Image: MIT
Velina Tchakarova
Jun 15, 2016 · 20 min read

by Velina Tchakarova

“Complexity by itself is not the catalyst in which a system might crash. Rather, it is how the complexity emerges in a system that determines whether that system will do what it was intended to do or morph into an unworkable organization clogged by bottlenecks and blockages.” In Defense of Chaos by L.K. Samuels (2013: 28).

Global affairs have become too complex and unpredictable, which is a combination sufficient to create a sense of imminent danger spreading fast among state and non-state actors. And yet, the world is not falling apart due to the growing complexity, as complexity itself does not trigger a system collapse. In fact, as Steven Pinker and Andrew Mack convincingly demonstrate in their article, the world has never experienced more peaceful times in the history of mankind. However, the Global Peace Index 2016 shows that the world has started becoming more violent and less equal in the last decade.

What is more important, the system of global affairs (Global System) is undergoing major transformation processes, which are being triggered by the Fourth Industrial Revolution, by the new modes of globalization as well as by the significant role of emerging powers, just to name a few. Indeed, there are already various analyses on the transformation processes and structures regarding e.g. the global finance, monetary, economy, trade, energy or international and regional institutions and organizations, whereas their focus is particularly being put either on the international, the regional or the state level, rather than being systematically captured. Inspired by a system analysis, however, I seek to extend the current knowledge by offering a system perspective on the Global System transformation.

Systems science has been developed for quite a long period of time and is generally being applied in various fields starting with engineering and physics to biology to social sciences, and even to psychology. Its comprehensive application is remarkable and thus it deserves a greater attention with regard to the analysis on the Global System. Moreover, system science encompasses scientific disciplines, interdisciplinary fields as well as theoretical approaches that explain and explore complex systems. One of the founders of General Systems Theory — the Austrian biologist Ludwig von Bertalanffy — defines a system as a set of elements in mutual interactions, whereas the whole is more than the sum of its parts (1968: 18). The elements of a system can be again considered and analyzed as systems by themselves. Furthermore, the system has internal relationships with its elements (subsystems) as well as with its environment in order to receive and give feedback by input and output. To sum it up, a system, then, is a set of elementsthat affect one another within an environment and form a larger pattern that is different from any of the parts’.

As an open system, the Global System receives information and interacts dynamically with its environment (nature and space) as well as with its interdependent components, which by themselves are systems of economic, political, natural, and social nature (Club of Rome, 1972: 9). All together, the Global System is characterized by its

“wholeness and interdependence (the whole is more than the sum of all parts), correlations, perceiving causes, chain of influence, hierarchy, suprasystems and subsystems, self-regulation and control, goal-oriented, interchange with the environment, inputs/outputs, the need for balance/homeostasis, change and adaptability (morphogenesis) and equifinality: there are various ways to achieve goals.”

Therefore, it appears to be of utmost importance to analyze the transformation processes within the subsystems of the Global System, particularly with regard to the triggering effects of the Fourth Industrial Revolution of cyber-physical systems as well as to modern globalization, in order to grasp the complexity of global affairs nowadays. Given the subsystems of the Global System — e.g. global finance, global monetary, global economy, global trade, global energy, international and regional institutions and organizations, climate, or even global diplomacy — are undergoing comprehensive changes, or even crises, one can not but expect major changes and unpredictable effects. What is even more remarkable — to put it in Schwab’s words — is the following:

“The speed of current breakthroughs has no historical precedent. When compared with previous industrial revolutions, the Fourth is evolving at an exponential rather than a linear pace. Moreover, it is disrupting almost every industry in every country. And the breadth and depth of these changes herald the transformation of entire systems of production, management, and governance.”

