ASPECTS OF GLOBAL BUSINESS
Moscow
DRAFT
AMMENDED March 2017
Professor Robin Matthews
This paper is written to give you background to the global business course. I hope you find it
readable. I welcome comments and suggestions for improvement.
Please do not use without acknowledgement.
Other material can be found on the following websites which are being updated over the next
week or so:
http://www.robindcmatthews.com/lectures
http://www.tcib.org.uk/about.html
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PROLOGUE
This paper was first written as an introduction to a course in Global Business that I taught
for many years in Moscow as a professor at RANEPA in Moscow. Now it is addressed to
doctoral student, literally from all over the world studying at various universities, public and
private, based in London.
Lately, particularly in 2016- 2017 events have changed the perspective, if only in Europe
and the USA. I will try to incorporate some of this perspective into this draft.
The first question I address is; What should a global business course do? Given the scope of
the subject matter, many such courses are extraordinarily narrow; focussing variations on
the theme of competitive advantage.
Global implies at least having a shot at providing something universal, comprehensive,
interdisciplinary; global aspects of the economy, environment, industry, organizations and
political economy. Ttry to make sense them, open up new ideas and creativity and relate to
life, yours, your networks, experience.
Why business? Why managers? Why you?
Managers, like you, trusted to care for, and leverage, not exploit assets, probably shape the
world. And not only business.
Why global? What’s new about it? The British Empire used to be global. Probably the
Romans thought theirs was. Gold was global money.
Globalisation in post 1980 mode is more paradoxical. Supporters and opponents recruit
curiously mixed groups that cut across boundaries; right wing left wing, radical
conservative, intellectual, fanatic, visionary. A metaphor by Vaclav Havel: in a Tokyo shop
window, a plastic blood red Santa Claus, nailed to a cross.
The standard grammar of politicians, statesmen or women, psychopaths, celebrities,
dictators, bureaucrats, fat cats, important civil servants, criminals, monks and us, to explain
or exploit or understand or control, fit only fractions of the postmodern, integrated,
fragmented, localised, clannish, technological, carnivalesque global Super State.
And poorly.
Grammar is of the big concepts in global business. By grammar I mean organizational
grammar. Grammar organizes unorganized, unstructured data; transforms data into codes
and signals; bits of information conducted by media, smoke, flags, drums, script, speech,
song, dance, Morse, digital, pictorial, electro chemical, magnetic smelt. The
receiver/addressee, decodes, understands, senses, sees, touches, feels, hears, smells, via his
or her or its, grammar. There are many grammars.
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The idea of an antenarrative is one way generating creative ways of looking at global issues
and one way of generating creative imagination and analysis . We will introduce the idea and
ask you to use it in group presentations on day 2 of the global business course.
Some miscellaneous thoughts, which among others will be discussed. What should we expect
with a reasonable probability (say 80% - 90%) in the short term? The business model
practiced and taught all over the world of the last 30 years has collapsed. The current Great
Recession (affecting the entire global economy) will persist until 2017/18. The euro area will
break up. Global dominance will shift from the USA to emerging nations including Chindia
and Brazil.
Power law effects (fat tails or Black Swans) will continue to surprize, percolating within
systems and between systems such as: financial meltdown; riots, vandalism and protest
against inequality and corruption as in the UK, Israel, Chile, east China, Chile, Germany
and elsewhere; radicalised middle classes; emergence of new business models;
multidisciplinarity; perhaps the demise of the university. Perhaps a Singularity (event
horizons) will occur: super intelligence; perhaps ours (or yours) is among the last
generations to die; perhaps the environment (and people) will cease to be seen as resources
to be exploited; perhaps science, the humanities, business, spirituality will be seen to be
interconnected.
In the course we examine the outlook; (a) global, (b) industrial and sectoral, and (c)
corporate and institutional level. This is an opportunity to do co-operative work across
continents and add a special dimension to your career, your organization and you.
INTRODUCTION
Globalisation is not a new phenomenon. In some ways, particularly given the existence of a
global currency and free movement across national boundaries, the world in 1913 was more
global than the Post World War 2/Vietnam War phase, that is perhaps going into reverse at the
time of revising the draft in March 2017. I refer to the apparent rise in protectionist ideologies
in Europe and North America.
Developments over the last 30 years brought a new era which, I guess will not be reversed;
first the take-off of exponential growth worldwide and second, informationalism.
