The world financial crisis: a programmer’s perspective

I wrote the piece below some ten years ago, during the height of the Asian financial crisis. Because of its relevance to the current global crisis, I’m posting the piece here.

Globalization: poor design?

by Roberto Verzola

Most successful designers of complex systems follow basic rules of design.

Whether it is a spaceship that will land men on the moon, or a worldwide network of ten million computers such as the Internet, or a huge computer program with fifty million lines of code, or a tiny computer chip with two million transistors on it, the design rules are surprisingly similar.

One of the most basic rules in designing complex systems is called modularization. The rule says one should break up a complex system into smaller parts. These smaller parts – usually called modules – should be more manageable and relatively independent from each other. The modules should interact only through a few well-defined interfaces. Each module should have high internal cohesion. The coupling between modules should be minimized.

A good example is the Apollo lunar mission. One of the most complex systems ever made by human beings, it used modularization all through out, from the design of the spaceship itself, to the electronic circuitry that comprised much of its automatic intelligence. The mission’s spectacular success is a tribute to the effectiveness of modular design.

Another example is the Internet, a computer network designed to survive a nuclear attack. Again, the basic rule in the design of the Internet was modularization. The Internet implements communications through relatively independent network layers which interact with each other only through well-defined interfaces. Internet communications protocols have also been broken down into simpler protocols. There is a protocol for transferring mail, another for news, and still another for files.

In economics, modularization means that countries should try to become as self-sufficient as possible and as independent from each other as possible. It means that interaction between economies should be minimized and should occur only through well-defined regulations. Coupling among economies should be minimal.

Globalization, the current trend among economic planners, violates the design principle of modularization. By tearing down “well-defined interfaces” between economies, globalization increases the coupling among countries and makes countries more instead of less dependent on each other.

A complex system with high interaction among its parts becomes more prone to system failures. It is difficult to modify and to improve. It becomes error-prone, yet the errors are more difficult to identify and to correct. In a poorly-designed system, attempts to correct errors often introduce more errors into the system, making it even more failure-prone.

From a systems view, a globalized economy is a badly designed economy. It will be prone to errors and failures. It will be difficult to maintain and to improve. Attempts at correcting its failures will result in even worse problems.

Look at the problems of today’s globalized economy. Because of the free movement of goods, diseases spread quickly from one corner of the globe to another. CFCs produced in one country damage the ozone layer and threaten the health of the citizens of other countries. Toxic wastes produced in the North find themselves being dumped in the South. Chernobyl’s radioactive emissions threatened the dairy industry of the rest of Europe. A stock market crash in the U.S. would probably send stock prices worldwide tumbling. Because of the free movement of capital, job insecurity as well as speculation has become a global problem.

These are all the consequences of the bad design inherent in a tightly coupled global economy.

Despite this, economists often insist that globalization is inevitable, and the best we can do is to adjust to it.

For a designer’s viewpoint, of course, there is no such thing as “inevitable.” Every design is the result of a conscious or unconscious effort. Poor designs become inevitable only because the designer relaxes on his rules, and adopts an “anything goes” approach. To the economist, on the other hand, relaxing the rules is called “liberalization”, “deregulation”, or “leveling the playing field”. And “anything goes” is called “free-market competition”. A relaxation of the rules then makes it easy to violate the basic principles of good design, and makes globalization inevitable.

Who want the rules relaxed? These are mostly the global corporations, the main beneficiaries of globalization. They are the equivalent of global variables in software.

Software engineers try to eliminate global variables or turn them into local variables. Because global variables can easily cause changes behind the back of the system designer, they make the whole system unreliable and crash-prone. When global corporations use transfer pricing to maximize profits at the expense of the host country, or when they switch to highly automated equipment and minimize local employment, or when they compete with local entrepreneurs for skilled labor or for bank loans, or when they suddenly pull out liquid assets for some reason or another, we are witnessing what system designers call the “undesirable side-effects of global variables.” Thus a fundamental rule in system design is to avoid global variables.

Faced with a badly-designed, non-modular system, designers frequently find it easier and more cost-effective to simply junk the design and to start from scratch.

Perhaps, this is what we should do with globalization.

