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Event Summaries
July 9, 2014

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

by
Rupert Sutton

Co-written by Quentin Wight

This is a summary of an event with Professor Ian Goldin, Professor of Globalisation and Development and Director of the Oxford Martin School at Oxford University, on  9th July 2014; it reflects the views expressed by the speaker and not those of the Henry Jackson Society or its staff.

Addressing an audience at the House of Commons on Wednesday 9th July 2014 Ian Goldin discussed how globalisation has led to vast benefits, including worldwide growth in incomes, education, innovation, and technology. Professor Goldin outlined the progressive nature of globalisation, and also detailed the dangers it presents, arguing that unless we are better able to manage the ‘Butterfly Defect’, the systemic risks inherent in globalisation threaten many of the great human achievements accomplished in recent years.

Focussing particularly on the importance of integration and cooperation to reduce these systemic risks, Professor Goldin explained how our future will be shaped by opportunities, investment, employment and new technology from outside of national borders. However, with many people around the world opposing the effects of globalisation there has been a rise in the popularity of protectionism, nationalism and xenophobia, and this must be challenged. In addition, we must be aware of the risks that exist, such as those presented by pandemics, social inequality, and climate change, and ensure that they are not ignored.

 

The Benefits of Globalisation

  • Globalisation has been the most progressive force in the history of humanity, with increasing integration, openness and connectivity bringing rapid societal development;
  • Since the fall of the Berlin Wall countries have become more democratic, the number of people living in poverty has fallen, and life expectancy has been increased;
  • However, this gain is at risk due to the increasingly fractious nature of politics and the nationalism and protectionism that has resulted from misunderstandings and mistrust of globalisation;
  • As a result, there are a number of systemic risks facing these advances which must be managed successfully.

 

The Risks Facing Finance from Globalisation

  • Finance is perhaps the most globalised of all institutions, however in many ways it is also the most sophisticated of the global institutions;
  • The great attribute of the financial institutions is that of clarity of mission – national/global financial stability – yet the financial crisis showed the risks that exist;
  • The pace of technological change has created a conflict of understanding between young and old, and this has been compounded by a surfeit of data and group-think within the financial sector;
  • Meanwhile, this mismanagement within the financial system stemmed from a misperception in terms of regulation; national regulation strategies were being used for a system that was global and growing.

 

The Risks to Business Practice Posed by Global Supply Chains and Infrastructure

  • Short-termism in business, driven by market-to-market accounting and quarterly reporting has made it increasingly difficult for businesses to set aside resources to build resilience;
  • This has led to “very brittle, long supply lines”, which increase vulnerability to rippling and amplify shocks;
  • Additionally, while some sectors have heavy management systems which have been slow to react to globalised risk, others (such as cyber) have little or no regulation;
  • As a result, coordination around these sectors can be very complex at a time when the world is relying on them to a greater extent.

 

Pandemics and Climate Change

  • Pandemics are the most serious of all the systemic risks created by globalisation because the more connected we are, the more vulnerable we become;
  • Any disease can effectively be anywhere in under 45 hours, making this an enormous challenge in the way that one thinks about risk, opportunity and coordination;
  • The increased economic growth provided by globalisation also impacts on us through the disasters driven by climate change, such as hurricanes and flooding;
  • This is a systemic risk that must be challenged, as the problem will only become more serious as globalisation sees developing nations use more energy as they climb out of poverty.

 

Social Inequality

  • Globalisation is increasing inequalities within countries, and as a result social cohesion is becoming more of a problem;
  • If an individual does not have the skills, geography or the ability to benefit from globalisation, they can be left behind – making mistrust of globalisation more common;
  • The tension between individual choice and collective outcomes is amplified by the increasing consumption globalisation drives – with the greatest impact falling on the poor;
  • However, globalisation can and has benefited those in poverty – but only if these risks and the system’s fragility are properly understood.

 

HJS Silver and Gold Members can view the event transcript and listen to a podcast of the event.

 

Rupert Sutton

About Rupert Sutton

Rupert Sutton is a Researcher at Student Rights and the co-author of 'Challenging extremists: Practical frameworks for our universities'. He is originally from Maidstone and holds a BA in War Studies from the University of Kent, and an MA in Terrorism and Security from King’s College London where he wrote his thesis on Loyalist paramilitarism. He previously interned at the International Centre for the Study of Radicalisation as well as spending two years with the NHS.

See all of Rupert Sutton's work