it seems to me that, beyond the nearer-term risks (rising energy costs, avian flu, etc), there are two countervailing trends with broad, longer-term implications for global markets.
first, over time, general trends affecting the human condition are improving. life-expectancy, health, economic wellbeing, quality of life, and the entry of previously excluded segments of humanity into the global economy are all systematic trends that show no signs of abating. there are some hiccups and volatility, but the long-term historic trends show clearly that technological progress has benefited humanity. period. in this context , all the noise about political risk making the world a more dangerous place misses the stronger underlying point.
the problem is that the fat tails of the downside are simultaneously growing exponentially, a reflection of the tendency for the negative consequences of globalization to affect markets. i’m thinking particularly about the diffusion of dangerous technologies, making macro market disruptions far more likely over time–whether intentional or accidental.
cambridge professor martin rees recently wrote about an interesting series of experiments at brookhaven national laboratory, involving an advanced particle accelerator meant to replicate in miniature the conditions that prevailed immediately after the big bang, when all matter in the universe was squeezed into the subatomic level. the math behind the experiments remains a matter of some debate. but the consensus among physicists was that simply by running these experiments, there was a 1 in 50 million possibility that the huge concentration of energy the scientists created could produce a world-ending event. this infinitesimally small risk didn’t unduly bother the scientists, and they proceeded with the experiments. which might seem reasonable, except for the fact that 1) there are roughly 6 billion people in the world (so if you ran the experiment continually, the expected probabilistic outcome of each experiment is over 100 deaths); and 2) the decision to run the experiments was made without any supervision/consent of a governing body. the scientists just took the risk.
that’s an admittedly extreme example. but it’s also a completely new paradigm–a small group of unsupervised scientists could have accidentally provoked a world-destroying event. however small the risk, this possibility had never before existed. in that context, it’s worth thinking about the manhattan project–a considerably less sophisticated technology developed several decades ago that could not have been completed without several years of subsidy from the world’s wealthiest government.
so while the experiment itself didn’t merit concern (who would possibly hedge an event that’s one in 50 million?), the more general point is important. new, presently nascent, technologies created by small numbers of people who have little if any governmental oversight will have the ability to affect countries, regions, cities, neighborhoods–easily and accidentally.
and that’s the benign possibility–error rather than terror. the more disturbing trend is that rogue states, or even organizations or individuals, could increasingly have the means to disrupt the global system. is there a silver lining in this cloud? possibly. destructive technologies also breed diligent efforts to counter them. there is no question that the international community has made impressive advances in counterterrorist capacity in recent years. and while the non-proliferation regime is badly broken, sufficient attention has been paid to the attendant dangers of a nuclear north korea and iran that the international community is increasingly prioritizing the issue.
ray kurzweil, one of the longest-sighted techno-optimists, points to anti-virus technology that allows the internet to continue to bloom (and, in that vein, the overblown y2k panic). and undoubtedly, the dangers of gene manipulation, new biosecurity threats, and nano-technology gone awry will be countered by strenuous efforts by far-better funded sources to keep the threats at bay. but the massively redundant worldwide web is not a good analog for the global economy, a system in which the interdependence of economic nodes allows a sudden malfunction in one to produce increasingly rapid systemic effects. in short, i’m still betting on political risk…
– ian bremmer, eurasia groupreprint