Paradise Papers

Law of Requisite Variety (First Law of Cybernetics) and The Paradise Papers

 A situation can only be controlled if the variety of the controller matches the variety of the situation to be controlled.

•       The system/person with the most flexibility of behaviour will have the most influence on the system. The more choices one has, the more freedom is felt and the better the quality of life.

•       It is impossible to control for every variable so most variety is absorbed through relationships with other systems

•       Only Variety can absorb Variety

•       It means that in Risk Management, only enough variety in your system can absorb, or control risks originating from outside variety.

•       By using feedback, this information is fed into the system to allow the system to adjust and learn constantly.

•       It is impossible to control all Risks as systems fluctuate by information from a constant changing variety (environment).

       An organism or organisation generates tremendous variety and tries to control it in its own way through rules, checklists or regulations. (Usually too late).

Human variety, environmental variety, social variety, regulatory variety change all the time and cannot be controlled. Therefore a living system (organisation or organism) needs to maintain and develop an internal requisite variety to be able to absorb (counter balance) ‘outside’ variety. This means to have the people with the combined knowledge, experience, expertise and influence to do so.

Fact : people, organisations and companies do not like to pay taxes in the countries they are working in or where their head office is located. They look around, advised by many tax avoidance advisers (financial consultants), to find loopholes in tax laws and locations or countries such as the Virgin Islands or Panama where the lowest tax rates are charged and organise their money flow accordingly.

But they overlook natural laws of physics and cybernetics: When we apply Ross Ashby’s law of requisite variety and take into account Newtons law of the conservation of energy, tax avoidance is impossible to sustain. Information about the fact that money is hidden from tax collectors has not disappeared, even when the secret about hiding has been promised by bankers in tax havens.

Information is connected to matter and energy, so the energy representing the information is conserved until someone or something releases (leaks) that information. This variety is limitless and cannot be prevented or stopped (controlled) because information about this is not used to correct the evasion of tax laws. It thus makes the evader dependent on someone hiding that information and the fact that awareness and conscience (also information) cannot be negated. This scientifically sound reality makes one vulnerable and vulnerability causes fear (someone knows or one could be caught), which causes stress and eventually one becomes ill. When the information appears on Internet, reputations are shattered and remorse ( which cannot be switched off) is the result, which again increases fear, shame and makes one unhappy or ill.

Therefore, using the Law of Requisite variety as the cybernetic laws of governance is crucial for the sustainability and continuity for anything that is created. We have to create sufficient variety within ourselves or within our organisation to be able to absorb (control) variety from the outside (in this case secrecy about money) which is impossible when it is based on the non-allowance of certain information (which we try to avoid or don’t fit our purpose). Natural and physical laws dictate that people and organisations can only function for the long term if they operate within boundaries of functionality. The law of requisite variety teaches us to adhere to these boundaries and prevent us from trespassing them, because when we do, we are no longer able to control and govern the situation which cause non-linear (unintended) effects (beyond control).

Therefore, what governments can do to avoid tax evasion without having to close inevitable loopholes is quite simple; they can include the law of requisite variety into their tax laws by adding this line: In case of tax avoidance, the Law of Requisite Variety applies. Any and all variations of tax evasion or infringement are absorbed, covered, prohibited and punishable by this Law.

Avoiding taxes is negatively interdependent as it serves a few at the cost of others (those who are not able or are not willing to evade taxes). It drives systems of governance into instability, which is harmful to everyone, including the tax evaders as they too are dependent on a stable system.

When we use this quote by Javier Livas ‘Information reduces uncertainty’ as the ultimate risk management tool, we can be sustainable and in better control.