Population growth and urbanisation has been explosive worldwide and a dominant business
model, capitalism has emerged in a variety of forms. Earlier versions of globalisation involved
fewer people, fewer nations, older, postponed or neglected technologies and more and less
diverse economic and social systems.
From new media and technology has emerged a new information age that is revolutionary,
unpredictable and is leading to the development of a machine intelligence that will challenge
the common understanding of decisions, leadership and what it means to be human.
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The information content of products and processes and organisations themselves has
increased. What does that mean? I define information content is being inversely related to
entropy; the lower the entropy of the state the higher its information content. Using the
concept of Boltzmann entropy, high entropy states are associated with high probability states
and low entropy to low probability, states of affairs (product states, process states,
organization states and so on). The word informationalism, I take to imply the emergence of
unexpected states of affairs in the world; states of affairs that are almost unimaginable, states
that are full of information since they embody accumulated knowledge about how to induce
the forces of nature (gravity, electro- magnetism, weak and strong nuclear forces plus genetic
information) to perform work and satisfy increasingly contrived and insatiable desires.
The phase of globalisation and on going informationalism has led to the increasing
interdependence. Interdependence has resulted in the failure of the business model that has
been dominant over the last 30 years. Policy makers have not realised this. Hence business,
economic, social, political and personal problems (which are inter-related and whose effects
percolate from one to another) resemble koans: many problems are intractable according to
current rules, ways of acting and thinking which I summarize as part of organizational
grammar.
I thought at the time of writing the earlier draft would be; prolonged recessionl 2018/19 or
longer, break up of European Union,inequality, middle class radicalization increasing
corporate insolence, further power shifting away from the USA. Well!
Let’s list a few possibilities (all prefaced by perhaps) resulting from globalisation,
informationalism and their consequence, increased significance of interdependence.
Perhaps university programmes will become interdisciplinary, even if this requires the demise
of the traditional university, since much of what they offer now is available for free on
MOOCS.. Perhaps a new business model in business and government will emerge that: (a)
places greater emphasis on the production of public goods since under capitalism (and whatever
succeeds it) inevitably, given the productive power of modern technology, supply outruns
demand even though given population growth; (b) recognises business and government
responsibility to wider stakeholder group, and ceases gradually to treat the environment as a
resource to be exploited or people to be viewed a human resources; (c) emphasises co-operation
rather than competitive advantage and recognises competitive advantage and competition (as
it is understood now in government, business and the academy) as a misunderstanding of
Darwinian natural selection.
Perhaps irreducible mystery (but not the advance of understanding) will be recognised as a
scientific principle. Perhaps, too, spirituality or the idea that consciousness does not entirely
exist in the cognitive functions of the brain will become a scientific principle. If spirituality
does become more widespread, (a) the path will almost certainly from west to east, since the
east (especially Chindia) has even more pious devotees (and effective practitioners) of
capitalism than the west; and for the same reason, (b) from business to the church rather than
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the reverse. Perhaps enough is enough will become a distributive principle and inequality of
wealth and income will be reduced.
THE GLOBAL ECONOMY AS A COMPLEX ADAPTIVE SYSTEM

The global economy is a complex adaptive system with new unpredictable possibilities
emerging constantly. A characteristic of complex adaptive systems is interdependence. In
the global economy systems, including nations, regions, localities, organizations, firms,
industries social and environmental systems, demography, economics, finance, business,
governments and so on are interdependent. I borrow gratefully from a paper written by John
Holland 30 years ago describes the relationship between complex adaptive systems and globalisation and
the essence of both1.

The overall direction of the economy is determined by the interaction of many dispersed activities (firms,
industries, governments, international and national institutions and so on) in parallel. The action of any one
activity depends on the state and action of many other activities.

There are rarely any global controls on interactions; controls operate through organizational grammar.

The economy has many levels of interaction and organization. Activities at any given level serve as
building blocks for constructing activities at higher levels. There are entangling interactions (associations,
communications) within and between levels.

The building blocks are recombined and revised continually as the system accumulates experience and
adapts (evolution).

There are many niches that can be exploited by particular adaptations. For example global and local firms
co-exist and co-evolve Global localisation takes place: global firms are integrated to get scale economies
and yet responsive to local conditions.

There is no universal super-competitor that can fill all niches. The USA is a mighty competitor but helpless
in many respects.

