, Senior Consultant

Publisher: Keith W. Rabin, President

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