Posts sorted by label

Wednesday, March 18, 2020

Globalisation has its flaws

What a difference a week makes! I was all set to jet off to Scandinavia this evening for the 2020 edition of the Nordic Wood Biorefinery Conference. (An excellent conference, by the way, and you should consider attending; it's been postponed to October 13-16).

I won't bother reciting facts about the coronavirus pandemic, as anything I write today will be obsolete tomorrow. But here are some random thoughts about this emergency.

First, it shows that the system of global interactions we've learned to call globalisation has some unintended consequences arising from a severe lack of resilience when faced with a jolt. The system may exhibit resilience in the face of some types of jolt, but a global pandemic is clearly not one of them.

In mechanical engineering and in design of control systems, Lagrangian dynamics define the equilibrium of a system. Imagine a marble in the bottom of a salad bowl; if you poke the marble, it will roll up the bowl a certain distance, then roll back, perhaps oscillating for a while before eventually returning to its original position. This is called stable equilibrium. Turn the salad bowl upside down and balance the marble on it (if you can...); poke the marble and it runs away, never to come back. The marble balanced on the inverted bowl may be in equilibrium, but it is unstable. The equations describing this include a term whose sign indicates the curvature of the response surface: positive means upwards (stable), negative downwards (unstable). The magnitude of the coefficient indicates how shallow or steep the curvature is. We're currently witnessing a pretty big negative coefficient. The trick is predicting the size and sign of the coefficient for extremely large, complex linked systems that are subject to seemingly irrational human actions, such as panic buying of toilet paper; I don't believe we will ever be able to do so, but the model provides a framework for thinking about resilience and stability of global systems. (For more on the topic of Lagrangian dynamics, see, for instance, here. Wikipedia also has a background article on the topic.)

Second, it shows just how much of the world economy is based on businesses that rely on spending at the discretionary end of the spectrum. This includes flights, cruises, hotels, restaurants and bars, movie theatres and concert halls, public sporting events, etc. The list is long, and covers industries that collectively provide a livelihood to an enormous percentage of humanity in the developed world.

Finally the question arises as to how quickly things will get back to "normal", if ever. There were similar questions following 9/11; history shows the stock market bottomed out about 18 months later before roaring back. And SARS was beaten back pretty quickly in 2003, when contact with China was much less common.

But this time may be different. Will business move back to expensive downtown real estate, with rows of employees in cubicles, or will the new video-conference, work-from-home approach become the new norm? Certainly the necessary systems are far more supportive of this than in 2001.Will the tourists return to Venice or the cruise ship industry? If not, what would they do instead, assuming similar levels of disposable income?

Coming back to the Lagrangian view of the world: system dynamics describe the system's response to local curvature of the surface of the universe. Through globalisation, we have moved from a local minimum (inherently stable, salad bowl facing up) to a local maximum (inherently unstable, salad bowl facing down). We've now been displaced from that local maximum by a jolt, and are hurtling downhill at a tremendous rate. But here is a critical question: are we headed back to the same local minimum? The universe can be considered a wavy surface with many peaks and valleys, and we may be headed to a completely new valley, or canyon, or something, of unknown depth and shape, where new conditions of stable equilibrium will exist. Given the gathering momentum, we may even crest other smaller peaks or ridges of instability before settling somewhere new.

So where will we all be in this new equilibrium state? Where will hotel employees or airline pilots earn a living? What will be the impact of the coming social upheaval? What will be the impact on the world's other major issue, namely climate change?

I won't stick my neck out making predictions. We are in uncharted territory. But I am reminded of the (likely apocryphal) Chinese curse: "May you live in interesting times."

1 comment: