April 2021
Citi GPS: Global Perspectives & Solutions
The Global Risk Nexus: Mapping Inter-Dependencies As we have seen in previous chapters, globalization and rapid technology shifts have changed the way we live, and while it has led to many positive outcomes such as moving hundreds of millions (if not billions) of people out of poverty, it has also inadvertently changed the nature of risk.53 Traditionally, risk was seen as quantifiable and predictable; however systemic risks, derived from an increase in connectivity increased more interdependence with one another, have increased the complexity of global risks. Therefore, our use of traditional risk assessment, which assumes that causal links between actions and events can be known, has now become redundant in certain instances.54 A simple example is the floods in Thailand in 2011, which caused chaos in the country and led to the deaths of more than 350 people. A secondary effect which was not foreseen was the impact the flood would have on the global computer industry, in particular the manufacturing of hard disks. Thailand is responsible for roughly a quarter of global hard drive assembly facilities, and the floods in question closed down most of the factories and manufacturing facilities, thereby affecting supply chains for hard drives and other computer parts.55 While floods have historically been seen as a local or national issue, our reliance upon complex and interconnected systems to deliver goods and services has meant that a simple local or national issue such as a flood can easily grow to become a global issue. The nature of risks have now changed, and it has become extremely difficult to understand, let alone quantify, the impacts that one particular event could have on society. It is important to note that systemic risks are different to traditional risks; systemic risks are global in nature, highly connected, and intertwined, leading to complex causal structures. They are usually non-linear and stochastic in their effect.56 Global systemic risks such as Climate Change, Pandemics, Biodiversity Loss, Antimicrobial Resistance and others are also connected with one-another as described in more detail elsewhere in this report. For example, Climate Change could have a detrimental impact on Biodiversity Loss, while the loss of biological diversity could in turn lead to an increase in Pandemics. So an important criteria of a ‘systemic risk’ is one which can trigger, or result from, risks occurring across several other systems, and moreover, genuinely systemic risks should be viewed collectively and as interacting systems. While many of these risks are not new, as the world becomes more connected, the global risks we face are growing in their interdependency and complexity, and hence the concept of systemic risk is becoming increasingly important. These risks manifest themselves across all dimensions of society, economy, nature, and climate. As an example, COVID-19 has clearly demonstrated their intersectionality when we consider both the drivers of the pandemic, and its cascading implications, as highlighted in the figure below.
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OECD (2003). Willcocks (2020). 55 Kwong (2011). 56 Lucas et al. (2018). 54
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