What is to say that our current economic landscape is something that will outlive us all. And what about the other remarkable aspects of our daily lives in 2020. David Westin interviewed General James Mattis (Ret.) and one of the most remarkable things he said is that the US is just a big experiment, that’s all it is. That many authoritarian regimes will fear a country that is being led by people, that are chosen by the people and that survival is something the US can afford.
https://youtu.be/dLRm2r6f3XU?t=123
That brings us to our current IT dominated hyper-connected global society, something we never experienced as humans and business before. In 1929, Frigyes Karinthy proposed the Theory of Six Degrees of Separation. The core idea is that two random people anywhere in the world are chained by a link of just six people. Fast forward to your hyper-connected society and you can imagine how quickly this chain of six people can be overcome. Thinking about a global order as a small world is now possible because of the cross-pollination between Frigyes theory and the recent revolutions in IT. This is, in essence, the product that LinkedIn is offering.
This week’s paper aims to explain Deglobalization movements such as Brexit and the Trump election by recognizing this very cross-pollination. What is fascinating in this paper is the parallel that is taken between mechanical engineering and a hyper-connected global world. In engineering, they explain, it is possible to analyze systematic failure in critical masses and tipping points because you have full control over the system. In engineering, The fatigue process describes how a system wears out due to usage under the circumstance to heavy for a system. This is called a systematic failure, and most of the time we accept a certain longitude for our consumer systems.
Within complex engineering projects, it is recognized that small variations in input can cause huge effects on the functioning of the system. Chaos theory elaborates on the cascading effects of small and seemingly independent actions within a large network. This cascading phenomenon explains much of the externalities that are so difficult to incorporate within our globalized economic order.
To get to the core of the paper, we talk about the science of complex systems and how the globalized world is a complex system. These networks are either centralized, Decentralized, or work as distributed systems. As various centralized networks have failed, such as the Soviet Union, not all is perfect in the decentralized world. The European Union aims to be a robust, yet interdependent system, but the financial troubles around Greece proved how a weak link in the interdepend chain can cause huge problems for all countries involved. The authors close with this remarkable statement”
- Deglobalization is a signal for the need for reduction in interdependent constructs in national economies, according to the complex systems theory. -
The Abstractions:
Innovation & Start-Ups
Hyper-connectivity poses as many challenges as it solves. For curious executives the possibility to innovate increases dramatically because your iteration speed has surged. This allows an executive to experiment with many different ideas, structures, and models at a fraction of the cost. So, hyper-connectivity and network-tools increase your opportunity to find the ultimate business-solution. This might explain the start-up boom of the past decade in which both internet connection and network tools became so widespread that you just can not avoid it.
The Established
De-globalization can partially be explained by the troubles with externalities. For multinationals who have roamed the plains of low-labor costs might experience troubles in supply when these countries get more prosperous and labor against low prices is no longer available. In the future, this might entail that you start sourcing locally again. Perhaps, your outsourcing should be done on an intellectual basis, in which the supplying country can truly add value. This sounds contradictory, but it is the only way to avoid negative externalities. And there are large opportunities such as lower transaction costs, shorter supply-chains, and lower risk.
For people who function in large business, it is worthwhile noticing the complexity and the nature of the human brain which can only trust about 150 people. This has created the need for institutional frameworks that ultimately facilitate interdependency as we know it in the complexity of business networks. To conclude, as a business you might want to scale down if your sourcing network is globally dispersed.
Society
The rise of populist movements might be explained because many voters have been disenfranchised from their roots. As I recently watched Noble-prize winner Joseph Stieglitz speak, he mentioned that a lot of Americans feel betrayed because they are now essentially competing with low-wage Chinese workers. So even though the U.S economy grows, the people who have worked for years against decent wages now face a rapid degradation in living standards. Leaving them hopeless and angry, hoping that a clown like Donald Trump will come to save them. Again, the authors of the original work point out a failure in our complex global system. This is not to say that we can not get things right.
To come back to where we started, the concluding remarks of General James Mattis (Ret.) mention that “our” democracy is a big experiment. And that we are better than our current politics. Perhaps we could say the same for business.
https://youtu.be/dLRm2r6f3XU?t=385
Full credit goes to José Balsa-Barreiro, Aymeric Vié, Alfredo J. Morales & Manuel Cebrián as the authors of the original paper. This article oversimplifies some of the original content to create quick and easy understanding. The one-and-only aim of this paper is to further promote it’s content to a wider audience. For the original paper please visit:
https://www.nature.com/articles/s41599-020-0403-x
About:
Bram van Kleef is an international business consultant @ VanKleef/Andersson and is located in Amsterdam. He holds an MSc in Business Administration: International Business & Marketing from Kristianstad University in Sweden. For inquiries: Bram@vankleefandersson.com