Niches are continually being created by new technologies and the very act of filling a niche provides new
niches. Perpetual novelty results. View for example the co evolution of information technology firms with
media, finance, retail, telecoms and others.

Because there are so many niches serving many purposes and needs the system is far from equilibrium or
optimum. Improvements are always possible and occur regularly.


The system is disorganized and organized, stable and yet unstable, dynamic; but for many people in the world
regressive: creating immense wealth but harbouring poverty; marginalising swathes of people and whole
nations. A system that seems perpetually at war with itself.
Despite the talk about progress and world growth recent developments have seen a resurgence of real
politique; struggle natural resources, including water and oil.
1
Holland, J.H., 1988. The global economy as an adaptive process. The economy as an evolving complex system,
5, pp.117-124; reprinted in Anderson, Philip W., Kenneth J. Arrow, and David Pines (1995).
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Informationalism is the mechanism transmitting interdependence (or percolation) both within
systems and between systems brings permanent flux: so disequilibrium is the normal state. If
the natural state is flux, what factors or rules of the game exist to introduce stability? Game
theory provides an insight. Systems operate according to a set of rules which attempt (a) to
introduce stability and (b) to make sense of things. Rules that operate at many levels and have
many overlapping) dimensions; formal/informal, social/personal, internal/external to the
organization concerned, conscious/unconscious tacit/explicit. I call these rules organizational
grammar, or grammar for short.
Interdependence through time is referred to as positive feedback that takes systems upwards
(virtuous circles), as exemplified by the boom/bubble period in the years leading to the
financial crisis beginning in 2007: and take systems down (vicious circles), as exemplified by
the recession/depression experienced from 2007 onwards in the world economy.
What happens part of a system has affects other parts and also affects other systems, examples
include, percolation, transmission, infection; the too big to fail problem in banks (TBTF);
complexity catastrophe as when a change in one part of an ecological system haqs knock on
effects that destroy the entire system, or when managers are afraid to change one part of an
organization and find the effects on the organization or team as a whole are disastrous.










2
BOX 1 The global economy as a complex adaptive system 2
The overall direction of the economy is determined by the interaction of many dispersed activities (firms,
industries, governments, international and national institutions and so on) in parallel. The action of any
one activity depends on the state and action of many other activities.
There are rarely any global controls on interactions; controls operate through organizational grammar.
The economy has many levels of interaction and organization. Activities at any given level serve as
building blocks for constructing activities at higher levels. There are entangling interactions
(associations, communications) within and between levels.
The building blocks are recombined and revised continually as the system accumulates experience and
adapts (evolution).
There are many niches that can be exploited by particular adaptations. For example global and local
firms co-exist and co-evolve Global localisation takes place: global firms are integrated to get scale
economies and yet responsive to local conditions.
There is no universal super-competitor that can fill all niches. The USA is a mighty competitor but
helpless in many respects.
Niches are continually being created by new technologies and the very act of filling a niche provides new
niches. Perpetual novelty results. View for example the co evolution of information technology firms
with media, finance, retail, telecoms and others.
Because there are so many niches serving many purposes and needs the system is far from equilibrium or
optimum. Improvements are always possible and occur regularly.
The system is disorganized and organized, stable and yet unstable, dynamic; but for many people in the
world regressive: creating immense wealth but harbouring poverty; marginalising swathes of people and
whole nations. A system that seems perpetually at war with itself.
Despite the talk about progress and world growth recent developments have seen a resurgence of real
politique; struggle natural resources, including water and oil.
The content of this box is borrowed shamelessly but with gratitude Holland
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There are many alternative grammars. Every system or subsystem has an grammar or set of
grammars. Resolution of a koan depends on adopting an alternative grammar to the
conventional or commonly accepted one. Issues that appear to be contradictory are
contradictory within the conventional grammar. Such is the situation facing businesses and
governments today. Creativity emerges from the entry (usually temporary) into an alternative
grammar.
Organizational grammar describes both the nodes and the way they are permitted to link
together. Organizations (and their inner dynamics) are networks; whose nodes (depending on
the issue in question) may be business functions, structures, cultures, individuals, teams and
hierarchies, operations linked by networks together or architectures. Normally decisions or
strategies are distributed throughout organizations. Not a single decision or strategy, but
numerous decisions or strategies taking place concurrently and consecutively and presenting
enormous co-ordination problems even in small scale organizations like families or teams, and
increasing in complexity as the size of the organization increases. Outer dynamics are networks
too: linked macro-economic, technological, demographic, social, political, ecological factors
(to list only a few). Similarly organizations produce many different payoffs (positive and
negative); as many payoffs as there are stakeholders. Global businesses are particularly
complex networks. So is global crime, global terrorism: as with global (legitimate) businesses,
the linkages provide by global finance are important (for money laundering, tax evasion and
legitimisation of payoffs).
