The Architecture of Collapse: The Global System in the 21st Century

The Architecture of Collapse: The Global System in the 21st Century In the wake of the 2008 global financial crisis, several sociologists turned to Charles Perrow’s theory of normal accidents to explain why the mortgage meltdown so quickly cascaded into a systemic crisis. Perrow had argued that technological systems are prone to uncontrollable crises when they are highly complex (with lots of opaque and non-linear relationships) and tightly coupled (with few buffers between components). Mauro Guillen and Sandra Suarez (in a 2010 article) were among those who argued that this basic theory of complexity and coupling could help diagnose the causes of the financial crisis and identify more and less promising solutions. With The Architecture of Collapse, Guillen has expanded this into an apparatus for analyzing the global economic system in general and explaining when crises remain contained or diffuse widely. In chapters on the global financial crisis, US-China relations, and the Eurozone, he illustrates how different configurations of complexity and coupling amplify or mute instability. The book stems from a lecture series, and it is accordingly peppered with graphs of rising complexity and coupling and readable (if not always gripping) case studies that draw on both secondary sources and some of Guillen and colleagues’ prior research. The global system, Guillen argues, should be seen as a network of nodes (countries) tied together by trade, investment, migration, and information flows. The complexity of the network has increased dramatically over the past half century, meaning that a growing number of countries have become increasingly enmeshed and interdependent. Guillen argues that we can also see growing complexity within nodes, particularly with the growth of democracy, state capacity, and diversified economies, among other things. Likewise, tight coupling can exist both across and within nodes. An entire network is tightly coupled when there are few buffers, little slack, and few “degrees of freedom” for adapting to unexpected events. Guillen sees indicators of tightly coupled networks in, for instance, rapidly flowing currency trades, portfolio investment (as opposed to more grounded foreign direct investment), and the trade in “intermediates” in global production networks, especially those built on just-in-time production models. Within nodes, tight coupling is generated by urbanization, inequality, “graying” populations, and public debt, which in various ways heighten pressure and leave governments with little space to maneuver. Crises are most likely to be severe when networks are highly complex and tightly coupled. Guillen’s analytical innovation, though, is to argue that some types of complexity can be shock-absorbing rather than shock-diffusing. For instance, some types of linkages, such as diversified trade networks and foreign direct investment, are highly complex but still leave governments with sufficient room to maneuver. In addition, complexity within nodes (i.e., democracy and state capacity) helps absorb shocks and keep countries from fully succumbing to isomorphic pressures. The case-study chapters provide informative illustrations of this basic argument, with some variation in how fully they apply the analytic framework. In the chapter on the global financial crisis, Guillen expertly recounts a variety of ways in which the complexity of large banks and poorly understood securities were combined with the tight coupling of highly leveraged financial firms and custom-made financial products (which were difficult to exit). The global spread of the crisis is less fully explained. Guillen argues that despite few countries being directly exposed to toxic assets in the United States, the crisis spread globally through trade networks, supply chains, credit crunches, and crashing construction sectors. Yet, closer attention to these pathways and mechanisms would be needed to fully apply the theory at the global level. In a foray into US-China relations, Guillen focuses largely on the status of the dollar as a global reserve currency. Ultimately, he sees the US-China relationship as not especially tightly coupled, largely because each country has alternatives in trade, investment, and currencies. Turning to Europe, Guillen argues that while the EU is a complex but loosely coupled system, the Eurozone as a monetary union is both complex and tightly coupled. This became painfully clear with the sovereign debt crises of 2009, as southern European countries were unable to devalue their currencies to regain competitiveness and often found themselves competing head-to-head with German exports. Nevertheless, as the European Central Bank helped German and French banks extricate themselves from toxic assets (turning network coupling into node coupling), the integration project pressed on. Here, Guillen’s analysis morphs into a trenchant critique of a “Euro-technocratic” mind-set in which all problems can be solved with more integration. Of course, since the book was published, we have seen resistance in the form of the Brexit vote to leave the EU. And yet, perhaps surprisingly given Guillen’s account, there has not been a Grexit from the Eurozone, or any other country leaving the monetary union. In the end, Guillen argues for a looser coupling of components (both within and across nodes) and for building state capacity as a shock-absorbing form of node complexity. For students and scholars of the global economy, the book provides a compelling sociological framework and range of insights into investments, currencies (see the “Dali principle”), and financial products (especially the problem with over-the-counter products). One disappointment is that in defining nodes as countries, Guillen subscribes to methodological nationalism without considering the alternatives. Through his network analytic lens, one could see firms as nodes, which are embedded in countries (or level-two nodes, as in an affiliation network) but also connected transnationally to other firms. After all, countries do not really “trade” with one another. A company in one country places an order that is met by a company in another country, and money and products flow across borders as a result. To be sure, national policy shapes this exchange in myriad ways. But why not drill down to inter-firm relationships if one wants to explain how far particular disruptions (e.g., a strike or natural disaster at one point in a global production network) or instabilities (e.g., the failure of a highly connected and leveraged financial firm) will spread? In addition, one might ask whether global integration is being accompanied by forms of walling-off that are not really considered here—not just the benign or beneficial “firewalls” that Guillen endorses but exclusionary structures meant to separate global elites from unseemly disruptions. This would include private security forces that allow extractive industries to boom in the midst of civil conflict, as well as migration and asylum systems that have allowed the United States, unlike Europe, to largely ignore recent refugee crises. To explain a fuller range of global crises—beyond financial and monetary systems—we should adopt Guillen’s network-institutional approach but push it further. © The Author(s) 2018. Published by Oxford University Press on behalf of the University of North Carolina at Chapel Hill. All rights reserved. For permissions, please e-mail: journals.permissions@oup.com. This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/about_us/legal/notices) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Social Forces Oxford University Press

