Systemic risk in the network industries: is there a governance gap?
Systemic risks and hazards have become increasingly significant features of modern industrial society of which the network industries form a vital element. The idea of systemic risk, however, is much less prominent in the network industries compared to banking and finance. This paper addresses why there is such a difference between these sectors. It then addresses how complexity and systemic risk in the network industries should be managed and governed. Does it above all require more and better scientific and technical analysis to understand the risks and reduce uncertainty? Or does it require qualitatively different forms of governance that draw on many different types of knowledge, and involve a wider range of stakeholders? We argue in this paper that systemic risk is very important in the network industries and it needs to be a considered more explicitly than hitherto in the governance and regulation of risk in the network industries. Traditional technocratic forms of risk management and governance while necessary are not sufficient, particularly due because of heightened uncertainty and interdependence. Unless and until the problems of uncertainty are overcome, means of governing risk and uncertainty beyond the technocratic are required. In particular, judgements by different experts and stakeholders are required about the nature of the uncertainty, about the potential hazards and their consequences, and about the level of caution required. This requires a more participative and open form of risk governance, a form which draws on socio-political forms of governance as well as technocratic. This is recognised in part in the recent literature on risk governance of critical infrastructures but the literature says little about the participative governance structures which might be appropriate nor how they may be developed in the patchwork that is the European regulatory environment for the network industries.