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

by Ian Goldin and Mike Mariathasan Princeton University Press
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Pbk 320 pages
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The Butterfly Defect addresses the widening gap between the new systemic risks generated by globalisation and their effective management. It shows how the dynamics of turbo-charged globalisation has the potential and power to destabilise 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 globalisation 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.

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

Finalist for the 2015 Estoril Global Issues Distinguished Book Prize '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.'--Library Journal 'This is an important and thought-provoking book.'--Shawn Donnan, 'The arguments put forward are cohesive and coherent with well-constructed logical chapters, good, well thought out examples and jargon free language. . . . Upon reflection of this book, I was left with a clear and defined picture of how systemic risk effects systems and how globalization inherently increases these risks.'--Jason Paul Stansbie, Leonardo 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
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.