The Architecture of Collapse: The Global System in the 21st Century

Social Forces , Volume Advance Article – Jun 6, 2018

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Publisher
Oxford University Press
Copyright
© The Author(s) 2018. Published by Oxford University Press on behalf of the University of North Carolina at Chapel Hill. All rights reserved. For permissions, please e-mail: journals.permissions@oup.com.
ISSN
0037-7732
eISSN
1534-7605
D.O.I.
10.1093/sf/soy056
Publisher site
See Article on Publisher Site

Abstract

In the wake of the 2008 global financial crisis, several sociologists turned to Charles Perrow’s theory of normal accidents to explain why the mortgage meltdown so quickly cascaded into a systemic crisis. Perrow had argued that technological systems are prone to uncontrollable crises when they are highly complex (with lots of opaque and non-linear relationships) and tightly coupled (with few buffers between components). Mauro Guillen and Sandra Suarez (in a 2010 article) were among those who argued that this basic theory of complexity and coupling could help diagnose the causes of the financial crisis and identify more and less promising solutions. With The Architecture of Collapse, Guillen has expanded this into an apparatus for analyzing the global economic system in general and explaining when crises remain contained or diffuse widely. In chapters on the global financial crisis, US-China relations, and the Eurozone, he illustrates how different configurations of complexity and coupling amplify or mute instability. The book stems from a lecture series, and it is accordingly peppered with graphs of rising complexity and coupling and readable (if not always gripping) case studies that draw on both secondary sources and some of Guillen and colleagues’ prior research. The global system, Guillen argues, should be seen as a network of nodes (countries) tied together by trade, investment, migration, and information flows. The complexity of the network has increased dramatically over the past half century, meaning that a growing number of countries have become increasingly enmeshed and interdependent. Guillen argues that we can also see growing complexity within nodes, particularly with the growth of democracy, state capacity, and diversified economies, among other things. Likewise, tight coupling can exist both across and within nodes. An entire network is tightly coupled when there are few buffers, little slack, and few “degrees of freedom” for adapting to unexpected events. Guillen sees indicators of tightly coupled networks in, for instance, rapidly flowing currency trades, portfolio investment (as opposed to more grounded foreign direct investment), and the trade in “intermediates” in global production networks, especially those built on just-in-time production models. Within nodes, tight coupling is generated by urbanization, inequality, “graying” populations, and public debt, which in various ways heighten pressure and leave governments with little space to maneuver. Crises are most likely to be severe when networks are highly complex and tightly coupled. Guillen’s analytical innovation, though, is to argue that some types of complexity can be shock-absorbing rather than shock-diffusing. For instance, some types of linkages, such as diversified trade networks and foreign direct investment, are highly complex but still leave governments with sufficient room to maneuver. In addition, complexity within nodes (i.e., democracy and state capacity) helps absorb shocks and keep countries from fully succumbing to isomorphic pressures. The case-study chapters provide informative illustrations of this basic argument, with some variation in how fully they apply the analytic framework. In the chapter on the global financial crisis, Guillen expertly recounts a variety of ways in which the complexity of large banks and poorly understood securities were combined with the tight coupling of highly leveraged financial firms and custom-made financial products (which were difficult to exit). The global spread of the crisis is less fully