What if the world de-globalizes? We should stress test our economy's exposure to this Black Swan

For centuries, successive communication, transportation and business revolutions have rendered our planet ever smaller. “Globalization” is the lastest episode in this longstanding trend. But — even as pundits declare our world “flat” — some now believe globalization is being thrown into reverse by climate change, energy crises, and economic crisis-driven protectionism.

How fragile is our society? Our economy? Our business models? And how significant are the threats to the status quo? Could someone or something shut down the Internet? Could a highly contagious bird flu cripple travel and trade? Could a rapid decline in oil production bring America to our knees? Could space debris or space wars return communication technologies to the pre-satellite era? Could economic crisis cause a seizing up of global trade as nations competitively raise tariff drawbridges to block other nations' products? Could rapidly rising sea levels leave billions homeless? Will global warming intensify water wars? Will CO2 ocean acidification kill off what’s left of the world’s fish stocks?

The threats are many, so we should be stress testing our business models and economic systems against these threats. We should also be taking steps to reduce our risk exposure.

One obvious defense against a collapse of globalization is increasing self-reliance. For example, a vertically integrated firm is less dependent/vulnerable than a firm that specializes in product design and marketing and has outsourced manufacturing to a global supply chain of manufacturers and transportation firms that could go bankrupt at any moment.

At a personal and community level, some are taking de-centralization and re-localization very seriously, as reported in this New York Times article on “The Transition movement”:

The Transition movement was started four years ago by Rob Hopkins, a young British instructor of ecological design. Transition shares certain principles with environmentalism, but its vision is deeper — and more radical — than mere greenness or sustainability. “Sustainability,” Hopkins recently told me, “is about reducing the impacts of what comes out of the tailpipe of industrial society.” But that assumes our industrial society will keep running. By contrast, Hopkins said, Transition is about “building resiliency” — putting new systems in place to make a given community as self-sufficient as possible, bracing it to withstand the shocks that will come as oil grows astronomically expensive, climate change intensifies and, maybe sooner than we think, industrial society frays or collapses entirely. For a generation, the environmental movement has told us to change our lifestyles to avoid catastrophic consequences. Transition tells us those consequences are now irreversibly switching on; we need to revolutionize our lives if we want to survive…

Hopkins insists that if an entire community faces this stark challenge together, it might be able to design an “elegant descent” from that peak. We can consciously plot a path into a lower-energy life — a life of walkable villages, local food and artisans and greater intimacy with the natural world — which, on balance, could actually be richer and more enjoyable than what we have now.

They don’t have all the answers. But they’re asking questions we should all be contemplating. Hopefully, as 60 Minutes reports, cold fusion will magically eliminate our twin fears of energy crises and relentless climate change, but we would be wise to hedge our bets.

Posted by James on Monday, April 20, 2009