Thursday, 4 July 2013

How Much Globalization Can The World Afford?

How much globalization can the World digest? Have we reached the limit? What is the limit, if any? Is globalization piloted and induced, or is it just a spontaneous and inevitable result of economic (and human) development? These are not easy questions to tackle. However, with the aid of complexity - which is a meta-KPI combining a multitude of conventional indicators into a single scalar measure - we can gain insight into the dynamics of globalization. Based on data from the World Bank, we have measured and analyzed the evolution of complexity of the World as a system. The analysis (see the end of this blog for a complete list of parameters) has embraced 600+ parameters, spanning the period 1970-2010 and covering the following facets of our global society:
  • Economy
  • Industry
  • Agriculture
  • Energy
  • Society
  • Ecosystem
  • Transportation
  • Telecommunications
  • Military/Defence
  • Education
  • Crime
  • Health System
  • etc.
In other words, the analysis was not focused on the economy alone. One point we would like to make is that today's crisis is seen almost exclusively as a crisis of the economy. True, the economy is in a state of crisis but this is more than just a crisis of the economy. There are aspects of the society, such as the loss of values, morals, decadent and wasteful lifestyles, that have fuelled the crisis, and are continuing to do so, and yet almost all analysis focuses on the economy, with particular attention on finance. True, finance has provided fast and deadly mechanisms which spread the effects of the crisis to every corner of the globe, making the system increasingly fragile. However, it is the World as a whole that want to analyze, not just one of its facets.

The main question we wish to address is this: what is the maximum sustainable level of globalization? In order to answer this question we must first devise a means of "measuring the degree of globalization". The idea is to use the complexity of the World as a proxy. Since complexity combines all the indicators listed below into one, it appears to be a good proxy.

The evolution of the World's complexity over the past 40 years is illustrated below. A growing and evolving system increases its complexity over time (see for example Earth's biosphere) but the important thing is to stay away from critical complexity. This is because close to critical complexity all systems become uncertainty-dominated and possess very feeble and unstable structure. So, the important thing is for the blue and green curves in the graph below not to cross. The bad news is that:
  • Apparently, both curves have already peaked
  • The slopes suggest they may soon cross

In practice this implies that we have indeed reached the peak of complexity (which, when seen from a biological perspective is as a measure of "total activity" or potential within a system), fact which took place around 2008-2009. Once we're beyond the peak, we assist the destruction of complexity.

A closer look at the peak allows us to attempt a forecast: if the trend continues without major endogenous/exogenous traumas, then
the World, as a system, will become critically complex around 2016

Details of the peak are illustrated below.

This means that while there may still be pockets where things function quite well, the World as a system will:
  • become very difficult to comprehend
  • become very difficult to govern
  • be highly fragile and unstable
  • be is a state of "paralysis"
  • dominated by uncertainty and turbulence

An interesting aspect of the evolution of complexity is that approximately around 2002-2003, the growth rate of complexity has increased dramatically. At that time, the slope has increased very significantly, as if we were assisting the formation of a huge global bubble. The slope, in fact, may be seen as the rate of globalization. In the last decade or so it has accelerated substantially. Maybe too much.

The question at this point is the following: is the peak of complexity just a local bump, after which the system will continue to grow again (and globalize more) or are we on a path of inevitable decline, like all ancient civilizations which were unable to cope with their own (critical) complexity? In other words, is it going to be "A" or "B"?

The aspect of the curves reflecting the evolution of complexity and critical complexity suggests that it is "B". The shape of the curves is similar to those of aging closed (from a thermodynamic point of view) systems. A few examples are illustrated below.

First, a theoretical "clean" case - a system is "born", it grows, it evolves, it reaches a peak of development (complexity), then, as it ages, it gradually loses efficiency, functionality, and finally reaches a state of zero complexity. Rigor mortis. Sounds familiar, doesn't it?

This is a more realistic case, with a less serene aging process:

Finally, a more traumatic demise with sudden and catastrophic collapse:

Clearly, planet Earth is not a thermodynamically closed and adiabatic system (it receives approximately 12.2 trillion watt-hours per square mile per year, and a few tonnes of meteorites, so the Second Law of Thermodynamics doesn't apply) but the aspect of the above curves does resemble the evolution of the World's complexity.

Evidently, the conclusions of this study are based on the assumption that the current global trends will continue. Based on the how our politicians have responded to the crisis this doesn't seem to be a strong assumption to make! More soon.