Interconnectivity: the new structure of the world economy | Min Zhu | TED Institute

Summary

The 2008 financial crisis exposed the interconnectedness of the global economy. The IMF's research reveals countries' economic positions are now defined by strength rather than size. The world is divided into clusters based on services, manufacturing, and energy. Economic activities are centered around hubs like the US and China. The crisis showed how a collapse in one financial center can quickly affect the entire system, emphasizing the need for global cooperation and vigilance to prevent future crises.

Takeaways

• 📉 The 2008 global financial crisis had a domino effect, starting with Lehman Brothers' collapse and quickly spreading worldwide, causing a significant loss in global financial markets.
• 🌍 Economic power has shifted from traditional geographical size to economic strength, with countries like the US and China becoming even more prominent.
• 🔄 Trade and financial activities have reshaped the global map, with Europe and regions like Luxembourg and Hong Kong emerging as significant players due to their economic activities.
• 🌐 The world's economic structure is now divided into three clusters: service-based economies, manufacturing economies, and energy-based economies.
• 🔗 Countries are no longer connected in a simple point-to-point manner but are part of a complex, interconnected network that can amplify both positive and negative economic impacts.
• 🌟 Small countries can have an outsized influence on the global economy due to their role as gatekeepers within these interconnected clusters.
• 🌐 The economic activities of one country can have ripple effects across the globe, impacting countries that may seem unrelated on the surface.
• 💹 The US, as a global economic and financial center, has a significant spillover effect on other economies, with 1% of its GDP impacting jobs worldwide.
• 📊 The indirect impact of economic activities can be much larger than direct impacts, as seen in the global spread of the 2008 financial crisis.
• 🔄 The IMF has learned from these interconnections and is focusing on managing spillovers, providing early warning systems, and advising authorities on potential shocks to ensure financial stability and sustainable growth.

Q & A

What significant event occurred on September 15, 2008, that impacted the global financial system?

On September 15, 2008, the financial company Lehman Brothers in New York collapsed, which led to a shockwave that quickly spread across the globe, affecting financial systems worldwide.

How did the global financial crisis of 2008 affect employment worldwide?

As a direct consequence of the 2008 global financial crisis, 67 million people lost their jobs, with most being innocent bystanders to the economic turmoil.

What is the role of the International Monetary Fund (IMF) in safeguarding global economic and financial stability?

The IMF's role is to ensure global economic and financial stability. In response to the crisis, they initiated research projects to understand interconnectivity and prevent similar crises from happening again.

How does the script suggest that countries' economic positions are now defined?

The script suggests that countries' positions in the world are now defined not by the size of their land but by their economic strength, as shown by the rescaling of countries by GDP on a map.

What does the script reveal about the significance of Luxembourg in the global financial system?

Despite being a tiny country on a normal map, Luxembourg is revealed to be a significant financial power, as it appears large on a map that is resized by financial activities.

How does the script explain the economic roles of different countries in the global supply chain?

The script explains that countries are divided into clusters based on their economic activities. For instance, the manufacturing group includes countries that are part of the mature supply chain, while Brazil and Chile are part of this group because they export commodities.

What is a 'gatekeeper' in the context of the script's discussion on global economic clusters?

A 'gatekeeper' in the script refers to countries that connect smaller clusters to larger ones in the global economy. These gatekeepers play a crucial role in the flow of economic activities.

How does the script describe the impact of the U.S. economy on the rest of the world?

The script describes the U.S. economy as having a significant impact on the rest of the world, with 1% of U.S. GDP having a substantial effect on jobs globally. It also highlights the interconnectedness of economies, such as the impact on Canada, Mexico, Saudi Arabia, and China.

What does the script imply about the importance of global cooperation in economic stability?

The script implies that global cooperation is crucial for economic stability, as the interconnectedness of economies means that the actions of one country can have far-reaching effects on others.

What steps is the IMF taking to prevent future crises, as mentioned in the script?

The IMF is focusing on studying the closer structure of economies, enhancing multinational surveillance, developing early warning systems, and providing advice and insurance to countries to prepare for potential shocks.

How does the script suggest that individual countries' economic activities can impact seemingly unrelated countries?

The script suggests that due to the closer structure of the global economy, the economic activities of one country can impact others, even if they are seemingly unrelated, through the interconnected web of economic clusters.

Outlines

00:00

🌐 Global Financial Crisis Impact

The paragraph discusses the 2008 global financial crisis, highlighting the rapid collapse of Lehman Brothers on September 15th. It emphasizes the shockwave's swift spread from the US to Asia and Europe within 48 hours, leading to a halt in the global financial system. The crisis resulted in a loss of 26 trillion US dollars and triggered a global recession, causing 67 million people to lose their jobs. The speaker, from the International Monetary Fund (IMF), stresses the importance of understanding the interconnectedness of economies to prevent such crises. The IMF's research into economic interconnectivity reveals the significant role of major economic players, trade, and financial centers, reshaping traditional geographical perceptions of countries' importance.

05:02

🌏 Economic Clusters in the Global Market

This paragraph delves into the new economic landscape, where countries are no longer defined by their geographical size but by their economic strength. It introduces the concept of economic clusters, dividing global countries into three groups: service clusters, manufacturing clusters, and energy clusters. The speaker explains how these clusters interact and influence each other, with gatekeeper countries playing a pivotal role in connecting smaller clusters to larger ones. The paragraph illustrates how economic activities are now centered around these clusters, fundamentally changing the behavior of global economic and financial activities.

