The Butterfly Defect: How Globalization Creates Systemic Risks, and What to Do about It

by Ian Goldin, Mike Mariathasan

Overview

How to better manage systemic risks—from cyber attacks and pandemics to financial crises and climate change—in a globalized world

The Butterfly Defect addresses the widening gap between the new systemic risks generated by globalization and their effective management. It shows how the 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 globalization and risk.

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 address these concerns, they will lead to greater protectionism, xenophobia, nationalism, and, inevitably, deglobalization, rising inequality, conflict, and slower growth.

The Butterfly Defect shows that mitigating uncertainty and risk in an interconnected world is an essential task for our future.

Product Details

ISBN-13:	9780691168425
Publisher:	Princeton University Press
Publication date:	10/20/2015
Edition description:	Reprint
Pages:	320
Product dimensions:	6.00(w) x 9.00(h) x 0.90(d)

About the Author

Ian Goldin is director of the Oxford Martin School and professor of globalization and development at the University of Oxford. Mike Mariathasan is assistant professor of finance at KU Leuven.

Table of Contents

List of Boxes, Illustrations, and Tables ix

Preface xiii

Acknowledgments xvii

Introduction 1

1 Globalization and Risk in the Twenty-First Century 9

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

2 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

3 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

4 Infrastructure Risks 100

Transportation 101

Energy 105

The Internet 112

Lessons for Global Infrastructure 120

5 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

6 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

7 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

8 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

Notes 221

References 257

Index 285

What People are Saying About This

From the Publisher

"Globalization is the girl with the curl: when it is good, it is very, very good, but when it is bad it is awful. It generates a world at the same time both robust yet fragile—economically, financially, environmentally, and socially. The Butterfly Defect explains why this opportunity-cum-threat calls for a radical new approach to the setting of public policy—an approach which to be successful needs to be every bit as hyperconnected as the world it is operating in."—Andy Haldane, Bank of England

"The Butterfly Defect is remarkable. Never has globalization, in its dramatically increased interconnectedness, been looked at so completely and clearly. For policymakers in particular, the book's analysis of the systemic fragility associated with globalized interconnectedness and the need for systemic resilience are of utmost interest."—Jean-Claude Trichet, former president of the European Central Bank and current chairman and CEO of the Group of Thirty

"A vital and timely book, The Butterfly Defect is the first to show why systemic risk threatens us all and how it can be managed. It is a must-read for anyone concerned about our rapidly integrating peoples and businesses, and the future of our hyperconnected world."—Pascal Lamy, former director-general of the WTO

"The book is a magnificent work of scholarship that truly gets readers engaged and curious about where globalization will lead us."—Alex Verkhivker, LSE Review of Books

"This fascinating and useful book provides interesting examples and connections across a range of fields and areas of study."—Danny Quah, London School of Economics and Political Science

"This interdisciplinary and far-reaching book brings together diverse research to highlight the increase in systemic risk that accompanies the interconnectedness associated with globalization. No other book has summarized these issues for the general public, and The Butterfly Defect will benefit a broad audience."—David Colander, Middlebury College

"Filled with striking examples, this ambitious book offers a new perspective on globalization—in particular, the need for policy responses that recognize the challenges presented by the globalization of many domains, from health to finance. The message about the need for coordination to overcome systemic problems will strike a chord with readers."—Diane Coyle, author of The Soulful Science: What Economists Really Do and Why It Matters

Editorial Reviews

"Although the authors' prose is clear and unburdened by jargon, the nature of the topic means this is not a light read. But it will reward the persistent. The issues they raise, and the interconnections they identify, are such that specialists will come away with a deeper understanding of the risks involved in each of the specific fields they cover. . . . To paraphrase John F. Kennedy, this book should be widely read not because it is easy, but because it is hard."

Survival Global Politics and Strategy

Finalist for the 2015 Estoril Global Issues Distinguished Book Prize

From the Publisher

04/01/2014
Globalization has benefited individuals and nations worldwide. However, the emergence of complex, interdependent systems has led to widespread negative consequences caused by unintended and unforeseen factors. Sometimes these events started from small changes in initial conditions, which are referred to as the Butterfly Effect, a term from which the title is derived. Here coauthors Goldin (director, Oxford Martin Sch.; globalization & development, Univ. of Oxford; Divided Nations) and Mariathasan (finance, Univ. of Vienna) present detailed information about many risk types, such as cyber, ecological, economic, financial, geographic, infrastructure, pandemic and health, political, social, and supply chain. These potential gambles can be managed and uncertainties reduced using the authors' strategies outlined in the lesson summaries provided at the end of seven chapters. Each section offers three to six lessons. VERDICT This book covers many different sectors and points out that globalization brings opportunities as well as threats; readers from diverse professional and academic backgrounds will gain insights.—Caroline Geck, Camden Street Sch. Lib., Newark, NJ

Library Journal