This means that complexity is further aggravated by the unprecedented speed and scope of changes with exponential pace, which will likely result either in the transformation of the Global System, and thus a paradigm shift, or in its collapse. Moreover, modern globalization has to be taken into account because it is the expansion model that has been introduced by each system power in the last two centuries while establishing a world dominance. This was the case of Great Britain in the 19th as well as of USA in the 20th century, particularly after the collapse of the Soviet Union, while they were riding the wave of the Second Industrial Revolution (1870) respectively the Third Industrial Revolution (1970). Thus, it remains to be seen how modern globalization will be further shaped by the only system power left — the USA, and by an emerging second system power — China, as well as the rest of significant regional actors. Additionally, urgent issues of system hierarchy (who is determining the agenda of international norms, rules and standards of global affairs, especially when it comes to democracy, human rights and freedoms, and who is complying with them) as well as of a polarization of the Global System (bipolarity vs multipolarity) will be gaining more and more importance too. Obviously, system processes and structures have become too complex and unpredictable, which leaves us with a fundamental question: What comes next with regard to the Global System?

Against this background, it is quite apparent that there is no longer a single source of insecurity, that affects current global affairs, but rather it is a sum of interconnected risks and dangers, mostly of geopolitical and geoeconomic origin, which makes predictions almost impossible. A recent IMF report outlined various rising risks of comprehensive nature as based on a set of — e.g. financial turmoil, loss of confidence, falling oil prices, slowdown of economic growth, decline in capital inflows from emerging economies as well as shocks of non-economic origin such as geopolitical conflicts, terrorism or uncontrollable refugee flows.

In what follows, I will explore the warning signals with regard to major shifts and transitional changes within some of the most significant subsystems. By doing so, I will analyze indications for transformative moments in processes and structures that might trigger a comprehensive Global System transformation if any of its subsystems becomes dysfunctional or even collapses.


Global Finance and Monetary System

Let us start with the Global Finance and Monetary systems, which have been facing great turbulence for quite some time now. They are closely intertwined and are substantially interacting with the Global Economy and Global Trade, which increases the complexity due to various simultaneous systemic risks as it turned out with the 2008 Financial Crisis. Simply put, the Global Monetary system consists of elements that regulate the exchange of world currencies and thus interacts with Global Trade, while Global Financial system resembles all institutions — public and private banks as well as international bodies such as e.g. the IMF, the Bank for International Settlement, the World Bank et al., which conduct financial operations.

The dominance of the US dollar as the world reserve currency has been established since the 1970s and still serves as the main pillar of stability in the Global Monetary system. Any major shifts with regard to the exchange rate stability, the monetary national policies or the free capital flows could point to significant transitional changes. Such could be e.g. signals of the eroding of the Petrodollar System (oil for dollar system) as a result of the geopolitical shift of the US towards Asia, the US oil independence from the Middle East as well as the deliberate actions of third countries to introduce other than US dollar payments for their energy supplies, coupled with deepening of the regional tensions between Iran and Saudi Arabia after the Iran Deal came into force in 2015. Thus, it comes with no surprise that Saudi Arabia warned to endanger the stability of the US dollar or to evaporate its Petrodollar reserves.

The introduction of payments for oil with other currencies has been already put on the agenda in negotiations between China and Russia respectively Iran and India, and thus has to be followed very closely. Moreover, major shifts within the Global Monetary system includes developments towards a reformed SDR basket based on reserves of multiple currencies and the eventual evolution into an internationally traded asset or towards a parallel Gold-based monetary system, which could be introduced with the active participation of actors such as China, Russia, India et al. (See W. Middelkoop’s book ‘The Big Reset’, Jim Rickards’ ‘The New Case for Gold’ or John Buttler’s ‘The Golden Revolution’).

In this context, the 2010 IMF Quota and Governance Reforms were passed and a gold-yuan fix was introduced in 2016. To sum it up, significant changes regarding the centrifugal forces such as an eroding oil for dollars payments system (just as Iran has announced to charge in euros for its recently signed oil contracts), stockpiling of Gold by particular countries (China, Russia, India or some European states) or a further push for internationalization of the SDR basket will certainly have a great impact on the Global Monetary system.

