Systems theory says that systems take various forms.
The fragility of the global economy has been exposed twice within the last two decades. In 2008, the collapse of a financial services firm in the US triggered a global financial meltdown. In 2020, the emergence of a novel virus in a food market in Wuhan has done it again. From west to east, now from east to west, the whole system has been shaken. In chaotic systems, the flapping of a butterfly’s wings in the Amazon forest can cause a typhoon in Hong Kong. The global economy is exhibiting the properties of a chaotic system.
Systems theory says that systems take various forms. Broadly speaking, there are chaotic systems, engineered systems, and complex self-adaptive systems. As the weather in a storm, chaotic systems are unpredictable and uncontrollable. The global economy is behaving like a chaotic system. Engineered systems, on the other hand, can be controlled quite tightly, like machines. However, they are dull. No surprises. A nuclear power plant is a well-engineered system. We would want it to do just what it is supposed to and not produce any surprises.
In contrast to these systems is the design of nature. It is a complex self-adaptive system. It produces myriad innovations. It evolves. Yet, its fundamental stability is very reassuring. The realisation that mankind’s technologies and engineering marvels are disrupting nature’s stability, has raised alarms about the architecture of global economic governance.
The architecture of complex self-adaptive systems is formed by essential design principles. One is “permeable boundaries”. The many parts of a complex self-adaptive system have permeable boundaries between themselves. Each part has its integrity. The parts exchange information and energy across their boundaries as required. The boundaries give the system resilience against shocks. Like the baffles inside a ship’s hull, they slow down the sloshing inside when the hull is breached and stabilise the ship. When there are no boundaries within, or they are too weak, an accident at one end will soon sink the whole ship.
The drive for boundarylessness within the global financial system since the 1990s caused the sloshing around of contagion during the global financial crisis in 2008. Whereas global economic growth has undoubtedly been enabled by global supply chains, the vulnerability of economies everywhere to their disruption has become painfully evident with the COVID-19 pandemic.
Complex adaptive systems exhibit “fractal-like” shapes. Their parts are complex, combining the same diverse energies that permeate across the whole. Social forces, economic forces, and environmental forces combine within all countries, and in parts within countries too, albeit in different ways. Though the parts are similar to each other, they are not the same. Therefore, the same solutions will not fit all. An insight from systems theory is that global systemic problems such as climate change, persistent economic inequality, among others, will require local systems solutions.
Crises create stress tests for the health of systems. The financial crisis of 2008 exposed the fragility of an inter-connected and under-regulated financial system. The COVID-19 pandemic has exposed the architectural weaknesses in the global economy. Instead of worrying too much about the reversal of globalisation, national leaders should now focus on the well-being of their citizens and the health of their own economies. Six reforms are essential for reshaping the Indian economy.
First, focus on the provision of universal social security, rather than on the misdirected demand for even more “flexibility” in labour laws. The 90 per cent of Indians who are compelled to work in an overly flexible labour market need more fairness in their lives.
Second, respect the “informal” sector which provides the majority of Indians with opportunities to earn incomes, and give it more strength. It is also a great source for practical innovations and widespread entrepreneurship.
Third, change the economic paradigm from “trickle-down” to “build up”. Build the internal engine of growth of India’s economy by increasing incomes of India’s citizens. When they earn more, they will spend more, and expand India’s internal market. This will attract more domestic and foreign investments.
Fourth, strengthen public health services. Medical tourism may put India’s private hospitals on the global map. However, they are not the solution to India’s huge health problems.
Fifth, reform and strengthen the public education system. It will contribute greatly to creating a level playing field for all children.
And sixth, strengthen local governance in India’s towns and districts to develop and implement local systems solutions. The well-being of Indian citizens will be improved, and India’s economy will be more resilient too.
All governments are asking their citizens to increase “social distancing” between themselves to prevent the spread of a health contagion. It would be wise for countries to maintain sufficient “economic distancing” amongst themselves too. They should mind the health of their own economies. Thereby, they will improve the health of the global economy too.
I conclude with a “namaste”. A gesture with folded hands, without any physical contact with another, to acknowledge another’s divinity. The expression “social distancing” is unfortunate. Whereas, what medical experts are actually asking citizens is to maintain “physical” distances from each other. The need of the hour is for more social solidarity amongst citizens. Within their localities, in their countries, and across national borders too.
Maira, a former member of the Planning Commission, is the author of Listening for Well-Being: Conversations with People Not Like Us. This article first appeared in the March 26 print edition under the title 'Mind your own economic health'.