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

by Ian Goldin & Mike Mariathasan
Princeton University Press, Princeton, NJ, 2014
320 pp., illus. 45 b & w. Trade, $35.00
ISBN: 9780691154701.

Reviewed by Jason Paul Stansbie
Trans-technology Research
University of Plymouth

jason.stansbie@plymouth.ac.uk

Many people, including myself, have heard of the ‘Butterfly Effect’. For those not acquainted with this I have provided a definition from Google:

butterfly effect
noun
noun: butterfly effect; plural noun: butterfly effects
(with reference to chaos theory) the phenomenon whereby a minute localized change in a complex system can have large effects elsewhere.

Coined by Edward Lorenz, ‘the Butterfly Effect’ is derived from the theoretical example of a hurricane being influenced by minor events, such as the flapping of the wings of a distant butterfly, several weeks earlier, and is linked to chaos theory. Intrigued by the title of this literature, a play on the word ‘effect’, I was eager to engage with this work. However, as a non-economist I thought this book would be hard to follow, filled with jargon, hard to engage with and something quite un-enjoyable. I am pleased to report that none of these pre-conceptions were true.

The book has eight (8) chapters comprised of a thorough introduction; a main text with rich, illustrative examples; a comprehensive 36 page notes section; a robust, 27 page reference section and a well laid out, comprehensive index. The Butterfly Defect is a professionally constructed book that engages its reader with simple, easy to follow language, nice clear examples, achieving its overall aims.

The book brings the reader's attention to the field of complex systems and the effects they have upon individuals. The authors write: “This book examines the consequences of living in a more connected, complex, and uncertain world. It aims to help us manage the risks associated with globalization” (4).

To achieve this aim the authors skilfully guide the reader through the following chapters:

Chapter 1: explains the concerns regarding systemic risk in the hyperconnected world of the twenty-first century

Chapter 2: draws upon the authors knowledge as economists, presenting evidence that the 2007/2008 financial crisis was the first of the systemic crises of the twenty-first century

Chapter 3: examines systemic risk in business and trade. It pays particular attention to the risks associated with global supply chains and the globalization of management education

Chapter 4: focus on the physical infrastructure that has created the arteries through which the lifeblood of globalization flows

Chapter 5: examines the ecological risks and the relationship between globalization and the environment, examining how both interact and shape each other

Chapter 6: presents evidence on which is perhaps the oldest form of systemic risk, which is that arising from viruses and pandemics. Globalization increases these risks

Chapter 7: concerns itself with social risks focusing on questions of economic inequality and social cohesion

Chapter 8: examines the interdependent nature of global risk highlighting the need for international coordination and interdisciplinary effort, concluding that risk cannot, due to the interconnectedness of systems, be confined to a sector or domain.

A refreshing statement is to be observed at the very outset of this book:

“We necessarily are not providing an exhaustive or specialist view of any one domain. Because we are economists, our analysis of finance is the foundation of our understanding of the key relationships between globalization and systemic risk. Outside economics, in health, infrastructure and other areas, we provide perspectives that are informed by our understanding of the key drivers and fragilities but that clearly require disciplinary expertise for further analysis.” (4)

Overall, the aims of the book have been achieved: to discuss, highlight and show how systemic risk though globalization is increased. The arguments put forward are cohesive and coherent with well-constructed logical chapters, good, well thought out examples and jargon free language.

Reviewing the text left me with a sense of understanding that was regardless of my non-economist background. The book covers concepts that when thought about allow the reader to connect dots and apply them to other areas of life. 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.