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The Butterfly Defect

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The Butterfly Defect

How Globalization Creates Systemic Risk and What to Do About It

Princeton UP,

15 min read
10 take-aways
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What's inside?

What risks threaten the overall, interconnected global economy?

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Editorial Rating

9

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  • Innovative

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Former World Bank vice president Ian Goldin and assistant professor Mike Mariathasan argue that today’s globalized, interconnected, complex world faces new risks and new opportunities. Their title derives from Edward Lorenz’s illustration of how causality works in complex systems: A butterfly flapping its wings on one continent causes a hurricane on another. The threats people face in a globalized world are not primarily local or isolated, but systemic, as evidenced when the effects of crises ripple around the world in nonlinear, unpredictable patterns. The authors’ prose is clear, their examples are accessible and their complicated topic proves historically fresh. getAbstract recommends their thesis to entrepreneurs, investors, CEOs and anyone interested in complexity, change, globalization, systemic thinking, or surviving in an interconnected world.

Summary

Globalization and Its Adverse Effects

Today’s increasingly interconnected and complicated globalized world faces new threats. Now, action in one country affects many other nations. The challenges citizens face transcend their countries’ boundaries. Situations are increasingly fluid and complex. Actions that seem rational to one person can lead to collective disaster, as in the “tragedy of the commons”: Each person’s desire to catch and eat a lot of fish results in fished-out waters and in everyone going hungry. In an interconnected world, your actions generate consequences that play out in a nonlinear way. This makes it harder to plan or to know what to plan for. As globalization pressures people, they often push back irrationally.

Contemporary society faces increased “connectivity and integration.” Today, a Masai tribesman can use a cellphone to search on Google and have “better access to information than” the president of the United States did at the turn of the millennium. Distinctions between the developed world and the developing world are fading. With globalization, people, goods, information, services and culture flow easily across national borders.

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About the Authors

Ian Goldin, author of more than 50 articles and 19 books, including Globalization for Development, was vice president of the World Bank from 2003 to 2006. Mike Mariathasan is an assistant professor of finance at the University of Vienna.

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