Moreover, currency interventions are being increasingly observed worldwide as countries seek to introduce competitive devaluation in their efforts to produce more growth. In this regard, China has fixed the yuan at more than a five-year low against the dollar as a reaction to Federal Reserve statements to hike the rate as well as to the US dollar gaining strength again. Furthermore, the G7 warned Japan against any currency devaluation of the yen as Tokyo has to stick to its G20 currency commitments. Added to currency manipulations, great stock market plunges have become a reality too, which points to further global financial instability, coupled with tumbling global stock markets.

These processes are complicated by Global Finance developments resulting in a further widening gap of global wealth distribution, big banks becoming even bigger after the 2008 Financial Crisis as well as Central Banks — especially the Federal Reserve — coping quite inefficiently with the post-2008 crisis period, resulting in policies of low interest rates, quantitative easing, negative interest rates and other so called stimulus measures.

What is even more striking is the concentration of Global Corporate Control dominated by finance organizations, as a study from 2011 explicitly has shown.

Top 50 Global corporate control-holders, p.33

Moreover, the Big Banks, which became even bigger after the 2008 Financial Crisis, are among the most influential 50 (finance and non-finance) corporations from the list above, and have increased the systemic risk since then, which means that even if one of them collapses it would be most likely contagious for the whole network. Interestingly enough, Big Banks were involved to a great extent in the Panama Leaks scandal too.

The 10 banks that requested the most offshore companies for clients

The financialization of economy has turned out to be counter-productive to Global Economy and has expanded at the cost of production, which is actually needed for real growth. David Stockman points to the financialization of the US economy, where the financial sphere was 212% of GDP in 1981 and has risen to 537% of GDP in 2015. Jim Rickards also explains why the Global Finance system is inherently unstable due to financialization of the economy. In this regard, it comes with no surprise that China has declared to become the world’s largest manufacturing power by 2049 as manufacture will remain essential for a system pole positioning with regard to the Global Economy as well as the Global Trade shares.


Global Economy

As already stressed, Global Monetary and Global Finance systems are intertwined with Global Economy, which is likely moving towards transition as well. The capitalist system as the framework of the Global Economy, which has already been introduced by the majority of the countries (developed, emerging and underdeveloped), is currently facing existential challenges that have already been identified and analyzed by many authors (Paul Mason’s ‘Post Capitalism: A Guide to our Future’, Evgeny Morozov’s article ‘The state has lost control: tech firms now run western politics’ or Nafeez Ahmed’s piece ‘The End of Endless Growth’.) It remains unknown, how exactly a post-capitalist system would look like, but the transition of capitalism towards post-capitalism is beyond any question. To put it simply, once a system stops being sustainable, doesn’t receive feedback within its elements or cannot adjust to changing realities, there is a strong need for a transition or otherwise a collapse might occur.

Nowadays, the problems of the capitalist system are far-reaching and too great to be ignored. There is an absolute disconnection and disparity between capital and labor, the role of elites and governments has become rather counter-productive, the widening gap between rich and poor has become a system failure by itself with the result of growing concentration of wealth in non-state actors, and the strategic pillar of capitalism — the educated and politically active middle class — is slowly but surely disappearing from the political landscape, just to name a few triggering factors.

The US economy has become strongly reliable on stocks, bonds and currency markets as previously explained under financialization of the economy, which means that their further destabilization might lead to quick deterioration of the macroeconomic situation creating new systemic risks for the Global Economy, and thus making a transition of these systems (Finance, Monetary, and Economy) — more and more likely.

Profound changes are already happening with regard to Global Economy and technological innovations will be further shaping it. Next to the Big Banks — labeled as ‘too big to fail’ only to become even bigger after the Financial crisis 2008 — the technological companies have become another non-state actor with a systemic character for they ‘are too big to fail but also impossible to undo’ as claimed in a recent article on the Global economy system. In this regard, the Fourth Technological Revolution is already shaping the structures of the Global Economy, whereas for instance most of the billionaires are coming from the field of technology instead of finance.

