Globalization and Chaos Theory

Edward Lorenz, renown mathematician and meteorologist died today in Cambridge, Massachusetts at the age of 90, and was still a teacher at MIT. He was known for his work in Chaos Theory and for coming up with what has become known as the 'butterfly effect'. In short, the 'butterfly effect' explains how a small change in the initial conditions of a system can trigger a very large change in the outcome and behavior of the system. This effect receives its name because it can be described by an explanation, or example, where something as small as a butterfly flapping its wings in Brazil can have rippling effects on the atmosphere and ultimately be the cause of a tornado in the southern United States (maybe the graph of the effects that a small change in the initial conditions of a system has on its outcome, which looks somewhat like a butterfly, might have something to do with it as well).

What does this have to do with economics? You might ask. Well, it serves as a parallel to what is going on in our world today.

A story in the New York Times explains how a drought in Australia can be partly blamed for this week's riots in Haiti. A few years back, a small town in New South Wales held the Southern Hemisphere's biggest rice mill, producing enough rice to feed twenty million people. Lately, a drought has come about the region, causing rice production to cease (almost) entirely. This causes a substantial drop in supply in the world's rice market, pushing up this staple's price.

Around the world, Haiti's 8.5 million people, who import four fifths (4/5) of their rice, find that there is not only a surge in prices, but those who can actually afford it can't seem to find it. This has caused social unrest, leading to riots, and reaching to the point where the country's prime minister was forced to be removed from office last week.

This whole deal teaches us a lesson. The world is interdependent; globalization is a reality, and not just a possibility. The question nowadays is not whether to be a part of it or not, it's how to maximize its advantages (or minimize its disadvantages) now that the world is globalized. Some countries have decided to set up export restrictions on their produce (Corn Laws in England in the 1800s and David Ricardo ring a bell?), while other richer countries have decided that aid is the way to go in order to get poorer countries producing again. However, it is clear that a country's internal situation can have determining effects on that of another (Chaos!), such as a butterfly might have on weather systems. Who knows, maybe a butterfly is to blame for Australia's drought and Haiti's riots!

This parallel is interesting, and might make sense, but it can also be a far-fetched way of linking two interesting events. I'll let you be the judge of that.