The Paradox of Development

Human history has been a story of connections. Over the entire course of history, people have forged connections with others. Initially starting with immediate neighbors and then moving on further and further afield. Sometimes the connections made were peaceful, sometimes not. The unequal distribution of resources in the world led to the development of trade which in turn led to further and deeper connections being made. These ever closer connections are an important aspect of development. This process of forging connections was slow but over the very long term steady despite setbacks like collapse of empires (the Roman Empire being a prominent example) and the occasional appearance of devastating diseases like the Black Plague. Industrialization vastly accelerated this process. It is as though the accelerator has been jammed down hard.

Industrialization enabled two very important developments. It lowered transportation cost for all sorts of products (including people) and it lowered communication cost between different regions of the world. Furthermore, it did this while vastly accelerating both processes at the same time. So goods could be transported further and faster and at the same time communication between different regions became more and more in real time.

Today we are all linked together in a vast network spanning the globe. All kinds of goods are routinely ordered from around the world for sale or consumption elsewhere. Families which used to be clustered in a village are now scattered all across. No one is surprised if say a brother is living in one country while a sister may be married and settled in another and the parents live in a third. Again we call this development. Opportunities used to be local. Now they are global. The biggest beneficiaries are corporations. The process of development has resulted in a globalization in which corporations now straddle the world. Unlike most previous entities, these giants have operations in different parts of the world. For example design may be done in the USA, while manufacturing is handled by China, market research may be done from India while the supply chain may be coordinated from the UK. The world of today is a complex interlocking structure which can smoothly transfer goods and services in different stages to different parts of the world at ever lower costs. This is a sophisticated, complicated structure with a unique elegance and beauty. All of this being accomplished without the aid of any central agency.

However, there is a paradox embedded in the heart of this structure. As this structure has become more global and more closely linked (which is an ongoing process), it has also become more fragile. As we have become more dependent on this system of connections, we have also become more vulnerable. The interesting thing is that the more dependent we are on this system, the more vulnerable we are. A shock administered to one part is felt in other parts and other areas of the system. Take Japan. A massive earthquake is followed by a massive tsunami. Large areas are devastated. There is major property damage and unfortunately also major loss of life. A terrible tragedy for the Japanese people. But the fallout from this event is felt in other parts of the world. Suddenly there is a recognition that Japan needs to rebuild. For that it will need money and is very likely to liquidate assets held abroad in order to finance reconstruction. Japan is also a major holder of US treasury bonds. What will happen to the US economy and the value of the US dollar if it starts selling large quantities of these? Many American companies, specially electronics ones, source material from Japan. Now these are heavily affected. Are there alternate suppliers with enough spare capacity to take up this lost production? If they do, how quickly can they gear up production? Fragility. An event in one part of the world is shaking other parts. Another example: Libya. Inspired by the events of Tunisia and Egypt, the Libyans launch their own protest against Muammar Gaddafi's regime. Unlike the other countries, Gaddafi strikes back hard and the country descends into a civil war. Libya however is a large oil producer. All of a sudden this capacity goes offline as far as the rest of the world is concerned. What happens next? Oil prices spike up. Again an event in one part of the world starts shaking up other areas. Fragility.

On a smaller scale, the fragility of the modern world can be seen in our cities. Modern cities are miracles of organization mostly unplanned. Our cities contain huge number of people living cheek by jowl. Vast quantities of different kinds of food and water need to be shipped in daily and distributed efficiently. Equally vast quantities of waste material need to be disposed of again on a daily basis. Cities are major centers of production and provide services essential for the smooth functioning of a modern economy. As an example, America's economic growth would be severely impaired if cities like New York, Chicago, Los Angeles and San Francisco were to become dysfunctional. Cities are a sophisticated and thus a fragile system. What would happen if say a major earthquake were to cut off road and rail links and render airports unusable so that food supplies into the city are severely curtailed? People living in modern, developed cities are dependent on the smooth and timely functioning of the overall system. If it gets disrupted in a major way, starvation is a distinct possibility. Hungry people are not quiet people and so a breakdown of law and order would be very much on the cards. Again, more sophisticated the system, more fragile it is.

If developed countries with their highly sophisticated systems are so fragile, then developing countries should be like a house of cards. Interestingly enough, this is not necessarily so. Developed country systems are tightly linked together and are dependent on all parts functioning smoothly. Developing country systems are not so tightly linked together. People living in these systems are more used to fending for themselves simply because the system in which they live is usually dysfunctional to a greater or lesser degree. This also means that in times of need, local communities will rally together simply because they are more attuned to doing so. These systems are thus more robust because they are more primitive. That in a nutshell is the paradox of development: the greater the development, the more tightly linked different parts of the system are, the more fragile the overall system becomes.