[From Chapter 22, Towards a Political Economy of Information by Roberto Verzola]


  1. Posted October 22, 2008 at 6:36 pm | Permalink

    I suspect that the underlying (logical) problem here is the belief in a single universal “reality”. In a single truth system -it is clear that from a designer’s viewpoint “economy” is an irrational (pseudo-)science.

    However, from an economists viewpoint -a designers approach is simply not viable. This is because there is a fundamental contradiction between what one might call a “common sense” (designers/engineers) approach and an “economic” approach.

    The common sense approach is concerned with producing stable systems -that are sustainable due to their stability (as indeed the internet is designed to survive destruction of many of its component parts but still continue to function by reconfiguring itself). The economic approach, on the other hand is supposed to expand and “create wealth” through the systems’ inherent creative instability.

    The conflict can easilly be understood by looking at the nature of any situation involving “trade” (or barter). If two people are self-sufficient then they do not need anything from each other. Trade is therefore rather like electricity -which flows from a positive to a negative area (while the “electron gaps” flow in the other direction). Ideally, when trading both partners have something the other wishes to have -and so a (fair) swap can be made. Goods may move in one direction and money (or other goods) in the other. Without a (one-sided) shortage-or an unfulfilled ‘need’ there is no reason to trade. The economy can only flourish through the exploitation of frustrations, needs and desires -all of which would be removed in any well designed (mentally balanced/rational) society. So, in order to function -the “economy” needs to create problems-that can then be solved (at a price) -in order to sustain the economy (but not those who have needs that need to be fulfilled).

    Basically, it seems “economy” is a parasitic system -even though it has the same etymological roots as ecology. On the other hand, perhaps “ecologies” work in similar ways -with one organism profiting from the activities of other organisms -sometimes in a prey/preditor relationship -but sometimes by one organism using the (excremental) output of one organism as (food) input for itself. Expanding our understanding of “ecology” beyond the concept of “kill or be killed” -and integrating these two apparantly related but seemingly conflicting concepts is perhaps the best way forward -if we are to escape the current economic crisis.

    However, perhaps an even more fundamental question remains: Can an economy increase wealth -or only distribute it? Economists seem to claim that they can increase wealth (although the concept of wealth is perhaps deliberately kept a little vague so as to obscure the issue). Because, if it was true and material wealth could increase -then “economics” would appear to be opposed to the third law of thermodynamics -which says that matter and energy cannot be created but only converted, with the total energy level remaining constant. This would suggest that “wealth” can never be concidered to be a material concept -only a purely conceptual one. This seems especially true since Bretton Woods and the removal of the Dollar from any material relationship. Now even money only has the value that some fool is prepared to pay for it….. apparently, money then becomes valueless if there are no fools around to buy it at any price…..

    However, inorganic systems are entropic -and subject to decay -i.e move from “order” to ‘disorder” (and disperse energy) -while organic systems are anti-entropic (i.e create order out of disorder) by managing energy flows. Physics is the science of inorganic systems -so perhaps there is a whole new science of organic (anti-entropic) sytems waiting to be discovered which could perhaps explain how material (and maybe some forms of energy) can be “created”. Maybe then we shall be able to believe economists when they claim to be able to “create” wealth through the exploition of unstable systems.

    Until then -we may be forced to make an irrational aesthetic choice between stable and safe -or instable, dangerous and dynamic (but possibly not anti-entropic) systems.

    Death it seems is an essential basic condition of life.

  2. Lewis
    Posted October 23, 2008 at 1:36 am | Permalink

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  3. Roberto Verzola
    Posted October 23, 2008 at 9:37 am | Permalink

    Since the NEF seems to be a legitimate entity based on the given website, I approved the comment referring to it. But please do not take it as an endorsement by this blog.

  4. Roberto Verzola
    Posted October 26, 2008 at 6:33 pm | Permalink

    To Trevor:

    Economics systems nowadays are designed as much as they have evolved. Thus, it makes sense to look at their design as much as their evolution.

    Designers also know how to cope with controlled instability, such as positive feedback and oscillations. Their insights therefore remain useful in economics.

    It is not always true that inorganic systems are entropic, while organic systems are anti-entropic. Some inorganic systems can also show local order. All system, including organic ones, are eventually subject to disorder, as you say so yourself when you refer to death as an essential aspect of life.

    I think it is still valid to look at the designed aspects of economies, and to see whether these conform to time-tested rules of design.

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