OXFORD – Recent evidence suggests that much of the world has entered a period of low financial-market volatility. But this is no time for complacency; more turbulent times are likely to lie ahead.
Over the last quarter-century, rapid technology-driven globalization – characterized by the physical and virtual integration of the global economy, including the opening of world markets – has contributed to the fastest increase in incomes and population in history. But, while globalization has created unprecedented opportunity, it has also unleashed a new form of systemic risk – one that threatens to devastate political institutions and national economies.
Systemic risk is intrinsic to globalization. Greater openness and integration necessarily increase the potential for cascading crises and amplification of shocks.
As individuals and societies become richer, they come into closer contact with one another – virtually, through communication technologies, and physically, through population growth, urbanization, and travel. Meanwhile, rising consumption of products like food, energy, and medicine enhances the externalities, or spillover effects, of individual choices, with the connectivity of global systems increasing these effects’ range and impact.