Box 2
Organizational Grammar
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•
If we think of strategy as the interaction of 4 CAS, expressed as networks, then
Grammar determines the nature of the interactions: how parts (or nodes) relate to
one another and how they relate.
•
Using the notion of games as situations in which individuals and groups interact,
strategy becomes a series of games of many different types, and Grammar is
represented by the rules of the various games, implicit and explicit, and also the
processes, mostly hidden that determine and condition the rules.
•
Grammar is a complex form of conditioning. It includes rules, laws, regulations,
cultures, and ways of thinking about problems and so on. It includes formal and
informal routines (R), the architectures that bind routines together (A), influences of
national and corporate culture (C) and mind sets (MS): the acronym MARCS is a
useful way of describing the influence of grammar.
•
Grammar may emanate from the outside of organizations, external grammar; or from
within, internal grammar.
•
Grammar corresponds in a sense to Wittgenstein’s notion of grammar. It governs
moves – permitting some and forbidding others, serving as a standard for judging
success or failure, including, commands, laws and imperatives, explicit and implicit.
It can be definite but seem vague, fluctuating, or even contradictory.
•
Grammar itself is a CAS and its elements (nodes) interact with one another,
conflicting with, reinforcing or dampening one another, whilst still retaining an
internal cohesion.
Networks complexity and grammar
Networks are way of illustrating the relationship between organizations, their grammar and
complexity. Figure 1 below describes both the nodes and the way they link together.
Organizations (and their inner dynamics) are networks; whose nodes (depending on the issue
in question) may be business functions, structures, cultures, individuals, teams and hierarchies,
operations linked by networks.
Decisions are distributed throughout organizations. Not a single decision or strategy, but
numerous decisions or strategies taking place concurrently and consecutively and presenting
enormous co-ordination problems even in small scale organizations or teams within them and
complexity increases with size.
Outer dynamics are networks too: linked macro-economic, technological, demographic, social,
political, ecological factors (to list only a few). Similarly organizations produce many different
payoffs (positive and negative); for many different stakeholders. So we can consider payoffs
as networks of correlated returns, both tangible and intangible to (networks of) stakeholder
groups.
Global businesses are particularly complex networks, not only because of their pure scale
(considering only the monetary sales of giant corporations, they exceed the GNP of at least half
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the nations of the world) but because of intricacy of their relationships with partners
subsidiaries and governments.
Global crime syndicates and terror groups are networks. And linkages between legitimate
businesses, governments, crime syndicates and global finance increases the complexity of
global networks,
e
f
b
a
B
C
A
D
F
E
c
Figure 1
More on grammar
Whilst grammar for Wittgensteini is defined as rules for the use of a word, grammar is more
broadly defined: by its (i) properties, (ii) dimensions (iii) spaces it occupies and (iv) the plane
of Being to which it relates.
Properties
As with grammar generally, grammar has properties of morphology, syntax and rhetoric. The
morphologyii of organizational grammar describes the qualities of organizations that we
choose to focus on. Viewing an organization (or a group of organizations) as a network as in
figure 1, there is a choice as to which properties. Vertices (A, B, .....) in figure 1, may refer to
elements within organizations (teams, projects, value chains), or between them (supply
chains, alliances, mergers) to qualities and quantities (structures, routines, architectures,
payoffs monetary and non monetary) or the organization’s storiesiii. Syntax determines
permissible linkages/edges between vertices permitted by the prevailing rules of the
grammar. Edges may be thought of in a timeless way as synergies or through time as
feedbacks or blowbacks; transmission of events at one time to anotheriv. Rhetoric describes
how we speak about organizations; the conventional wisdom, discourse or paradigm.
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Figure 2
Figure 2
Table 1 categorizes grammar according to figure 2 in the grammar of Dasein. The categories
FSX through to IFM are not distinct or exhaustive. Even figure 2, limited as it is, there are
1024 (28) possible groupingsv. Considering the number of elements in each category,
grammar is like a state vector of infinite dimensions that encodes everything about the state
of Dasein at any instant: it is a state vector of possibly infinite dimension in Hilbert space.