Visualizing The World’s Top 50 Wealthiest Billionaires

The most imminent consequence from the transition of the Global economy will be linked to growth. Slow (or limited) growth has become chronic and actually the prognoses for the next years seem grim too, except for emerging economies in Asia (India and China).

Latest growth projections

Global Economy has in fact ‘reached a point where debts continue to rise, while unemployment spreads and global growth diminishes’. Already in 1972, the Club of Rome published a study on the implications of continued worldwide growth, which found that the

“global system of nature in which we all live — probably cannot support present rates of economic and population growth much beyond the year 2100, if that long, even with advanced technology.”

Most of the model’s scenarios on the future of the Global System — particularly regarding the Global Economy — “show industrial output declining in the 2020s and population declining in the 2030s”, which will most likely occur suddenly and in an uncontrollable manner as revealed in Nafeez Ahmed’s piece. From today’s perspective, nations will hardly induce sustainable growth based on the mountains of debt and in the framework of dysfunctional Global Economy.

Thus, next generations will have to adapt to live under limited growth and productivity, disrupted global supply chains and even scarcer resources for growing population. The combined effects of the Fourth Industrial Revolution and the transformation of the Global Economy will produce further systemic risks and challenges but will create opportunities as well. There will be great possibilities, which

“will be multiplied by emerging technology breakthroughs in fields such as artificial intelligence, robotics, the Internet of Things, autonomous vehicles, 3-D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing.”


Global Trade

Trade pacts and growing regionalism are already arising out of the transformation of the Global System as modern globalization is being reshaped by declining and rising system powers. Not only does US seek to preserve a status quo based on the established US-led global order since the end of the World War II, which was expanded after the collapse of the Soviet Union, but Washington also seeks to launch new trade initiatives in response to system challengers and thus curb their growing shares in Global trade. The newly signed TPP for Asia (still awaiting Congress approval) as well as the negotiated TTIP for Europe represent US trade pacts with many countries in Europe and Asia in order to counter expanding Chinese influence and achieve greater share in global trade. Same can be witnessed as Chinese initiatives such as the RCEP or the newly launched One Belt One Road initiative were launched and are aimed at connecting China via maritime and land routes to Central and South Asia, South China Sea and Indian Ocean, Africa, Middle East and finally Europe.

It can be assumed that future trade tensions and conflicts will be traced back in the same regions, where trade pacts are overlapping each other like in Eurasia or in the region of South China Sea (as seen from China’s OBOR initiative).

China’s One Belt, One Road Initiative

New trade pacts will influence the global supply chains, the interconnectivities, the infrastructure (trains and maritime trade routes) as well as the new economic corridors connecting regions and countries in an unpredictable manner. However, they will not be necessarily inclusive, as in the case of the US-led TPP/TTIP vs China-led OBOR and RCEP.


Global Energy

One of the most important developments within the Global System is linked to its subsystem Global energy, and the future of oil. It is noteworthy that cutting emissions as agreed in Paris climate negotiations will reduce the exploration of fossils after it emerged that the quality of extraction and the comprehensive implications for the climate rather than their scarcity as predicted several decades ago would inexorably lead to decarbonisation of Global Economy.

According to a recent study, the peak in oil demand will be reached by 2030 after another growth phase until 2020, however, not due to scarcity but rather due to climate change concerns as well as the diversification of fuels.

Oil Peak could follow in 15–20 years

What follows will be a slow but steady move away from the fossil fuels. While an expected growth of oil demand from the emerging markets in China and India might surely last another decade or two, it will be wrong to believe that the Big oil era as we knew it will be prolonged in the 21st century. Rather than that, the transition towards gas (e.g. LNG) might be witnessed as a transitional period from oil towards green energy. Expectedly, demand for liquefied natural gas as well as renewables and electric vehicles will grow.

