The cost of interdependence

You’ve heard it before: The world is a complex and interconnected place. But what does that really mean?

It means that we live in a world where US mortgage lenders can bring down the global financial system, or where an Earthquake in Japan can overturn European energy policy. For me, it’s all about nonlinearity and emergent properties, which are fancy ways of saying that the whole is always greater than the sum of its parts.

Nowhere have I seen this demonstrated more clearly than in the recent findings of Yaneer Bar-Yam’s team at the New England Complex System’s Institute where they have produced a mathematical model that has been able to explain all the extreme agricultural price volatility that we’ve seen since 2004. And get this, they’ve been running the model unaltered for the last 10 months and it has continued to predict fluctuations in food prices accurately.

Two important findings have come out of their research at this stage:

1. Extreme volatility in food prices is driven by a combination of speculation in global commodities markets and the increasing conversion of food into fuel, and that this volatility in food prices is in turn driving social unrest and hunger.
2. According to Bar-Yam’s model, we should expect to see the greatest spikes in food prices yet in 2013, which should set off a wave of social disruption.

The world we live in is one in which the behaviour of options traders and our attempts to move to renewable energy may unwittingly determine the nutrition, and in turn, the life course trajectories of entire generations.

Perhaps more important than complex notions of nonlinearity and emergence is the concept of interdependence. Interdependence means that not only are our fates intertwined or interconnected, but through such relationships we are each losing some of our autonomy. There are always costs shared between parties in an interdependent relationship. What’s more, whether we’re talking about a relationship between two people, two countries or two parts of the globe, interdependence does not mean we share those costs equally between us.

The dilemma, as anyone who has ever fallen out with a friend or lover can confirm, is that you can’t be sure that the benefits of a relationship will exceed the costs until you’re in it. Following the work of experts on the subject of power, like Robert Keohane and Joseph Nye, the equal sharing of the costs of interdependence will be determined by the values of the actors involved and on the nature of the relationship. A good starting point to improving the state of the world is improving our understanding of complex interdependencies and then taking action on what we’ve learned.

Despite what Bar-Yam’s research reveals and other economic lessons of the last five years, there is still opposition to change. Regulators who have been trying to enact limits on speculation in commodity trading have been met with tough resistance from the financial industry who are understandably concerned over the unforeseen negative consequences of regulation to their business. Interdependence requires us to look far beyond ourselves, our countries and our quarterly earnings. It requires value-based leadership that can push through change on a systems level, or in other words, transformation.

David Gleicher is a researcher with the Forum’s Risk Response Network.