F S X
FORMAL
SOCIAL
EXTERNAL
Outside: societal, codified, written: laws, regulations, treaties, contracts, rituals, traditions,
constitutions.
F S M
FORMAL
SOCIAL
INTERNAL
Inside: codified, written: formal organizational routines, architectures, structures, systems,
hierarchies, contracts within.
F P X
FORMAL
PERSONAL
EXTERNAL
Outside: codified, certified, accredited: formal education, shared paradigms and ways of
thinking, qualifications.
F P M
FORMAL
PERSONAL
INTERNAL
Inside: individual education and experience, certified, codified, corporate: specific education,
accredited skills, training and knowledge.
I S X
INFORMAL
SOCIAL
EXTERNAL
Outside: societal, group; informal (unwritten) customs, conventions, mores, morals, cultures,
codes.
I S M
INFORMAL
SOCIAL
INTERNAL
Inside; societal group norms: shared values; corporate culture, customs, traditions, mores,
codes.
I P X
INFORMAL
PERSONAL
EXTERNAL
Outside: individual, un-codified: personal history and values, behaviour, patterns, learned
paradigms, mental maps, models, conditioning, habits of thought.
I P M
INFORMAL
PERSONAL
INTERNAL
Inside: As (IPX) individual behaviour patterns and mindsets, personal paradigms and
schema for assessing the world, and solving problems; learned within the organization or the
personal legacy of brought in.
Table 1
Networks figure xx may represent relationships (a) within systems or (b) between systems.
Different nodes of a complex of system interact and what happens in one system affects another
system. This is sometimes referred to as non linearity or synergy; the entire system differs from
the sum of the parts viewed independently: this is the emergent or adaptive property of a
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complex system. Economists refer to the property of interdependence across space as non
convexity or non linearity. In a connected system such as xx represented by scale and scope
economies and learning curve effects (network effects) occur because the whereas the number
of nodes increases linearly (1,2,3,.....,n) the number of linkages increases exponentially (2n, n
being the number of nodes). The adaptive part of the description refers to the fact that agents
in the system make plans, adjust to new information, form expectations that can be either
accurate or unrealistic so we cannot assume simple cause effect relationships.
Interdependence across space
Different nodes of a complex of system interact This is sometimes referred to as non linearity
or synergy; the entire system differs from the sum of the parts viewed independently: this is
the emergent or adaptive property of a complex system. Economists refer to the property of
interdependence across space as non convexity or non linearity. In a connected system such as
xx represented by scale and scope economies and learning curve effects (network effects) occur
because the whereas the number of nodes increases linearly (1,2,3,.....,n) the number of
linkages increases exponentially (2n, n being the number of nodes). The adaptive part of the
description refers to the fact that agents in the system make plans, adjust to new information,
form expectations that can be either accurate or unrealistic so we cannot assume simple cause
effect relationships.
Interdependence through time
Informationalism
What is new about informationalism? A fashionable word for what is forever the case? For
example, production is information, transmitted from sender to receiver; information in
resources combined, transformed into goods or services and transmitted to consumers to feed
needs, utility, satisfaction, desire and craving. Money is information. Informationalism is new
because; (a) the exponential speed and scale of developments in information, media,
communication and bio technologies seems to follow Moore’s law; (b) these technologies have
shaped globalisation and capitalism; (c) they have created new industries and influenced all
industries (global and domestic) and opened up new possibilities ranging from conceivable
possibilities such as Google implants in the brain, to event horizons or technological
Singularity.
Singularity
Supercomputers and the end of death
Technological Singularity refers to event horizons, possibilities difficult or impossible to
conceive, such as (tiny robots operating at the molecular level) that mean that the current
generations are the last generations to face death, or the design of supercomputers that are
super intelligent, surpassing human beings in intelligence, sensuality and creativity.
Moore’s Law in society
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Many aspects of life in Europe in the 1940’s and 50’s would have been recognisable to people
in the 1870’s or 80’s. In comparison, life in 2011 is radically different from the 1960’s. The
comparison can be illustrated by Moore’s law of integrated circuits named after Gordon
Moore, of Intel; the idea being that innovation in micro chips gives exponential increase in chip
technology, such that every two years you get twice as much power and memory for the same
price: hence the transformation of many aspects of industries, work and life over the last 30
years or so and the emergence of a new phase of globalisation, and capitalism.