In this regard, conflicts and tensions along the choke points of energy deliveries, especially in the Gulf, the Indian Ocean and South China Sea, will very much likely remain. Unless major regional conflicts do not arise, where oil will be needed as fuel, the oil supplier countries will need reforms badly to adjust to post-oil economies. Saudi Arabia has already launched its Vision 2030 to start adjusting to new realities. Other actors such as Venezuela are at the same time coping with the consequences of falling oil prices, bad governance and ill-structured economy.


Global System structures: existent and emerging ones

Global system processes come along with a transition in global structures. Such were created after the end of the World War II and in the course of the Cold War, whereas the international organizations and institutions, especially the ones established by the Transatlantic Community (US, NATO, EU countries), still remain dominant in the global affairs. However, a Global System in transition is currently witnessing parallel global order structures, which are being established by the rising second system pole China with the participation of third actors.

In 2014, a study by Merics came to the conclusion that China’s parallel structures are already challenging the established international order. The big question that remains open is whether China will be included successfully in the existent international order with sufficient incentives to coordinate and cooperate with both rivals and partners or whether Beijing will rather develop and enhance the scope and functions of the parallel structures in order to serve Chinese geopolitical and geoeconomic interests better.

China’s parallel and alternative structures

Clearly, we are still in the so called transitional phase of the global order from the unipolar period of the US-led system after the end of the Cold War towards most likely the next bipolarity based on a system rivalry between US and China coupled with regional multilateralism of alliances, partnerships, and ad hoc commitments. In the meantime, the strategy of the US and allies will be aimed at preserving what has been already established within the subsystem frameworks as well as a preventive damage control, while the approach of China would be to promote system processes that are aimed at a transformation of the Global System.

As a result, new regional constellations will arise, new security triangles will form, and new modes of regional alliances are constantly being built. This is exactly what creates the false impression of evolving multipolarity which in the end has nothing to do with the two system poles. It rather reflects the regional level of international relations, which is being shaped by diverse bilateral and multilateral constellations. On the one side of the process, there is the US that is trying to reassure and re-energize existent alliances and partnerships but also to accommodate with new realities by negotiating with old rivals such as Iran, Vietnam and Cuba for instance. On the other side, traditional partners of the US are looking for new regional roles as in the case of Saudi Arabia-Egypt-Turkey-Israel square of complex relations. Furthermore, Japan is approaching the East Asian countries and India in order to build reliable partnerships based on pro-American/anti-Chinese stance.

At the same time, China is activating relations with Central Asian countries, whereas the consolidation of Eurasia is clearly in the interest of both Beijing and Moscow while preventing other external actors from any significant role. Although the future of the Dragonbear (China + Russia) seems to be unclear yet, this particular partnership might be one of the major triggers for parallel structures which will challenge the global order in the future, if it develops towards a strategic alliance. For that matter, the close cooperation in the military and defense field will be decisive, meaning that Russia-led CSTO and China-led SCO could merge activities and functions to counter balance NATO in Asia.

Finally, Iran’s and India’s regional game will have a great impact on Middle East and South Asia. As the US has started rapprochement through the initiated Iran deal, it seems more likely that Tehran will pursue flexible regional solutions in China, Europe and Russia as well. Worst case scenario will be an axis between Beijing-Moscow-Tehran based on parallel global and regional order structures. As for India, New Delhi will be balancing between China and the US. So far, India has managed to be included in several important regional formats launched by China such as e.g. BRICS, AIIB, NDB, SCO but it also opened the door for a deeper cooperation with Washington. Finally, the EU will remain more or less the geopolitical backyard of the global affairs in the 21st century as Brussels and the EU member states haven’t realized yet that deepening of institutional cooperation and consolidation of European integration could only be win-win for the EU member states and at the same time — win-lose for the rest of the world. As long as European countries remain disunited as it seems to be the case, none of the big four (Germany, UK, France, Italy) will manage to play a global role all alone.


