I received a copy in the post this weekend of, and what to do about it by Ian Goldin and Mike Mariathasan. I’d read the book in draft and it’s a thought-provoking and rather alarming account of some of the vulnerabilities arising from interconnected global systems. Exhibit number one is the financial crisis, I suppose, made significantly more severe by the criss-crossing and largely unmonitored links between banks and shadow banks in many countries. The book also discusses global supply chains, infrastructure, ecology, public health and the social risks arising from inequality (this last obviously written well before Piketty-mania).
The growing complexity in each if these areas is well-documented. The title is a riff on the well-known butterfly effect whereby a small initial disturbance in a complex system with feed-back loops can rapidly lead to large and unexpected results – the flap of a butterfly’s wings in one place leads to a hurricane somewhere else entirely. It has become a defect because our governance systems haven’t remotely kept pace with the changes of the past 25 years. Connectivity has led to complexity has led to systemic risks – but policies address only local risks.
The final chapter asks how to start managing the new risks, without wholly answering it – although to be fair it would take a new book for each of the previous chapters to set out ay detail about what to do. The authors do not want to reverse the interconnectedness, although they acknowledge that some people might prefer that. They call instead for more global management of risk, more awareness of the new kinds of risk on the part of all policymakers and businesses everywhere – better risk measurement, transparent communication about the dangers and the policy uncertainties, gearing economic policies towards giving people incentives to take more account of the personal risks they face, clear definition of legal responsibilites, and contingency planning.
This all seems perfectly sensible. Will it happen? I think the most sobering section of the book talks about the way the post-World War II global governance changes, the ‘Bretton Woods moment’, came about as a result of the cataclysm of total war. The book ends on a very optimistic note:
“With better management, there is the potential for all citizens to share in our world’s magnificent achievements, the most impressive of which could be yet to come.”
But I ended up feeling daunted. Anyway, both pro- and anti-globalizers should read it.
[amazon_image id=”0691154708″ link=”true” target=”_blank” size=”medium” ]The Butterfly Defect: How Globalization Creates Systemic Risks, and What to Do about It[/amazon_image]