explained. Guillen argues that despite few countries being directly exposed to toxic assets in the United States, the crisis spread globally through trade networks, supply chains, credit crunches, and crashing construction sectors. Yet, closer attention to these pathways and mechanisms would be needed to fully apply the theory at the global level. In a foray into US-China relations, Guillen focuses largely on the status of the dollar as a global reserve currency. Ultimately, he sees the US-China relationship as not especially tightly coupled, largely because each country has alternatives in trade, investment, and currencies. Turning to Europe, Guillen argues that while the EU is a complex but loosely coupled system, the Eurozone as a monetary union is both complex and tightly coupled. This became painfully clear with the sovereign debt crises of 2009, as southern European countries were unable to devalue their currencies to regain competitiveness and often found themselves competing head-to-head with German exports. Nevertheless, as the European Central Bank helped German and French banks extricate themselves from toxic assets (turning network coupling into node coupling), the integration project pressed on. Here, Guillen’s analysis morphs into a trenchant critique of a “Euro-technocratic” mind-set in which all problems can be solved with more integration. Of course, since the book was published, we have seen resistance in the form of the Brexit vote to leave the EU. And yet, perhaps surprisingly given Guillen’s account, there has not been a Grexit from the Eurozone, or any other country leaving the monetary union. In the end, Guillen argues for a looser coupling of components (both within and across nodes) and for building state capacity as a shock-absorbing form of node complexity. For students and scholars of the global economy, the book provides a compelling sociological framework and range of insights into investments, currencies (see the “Dali principle”), and financial products (especially the problem with over-the-counter products). One disappointment is that in defining nodes as countries, Guillen subscribes to methodological nationalism without considering the alternatives. Through his network analytic lens, one could see firms as nodes, which are embedded in countries (or level-two nodes, as in an affiliation network) but also connected transnationally to other firms. After all, countries do not really “trade” with one another. A company in one country places an order that is met by a company in another country, and money and products flow across borders as a result. To be sure, national policy shapes this exchange in myriad ways. But why not drill down to inter-firm relationships if one wants to explain how far particular disruptions (e.g., a strike or natural disaster at one point in a global production network) or instabilities (e.g., the failure of a highly connected and leveraged financial firm) will spread? In addition, one might ask whether global integration is being accompanied by forms of walling-off that are not really considered here—not just the benign or beneficial “firewalls” that Guillen endorses but exclusionary structures meant to separate global elites from unseemly disruptions. This would include private security forces that allow extractive industries to boom in the midst of civil conflict, as well as migration and asylum systems that have allowed the United States, unlike Europe, to largely ignore recent refugee crises. To explain a fuller range of global crises—beyond financial and monetary systems—we should adopt Guillen’s network-institutional approach but push it further. © The Author(s) 2018. Published by Oxford University Press on behalf of the University of North Carolina at Chapel Hill. All rights reserved. For permissions, please e-mail: journals.permissions@oup.com. This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/about_us/legal/notices)

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Social ForcesOxford University Press

Published: Jun 6, 2018

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