Relationships are a boon and bane. The COVID-19 crisis is a perfect illustration of this truism. We have cultivated wide and deep international networks over decades.
Relationships are a boon and bane. The COVID-19 crisis is a perfect illustration of this truism. We have cultivated wide and deep international networks over decades. These have been important mechanisms for fostering and sharing global prosperity. But overnight, these same networks have turned into deadly conduits for spreading biological and economic disease.
The riskiness of a loosely connected world is different from the riskiness of a deeply connected world. In a loosely connected world, we are vulnerable to the few, highly connected business and economic giants that dominate and hold the entire economic network together. Remember the time when America sneezed and the whole world caught a cold?
But in a densely connected and tightly coupled world, we are vulnerable to every other player in the network. We’ve reached the point where anyone can cough and the whole world can catch COVID-19.
This has key lessons for managing crises and risks in a connected world. Our fortunes are tied to those of our key partners, suppliers and customers. Our connectedness precludes us from acting independently. Together we’ve built ourselves a network. Together we’ve reaped its benefits. So together we now need to act as a network to preserve it.
These have served as important mechanisms for fostering and sharing global prosperity. But overnight, these same networks have turned into deadly conduits for spreading disease. And let’s not just talk about the aviation, cruise ship, and bullet train networks that have sent the virus hurtling across borders. Let’s talk about the network of business partners around the world with co-dependent operations: it takes only one supplier to cough to infect and disrupt the whole network.
We haven’t always been this connected. But the trauma of war, conflict and economic disruption has motivated generations of world leaders to lower the riskiness in the world by binding us closer together. This has been accomplished through economic integration initiatives (e.g. free trade agreements, single markets, regional integration agreements). The assumption is that close relationships promote peace and prosperity for all. Developing close economic ties through international business and neighbourly trade means we’re going to think twice or thrice before getting into conflict.
And on balance that’s been the case – our close global ties over the years have served us well. We have indeed become more prosperous and peaceful. But we now need to appreciate that the riskiness of a loosely connected world is different from the riskiness of a deeply connected world.
In a loosely connected world, we are vulnerable to the few, highly connected business and economic giants that dominate and hold the entire economic network together. It would take one of these giants to fall ill to take the whole network down with it (remember the time when we could say when America sneezes, the whole world catches a cold?)
But in a densely connected and tightly coupled world, we are all vulnerable to not only the giants but also every other player in the network. Economic size and network position matter less when we’re all connected. We’ve reached the point where anyone can cough and the whole world catches COVID-19.
This has key lessons for managing crises and risks in a connected world. Our connectedness precludes us from acting independently of the rest of the network. Our fortunes are tied. Disentangling is not the answer because a single player’s unilateral decision to exit can cause unpredictable disruption the network and to the disentangled player. The challenge is to think of ways to coordinate our crisis and risk management strategies with others in the network. This includes our key partners, suppliers and customers. Together we’ve built ourselves a network. Together we’ve reaped its benefits. So together we now need to act as a network to preserve it.
This piece draws on: Seno‐Alday, S. (2019). Varieties of regional integration, international trade networks and risk. The World Economy, 42(9), 2790-2815. https://doi.org/10.1111/twec.12831
This is part of a series of insights related to Coronavirus (COVID-19) and its impact on business.
Image: Sergio Souza
