Preparing for the Pitfalls of Interconnectivity

  • Reference: ART-2077-E

  • Number of pages: 8

  • Publication Date: Mar 15, 2012

  • Source: IESE (España)

  • Type of Document: Article

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Description

Recent decades of globalization have created a more interconnected, interdependent and complex world than ever witnessed before. While policy makers have focused on facilitating integration, the implications of growing interdependence have been largely ignored. Global integration has brought many benefits, but it has also created fragility by producing new kinds of systemic risks. This article provides an understanding of these new 21st century systemic risks and the challenges they pose. The 2008-09 financial crisis is used to illustrate the failure of even sophisticated global institutions to manage the underlying forces of systemic risk, which has been amplified by our growing interdependence. At the same time, technological change has greatly increased the power of individuals to destabilize powerful systems. Urgent reform of global governance structures and institutions is essential to improve the mitigation and management of such global risks. Likewise, significant changes in risk management and risk culture are required to ensure businesses are better prepared. This article suggests the first steps to take.

Keywords

financial crisis future globalization risk audit risk governance scenario planning small world networks subprime mortgages system fragility systemic risk