Originally published October 2 2009
Globalization and Complexity Has Made Our World More Vulnerable to Catastrophe
by David Gutierrez, staff writer
(NaturalNews) Economic experts are warning that the complex interconnectedness of the global economy makes it highly susceptible to collapse from one or two sharp shocks.
"While [complexity] helps the system diversify across small shocks, it also exposes the system to large systemic shocks," wrote Raghuram Rajan, an IMF chief economist and adviser to the Indian Prime Minister, in 2005. "It is possible that these developments ... create a greater ... probability of a catastrophic meltdown."
Globalization has made world markets and all sectors of the economy dependent on each other, thus allowing a crisis in one sector of the U.S. mortgage market to balloon into a global depression within months.
"The speed at which these events unfolded was unprecedented," the World Economic Forum said in a 2009 report. "It has demonstrated just how tightly interconnected globalization has made the world and its systems."
Globalization has created other risks. Modern air travel allows diseases to spread at formerly unprecedented rates, while "just-in-time" manufacturing and other efficiency-saving specialization measures make the whole global economy dependent on a few key points, known in network theory as "nodes."
In just-in-time manufacturing practices, stores keep very little supply on hand and rely on fast and highly coordinated delivery to keep their shelves stocked.
According to network theorist Nassim Nicholas Taleb, complex systems like the global economy are often less stable than they appear.
"Random insults to most parts of the network will not be consequential since they are likely to hit a poorly connected spot," he wrote in his book The Black Swan.
"But it also makes networks more vulnerable. ... Just consider what would happen if there is a problem with a major node. True, we have fewer failures, but when they occur... I shiver at the thought."
Examples of potential hits to key nodes include disruption of transportation, electrical or communications networks due to accident or sabotage; massive death of doctors, port workers, truck drivers or other key persons due to pandemic; or a major cutoff in the supply of some key material, such as copper or oil.
Sources for this story include: www.independent.co.uk.
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