New phase of capitalism 1980-2007
The new phase of capitalism emerged from interaction between technology, finance and
globalisation. New developments in finance, especially deregulation and new financial
instruments (options, leverage and later collateralised debt obligations, credit default swaps,
sovereign wealth funds) resulted in a global financial system that financed the new technologies
and led to a global economy; partly as a result of the need to find new demand for new products
and more productive industries generally and the need to outsource (both the production of
goods and services). Feedbacks between the finance technology and globalisation led (a) to the
virtual circle of world economic growth (around 4% on average in the last decade of the last
century and more than half a decade twenty first century) and (b) to the complete failure of
globalisation and new capitalism around 2007, leading to a Great Recession that I expect to
last until 2017/18 (or longer).
Capitalism as a failed adaptive system
Fundamentally the breakdown of capitalism and the business models of most global firms
resulted from a failure to realise that the (a) problems of a capitalist system are not supply but
demand and (b) that a capitalist system is unstable and regulates itself by variations in the level
of employment (in a global unemployment in a global economy).
Capitalism is hugely productive, but eventually any upswing will be followed by recession or
depression, as demand fails to match supply, even in a global marketplace, and even when
innovations in finance enable new assets to be created that leverage (extend) demand. New
financial assets in fact worsen the problem. It is wrong to use GDP growth to measure recession
or recovery. The correct index is employment and unemployment. Unemployment is the real
measure of the current Great Recession: the creation of a massive global industrial reserve
army or labour (in emerging nation as a result of population growth and urbanisation) was the
main engine of economic growth in the 25 years up to 2007.
No one is an island
Things have always been interdependent. Separation is an illusion. Globalisation and
informationalism have accentuated its importance and requires the adoption of a quite different
grammar. Interdependence has many aspects (a) between societies and nations (b) between
systems of society, politics technology, demography, economics, ecology, finance, business,
religion, ideology and so on; (c) between different fields of study, especially between physics
mathematics, biology, plus the humanities and the social and business sciences; (d) between
the spiritual/mystical and other sciences. We could illustrate interdependence by labelling the
nodes in figure xx as politics, technology, demography, or as different fields of study
Outdated grammars
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Much business research relies on outdated methodologies (an aspect of which we spoke of in
the previous section) and tired outworn ideas such as competitive advantage, shareholder value,
efficient markets, rationality and artificial separation between ethics and efficiency, all of
which are based on the false notion (that man is an island and) decisions are and should be
made on the presumption that if everyone (firms, individuals, nations) follows their own
individual self interest then the welfare of the whole will be somehow maximised. Leaving
aside the problems of defining welfare, equating it somehow with happiness, well being, GNP,
is the fact that individual actions interact with one another: creating positive and negative
externalities and blowback.
Externalities or synergies both negative and positive refer, as is well known, to the whole being
greater or less than the sum of the parts, in both quantity and quality. Organizations of any kind
ranging from families, to teams, to businesses, to societies and alliances, are formed because
in some sense the value of the whole exceeds the value of the sum of the parts; and when this
is not so, parts of organizations are spun off or outsourced.
Aspects of interdependence
Interdependence has many aspects. We outline a few here and will develop them further in the
global business session.
The too big to fail problem (TBTF)
Interdependence in the global financial system is illustrated by the problem of systemic risk.
Systemic risk refers to risks taken by individuals (individual institutions, firms, or countries for
example) which have consequences for an entire system. Financial institutions are so large and
so interlinked that they have become too big to (be allowed to) fail. The collapse of Lehman
in 2007 nearly brought about the collapse of the global financial network. Bailouts of entire
countries, too dependent on their financial sectors became necessary in 2010 because failure
(default) in Ireland Greece for example would have percolated throughout the the global
financial, economic and business systems turning the Great Recession (2007 to date) into a
Great Depression (like that of 1929 -1939).
Co-operation not only competition
The implications interdependence for policy makers in governments, and international firms
and institutions are that recovery from the Great Recession involves paradoxes that can only
be resolved by co-operation. Individual countries need to compromise their own selfish
interests to some extent (and reach agreement) if they are to recover. In game theory
terminology there is no (Nash equilibrium) recovery strategy which does not involve surplus
(export led growth with X > M) countries reducing their surplus so that deficit countries (X <
M) can reduce their deficits and increase their demand. Surplus countries need to spend more
and save less: deficit countries need to do the reverse.
