Goldin mariathasan the butterfly defect; how globalization creates systemic risks, and what to do about it (2014)

THE BUTTERFLY DEFECT Previous books by Ian Goldin Is the Planet Full? Divided Nations: Why Global Governance Is Failing, and What We Can Do about It Globalization for Development: Meeting New Challenges Exceptional People: How Migration Shaped Our World and Will Define Our Future The Case for Aid The Economics of Sustainable Development Economic Reform, Trade and Agricultural Development Modelling Economy-wide Reforms Trade Liberalization: Global Economic Implications Open Economies The Future of Agriculture Economic Crisis: Lessons from Brazil Making Race THE BUTTERFLY DEFECT How Globalization Creates Systemic Risks, and What to Do about It IAN GOLDIN AND MIKE MARIATHASAN PRINCETON UNIVERSITY PRESS PRINCETON AND OXFORD Copyright © 2014 by Princeton University Press Published by Princeton University Press, 41 William Street, Princeton, New Jersey 08540 In the United Kingdom: Princeton University Press, Oxford Street, Woodstock, Oxfordshire OX20 1TW press.princeton.edu All Rights Reserved Library of Congress Cataloging-in-Publication Data Goldin, Ian, 1955– The butterfly defect : how globalization creates systemic risks, and what to about it / Ian Goldin, Mike Mariathasan Pages cm Summary: “Global hyperconnectivity and increased system integration have led to vast benefits, including worldwide growth in incomes, education, innovation, and technology But rapid globalization has also created concerns because the repercussions of local events now cascade over national borders and the fallout of financial meltdowns and environmental disasters affects everyone The Butterfly Defect addresses the widening gap between systemic risks and their effective management It shows how the new dynamics of turbo-charged globalization has the potential and power to destabilize our societies Drawing on the latest insights from a wide variety of disciplines, Ian Goldin and Mike Mariathasan provide practical guidance for how governments, businesses, and individuals can better manage risk in our contemporary world Goldin and Mariathasan assert that the current complexities of globalization will not be sustainable as surprises become more frequent and have widespread impacts The recent financial crisis exemplifies the new form of systemic risk that will characterize the coming decades, and the authors provide the first framework for understanding how such risk will function in the twenty-first century Goldin and Mariathasan demonstrate that systemic risk issues are now endemic everywhere—in supply chains, pandemics, infrastructure, ecology and climate change, economics, and politics Unless we are better able to address these concerns, they will lead to greater protectionism, xenophobia, nationalism, and, inevitably, deglobalization, rising conflict, and slower growth The Butterfly Defect shows that mitigating uncertainty and systemic risk in an interconnected world is an essential task for our future.”—Provided by publisher Includes bibliographical references and index ISBN 978-0-691-15470-1 (hardback) Risk management Crisis management Globalization I Mariathasan, Mike, 1982– II Title HD61.G643 2014 658.15’5—dc23 2013039405 British Library Cataloging-in-Publication Data is available This book has been composed in Aldus with Gill Sans display by Princeton Editorial Associates Inc., Scottsdale, Arizona Printed on acid-free paper ∞ Printed in the United States of America 10 To Tessa, Olivia, and Alex Ian Goldin To Mechthild and Jos, to Vincent and Patrick, and to Sophie Mike Mariathasan Contents List of Boxes, Illustrations, and Tables ix Preface xiii Acknowledgments xvii Introduction Globalization and Risk in the Twenty-First Century Globalization and Integration 10 Global Connectivity and Complex Systems 13 Globalization and the Changing Nature of Risk 23 Globalization: A Double-Edged Sword 30 The Way Forward 33 The Financial Sector 36 with Co-Pierre Georg and Tiffany Vogel The Financial Crisis of 2007/2008 37 Financial Globalization in the Twenty-First Century 39 Complexity and Systemic Risk 54 Global Financial Governance 60 Lessons for the Financial Sector 64 Supply Chain Risks 70 Global Supply Chains 72 Supply Chain Risk 79 From Management of Risk to Risk Management 90 Lessons for Supply Chain Management 95 Infrastructure Risks 100 Transportation 101 Energy 105 The Internet 112 Lessons for Global Infrastructure 120 Ecological Risks 123 The Nature of Environmental Risk 124 Risks from the Environment 129 Risks to the Environment 133 Can Globalization Be Good for the Environment? 138 The Export of Pollution 139 Lessons for Managing Environmental Risk 141 Pandemics and Health Risks 144 Pandemic Risk 145 Globalization and Health Risks 147 Case Studies 150 Noninfectious Diseases 159 Global Cooperation and Disease Control 160 Lessons from Pandemic Management 164 Inequality and Social Risks 168 Global Integration and Inequality 169 The Channels of Inequality 180 The Risks of Inequality 181 Lessons for Challenging Global Inequalities 195 Managing Systemic Risk 198 Moving Forward, Not Backward 200 Confronting a New Challenge? 202 The Need to Reform Global Governance 206 Why Reform Has Been So Sluggish 209 Lessons for Global Policy Reform 212 Managing Systemic Risk 219 ... Economies The Future of Agriculture Economic Crisis: Lessons from Brazil Making Race THE BUTTERFLY DEFECT How Globalization Creates Systemic Risks, and What to Do about It IAN GOLDIN AND MIKE MARIATHASAN. .. Goldin, Ian, 1955– The butterfly defect : how globalization creates systemic risks, and what to about it / Ian Goldin, Mike Mariathasan Pages cm Summary: “Global hyperconnectivity and increased system... evident from the above, Mike and I owe a great deal to the guidance and support of others None of the individuals or institutions cited has any responsibility for the final text, and Mike and I alone