Challenges Associated with Global Access – Gene Huang Interview

The FedEx Chief Economist discusses potential risks associated with increased access to information, technology and sustainable solutions access can enable.

Increasing access to information and markets across the globe is driving job growth, fueling innovation, and altering the fate of entire peoples and nations. But what are the potential risks of living in a seamlessly networked world? The bursting of a housing bubble could inspire fears of a worldwide financial crisis is one example; so are mounting fears of permanently high energy prices, and the seeming incompatibility between sustainability and growth. Exploring these apparent contradictions helps us understand how a world with exponentially more Access creates challenges of its own, and how Access also poses its own solutions.

The Context for Access — and Risk — Today

We live in what is probably the most integrated, global economy in history. Participation in the global flow by individuals and companies of all types is at an all-time high, and economic interests are becoming integrated in every channel: goods, labor and capital. Technology enables the fluid transfer of information between each one, a development that — at this level of scale and speed — is unprecedented.

In the goods channel, the emerging markets (especially China) are playing the role of the world’s manufacturer for the first time. Because of this, the flow of merchandise has become highly specialized and unique, raising the stakes at both ends of the trade routes; the more specialized the flow of the goods, the greater the risk of dependency on both sides. In the labor channel, labor participation within countries such as China is at an all-time high — and growing. And when we look at capital, we see the Persian Gulf countries, along with China, becoming major creditors to the U.S. In all three of these channels, the new roles played by emerging markets are increasingly critical, because they’re expanding international trade and amassing huge foreign reserves, while dictating the global industrial structure.

What does all of this mean? That a truly global economic system is being created. It’s a system that provides an unprecedented level of Access to people, business and nations, but also poses new risks. A shock to the economic system now is a shock to the entire system. This is the risk associated with our historically unprecedented degree of Access.

Constraints On Resources Create Shocks

Shocks are a function of constraints. If you don’t have a resource constraint, it’s difficult even to conceive of shocks happening. But once we reach a point of constraint — or limit the ability to access a particular resource — the system tightens and it becomes very easy to create shocks. Energy for instance, often causes shocks to the system. Supply is limited, while demand is high and ever-increasing. Investor jitters, natural disasters, geopolitical events — anything, really, can cause a shock to the system, including something as small as a misquote or misunderstood fact.

So what’s the best way to reduce the risks inherent to increased Access? Perfect foresight would help, of course. But even with the increased communication and integration made possible by new networks, we still can’t prevent shocks from occurring. Perhaps we need to put some circuit breakers in the global financial system. How to do that is a good question.

The combination of market psychology with a hard-wired system already creates problems in computerized trading. For example, on “Black Monday” in 1987, computerized trading programs began dumping shares without constraints before the markets could be closed, thus triggering a worldwide sell-off. In the wake of the event, “circuit-breakers” were implemented to automatically create time-outs when markets became overheated.

A world without shocks is very efficient. Today’s seamlessly networked worldwide markets are probably the most efficient we’ve ever had — because they eliminate redundancy. But once you run into the financial equivalent of a weather situation — the kind you see at airline hubs, with planes backed up on the runways — you see disruptions ripple across the globe. So how do you implement a firewall or a circuit-breaker in a seamlessly integrated world? Through dialogue, perhaps. You certainly can’t program something — it’s all too complex. But I know that essential players all over the world are focused on this issue all the time, and the World Economic Forum is one of those examples. That dialogue, in and of itself, I think, can help reduce the risk of a catastrophic meltdown.

Access Can Support Both Stability and Sustainability

The greatest constraint of all, of course — or at least the greatest source of fear — is energy. The shocks tied to it are twofold: an economic shock stemming from cost and scarcity, and an environmental shock. And concerns about sustainability are certainly on everyone’s mind these days. Given the current limits of technology and practices, there’s a misconception that output — and Access — must be reduced in order to preserve the environment. But this is only one side of the equation — and only one way of looking at potential solutions. If we change our behavior and change the technology, there are studies that suggest we can save one third to half of the world’s energy costs while maintaining the same output and Access — and lessening the likelihood of shocks, and risk.

Even the heavy polluters among the emerging economies — China and, increasingly, India — already understand this. They’ve reached a point of intolerance because the negative effects are visible in their societies; people are suffering, and the costs of pollution are quantifiable now. The Chinese government has now completely outlawed the use of plastic bags, and that alone will play a big role in reducing pollution and resource use if they can actually implement it. In India, the newest sensation is Tata’s $2,500 car, which could prove to be its era’s Model T, offering an incredible amount of Access to millions of people. The technology they’re putting into the car will enable the emissions to be as low as one third of the motorcycles that many Indians own now. They will simultaneously be adding capacity to their roadways and their economy while becoming more environmentally friendly. Moves such as this are a start — and what we need more of is positive change like Tata’s on both sides of the equation.

Add a Comment

Please note, your comment will not appear until approved, and all fields are required. Your email address will not be published.