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Balanced growth
The Great Recession has revealed the extent to which interdependence requires countries to
have balanced growth; not allowing some sectors to become too big; instead developing
balanced economies with industrial activity spread over many sectors, in manufacturing,
services, (and in Russia for example in addition to dependence on natural resources); not
relying as in China on exports alone (made over competitive by an undervalued currency); not
relying as in the USA on big inflows of international capital (to fund high consumption and
trade deficits).
Fat tailed not normal distributions: black swans everywhere
If stock prices followed a normal distribution a really big jump, for example of five standard
deviations from the mean, could be expected once every seven thousand years. But jumps of
that magnitude happen in the stock market every three or four years. Investors do not behave
with statistical orderliness. They change their mind. They do stupid things. They copy each
other. They panic. The behaviour of depends on each other’s behaviour. It is interdependent.
The idea that events in business finance and economics are independent has led to the
widespread use of normal curve (Gaussian) distributions where they are not appropriate,
especially in much business research. This habit is reinforced by misapplication of the central
limit theorem that states that the means of independent random samples drawn from
populations that are not random, are normally distributed having the characteristics of the
normal curve (which when standardised has a zero mean, a standard deviation of 1 and limited
variance; 99.7% of the data falling between +/- 3 standard deviations of the mean). Thus
extreme events are deemed very unlikely: a curious assumption given that most business and
management problems involve dealing with extreme events.
Normal distributions continue to be the norm in business, financial and econometric research
in spite of overwhelming evidence to the contrary; in the case of business research this leads
to it (rightly) being mostly ignored. Extreme events happen. Events in business and finance are
fat tailed (with perhaps infinite variance), meaning that extreme events not only have finite
probability but happen recurrently. Sitglitz for example notes that in the last 30 years there
have been over 100 serious financial crises in the world, which using the current methodology
are deemed impossible. Nassim Taleb is the authority on fat tailed distributions; he uses the
metaphor of black swans to describe them. He attributes much of the credit to Benoit
Mandelbrot. Taleb’s work is one of the few must read books for business students as is a series
of articles by Mckelvey and Andriani.
Fat tailed distributions are illustrated in figure 3 below. The picture resembles the Richter scale
for earthquakes: earthquakes of all sizes are possible; though their probability is lower than that
of smaller earthquakes, large earthquakes happen. One of the best descriptions of fat tailed
distributions occurs one of Damon Runyon’s short stories, when the father of the gambler Sky
Masterson offers his son the following advice:
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“ ’Son,’ the old guy says, ‘no matter how far you travel, or how smart you get,
always remember this: Some day, somewhere,’ he says, ‘a guy is going to come
to you and show you a nice brand new deck of cards on which the seal is never
broken, and this guy is going to offer to bet you that the jack of spades will jump
out of this deck and squirt cider in your ear. But, son, ’the old guy says, ’do not
bet him, for as sure as you do you are going to get an ear full of cider.’ ”
REFERENCES
Anderson, Philip W., Kenneth J. Arrow, and David Pines. The Economy as an Evolving
Complex System: The Proceedings of the Evolutionary Paths of the Global Economy
Workshop, Held September, 1987 in Santa Fe, New Mexico. Reading, MA: Addison-Wesley
Pub.Co., 1995. Print.
i
Wittgenstein (1953); Forster (2004); Lyotard (1979).
There are many morphologies corresponding the dimensions of grammar we wish to focus on. Limit discussion
for the moment to morphologies in Dasein. What we focus on in Dasein is determined by grammar. Figure1 gives
a broad indication of the dimensions (aspects) of organizations that capture our attention, for example; elements
of the value chain; activities (subsets of value chain elements); categories from management accounting; elements
from the balanced business scorecard, six sigma (or some such fad). Probably alternative morphologies should
be aligned with payoffs of organizations and stakeholder groups. Denote set of all morphologies as K and
particular morphologies, k, (k ε K) each containing i = 1, 2,.....m elements. So ki are elements of a particular
morphology.
iii
See Boje references above and below.
iv
Interdependence through time is referred to as positive feedback that takes systems upwards (virtuous circles),
as exemplified by the boom/bubble period in the years leading to the financial crisis beginning in 2007: and take
systems down (vicious circles), as exemplified by the recession/depression experienced from 2007 onwards in
the world economy.
ii
v
We have added the other two dimensions (e) and (f). Groupings are given by the binomial expansion.
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