Global Climate

With all these major changes in mind, it is not hard to imagine how difficult it is to have progress in the current atmosphere of international diplomatic talks, negotiations or arrangements as it is the case with the Geneva talks on Syria, the Minsk process on Ukraine or any other important issue in the global affairs. However, one of the greatest successes at Global Diplomacy level was achieved in the field of climate change with the signing and the initiated adoption process of the Paris agreement. It comes with no surprise that climate change and global warming are part of the significant problems triggering Global System transformation. Furthermore, the UN Sustainable Development goals and targets following the Millennium goals have been introduced with the comprehensive aim of achieving lasting sustainability in all intertwined fields. As the role of the emissions and their reduction turned out to be much more urgent than the scarcity of fossils (we can burn fossils but we do not have a second planet for the emissions that will be set free), sustainability has become a real issue with regard to decarbonisation of Global Economy, limited growth, the transition towards green energy and the problem of scarcity in a growing population. Climate Change is the global network that brings all state actors together and the stakes are already so high that the public pressure for action makes global and regional actors see themselves obliged to participate and collaborate. Sustainable global climate is obviously in the interest of all but the efforts and sacrifices to achieve it will differ from developed to developing to underdeveloped states in the future.


Conclusion

What awaits us are turbulences of unpredictable speed and scope with regard to the Global System transformation. Global finance, monetary and economy will remain dominant with their system processes and structures, which are directly or indirectly influencing the global order. It is rather naive to expect that things will remain the same or the collected pressure of transformation processes and changing structures will find its way without affecting the Global System. On the opposite, a system view of processes and structures will further help to increase an awareness and insight into their complexity by connecting the dots and revealing those interconnections that might be most decisive for transformation. So far, it looks like the Global Monetary system’s transformation will directly affect the Global Finance system, whereas the Global Economy and Trade could undergo long-term structural changes that will reflect the repercussions caused by the monetary and finance systems. One thing can surely be expected with regard to the Global System: ‘The only constant ever is change’.

Short-term gains at the cost of long-term sustainability are still being pushed by lobby groups, corporations and state actors and thus are rather reminiscent of the old-fashioned capitalist thinking. Such is the case of the fracking industry which, despite the various ecological risks, eventually led to oversupplying the oil market. Thus, a comprehensive and globally shared view of how Global System transformation actually works is very much needed and necessary in order to highlight the transitional processes of all subsystems and to illustrate how Global System transformation is affecting the economic, political, social et al. environment as well as triggering unexpected effects and transitions.

Probably, the Global System is moving towards bipolarity with two rather confronting than coordinating system rivals (US and China), which is turning all subsystems upside down during the transitional period. It will eventually lead to a growing regionalization respectively various regional integration formats, whereas a multilateral constellations of actors are evolving at regional level, coupled with a deepening balkanization of countries that are either at the peripheral or in buffer zones of escalated territorial disputes and armed conflicts. The Transatlantic Community represents half of the global GDP and military might in the world, as NATO Secretary General recently stressed. Indeed, US remains the only system power indisputably capable of global power projection. But what will happen with the other half of global GDP share respectively of military might is a question that will lead us to the answer of the transformation of the Global System itself.

Processes and structures in each of the subsystems influence each other mutually, and the sum of all implications might cause major shifts. Never before has the combination of weak Global Economy with misbalanced capitalist structures and growing trade regionalization, coupled with massive changes in the Global Finance and Monetary systems, accompanied by comprehensive decarbonisation, produced such strong indices towards Global System transformation as it is now. Meanwhile, researchers have explored and found out the tipping point between resilience and collapse in complex systems. This will open new windows of opportunity for the research of the Global System as well. We certainly are interested in solutions on how to avoid a collapse and we can do it by shaping the transformaton processes towards a more sustainable Global system. Otherwise, one conclusion appears to be valid under all possible assumptions in the world model’s scenarios, and it is that: “The basic behavior mode of the world system is exponential growth of population and capital, followed by collapse” (p. 142).

Velina Tchakarova

Written by

Velina is Head of Institute at the Austrian Institute for European and Security Policy (AIES) in Vienna. https://velinatchakarova.wixsite.com/globalsystem

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