10:03

💡 Economic Spillover and Global Interconnectivity

The final paragraph focuses on the implications of the global economic structure's shift towards a closer, cluster-based system. It discusses how economic activities are interconnected, with the impact of one country's economic performance rippling across the globe. The speaker uses the example of the US economy to show how its GDP affects other countries, including those not traditionally considered close economic partners. The paragraph concludes by emphasizing the importance of global cooperation and understanding economic interconnectivity for sustainable growth, job creation, and financial stability. It also touches on the IMF's efforts to provide early warning systems and support to countries to prepare for potential economic shocks.

Keywords

💡Global Financial Crisis

The Global Financial Crisis refers to the severe economic downturn that began in 2008, triggered by the collapse of Lehman Brothers. It led to a worldwide recession, with significant job losses and financial market instability. In the script, this crisis is highlighted as a pivotal event that underscored the interconnectedness of financial systems worldwide and the need for global economic vigilance.

💡Lehman Brothers

Lehman Brothers was a major global financial services firm whose bankruptcy on September 15, 2008, became a symbol of the 2008 financial crisis. The script mentions Lehman Brothers as the epicenter of the crisis that quickly rippled across continents, illustrating the vulnerability of the global financial system to shocks.

💡Interconnectivity

Interconnectivity in the context of the video refers to the complex web of economic relationships and dependencies between different countries and financial systems. The IMF's research into interconnectivity aims to understand how economic events in one region can impact others, as demonstrated by the rapid spread of the financial crisis from the U.S. to Asia and Europe.

💡GDP

Gross Domestic Product (GDP) is a measure of a country's economic activity and is used to rescale the map in the video to reflect economic size rather than geographic size. This shift reveals the true economic giants, like the U.S. and China, and underscores how economic strength, rather than land area, defines a country's global position.

💡Trade Players

Trade Players are countries that are significant in international trade. The video discusses resizing countries based on their trade activities, which alters the global map to emphasize regions like Europe, highlighting the importance of trade in defining a country's economic influence.

💡Financial Centers

Financial Centers are locations that act as hubs for financial activities and transactions. The video uses Luxembourg and Hong Kong as examples of small countries that become significant on a financial map due to their outsized roles in global finance, emphasizing the role of financial services in the global economy.

💡Clusters

Clusters in the video refer to groups of countries that are economically interconnected and influence each other's economic performance. The script describes three main clusters: service, manufacturing, and energy, illustrating how countries now define themselves more by the economic products they offer than by traditional income levels.

💡Spillover Effects

Spillover Effects are the indirect impacts that economic events in one country have on others. The video uses the example of the U.S. economy to show how changes in GDP can affect employment in other countries, highlighting the interconnected nature of global economies and the potential for both positive and negative externalities.

💡Gatekeepers

Gatekeepers are countries or economies that act as intermediaries between smaller clusters and the global economy. In the video, countries like Finland and Sweden are described as gatekeepers that connect smaller Nordic countries to the broader global market, demonstrating their role in facilitating economic integration.

💡Economic Activity

Economic Activity encompasses all the tasks and actions involved in production, distribution, and consumption of goods and services. The video discusses how economic activity is no longer confined to individual countries but is centered around pools of economic power, indicating a shift towards a more interconnected global economy.

💡International Monetary Fund (IMF)

The International Monetary Fund is an international organization that aims to foster global monetary cooperation and financial stability. The video mentions the IMF's role in studying economic interconnectivity and developing strategies to prevent future crises, emphasizing its importance in safeguarding the global financial system.

Highlights

The 2008 global financial crisis had a domino effect, starting with Lehman Brothers' collapse and quickly spreading worldwide.

The crisis resulted in a loss of 26 trillion U.S. dollars and caused a global recession affecting 67 million jobs.

The International Monetary Fund (IMF) was shocked by the crisis and its swift global impact.

To prevent future crises, the IMF initiated research projects on economic interconnectivity.

Economic size, not land size, now defines a country's position in the world.

Trade activities and financial centers have reshaped the global economic map.

Luxembourg and Hong Kong, despite their small size, are significant financial powers.

Countries are now grouped into service, manufacturing, and energy clusters based on economic activities.

The global economy is interconnected, forming a complex network with gatekeepers and hubs.

The crisis highlighted that economic relationships are no longer linear but interconnected.

The crisis showed that a problem in one country can affect the entire global system.

The IMF is focusing on gatekeepers and poor countries to manage financial stability.

The IMF is developing early warning systems and spillover reports to predict and prepare for economic shocks.

The crisis underscored the importance of global cooperation in economic and financial activities.

The crisis's impact was not limited to direct effects; indirect impacts were also significant.

The crisis affected countries like Saudi Arabia and China, which are economically linked to the U.S. despite geographical distance.

The crisis taught that global competition and positioning are defined by how countries connect with the world.

The IMF's studies emphasize the need for vigilance in global economic activities to ensure job and savings safety.

Transcripts

the 2008 global financial crisis

shocked the whole world on September

15th a financial company called Lehman

Brothers in New York claps in few hours

the shock reach to the Asia when mark

opens their then move to Europe next

morning go back to the United States in

48 hours the global financial system

stopped

meltdown instruments the global

financial market lost 26 trillion u.s.

dollars in teto almost half of set pawns

the marketization of global market

end-of-year the whole world was in

recession as a directly consequence

67 million people lost a job since then

most if not all are innocent bystanders

I work for the International Monetary

Fund or Monday is safeguard a global

economic and financial stability we were

shocked we were shocked because so many

innocent people suffer and a global

financial system the safe teenis

straightened the speed of the spread the

power of the damage clearly it clearly

tell us the world is different but we

have to know to ensure this crisis will

not happen again

so quickly we started research projects

we call interconnectivity now I'm going

to talk some of these results we found

with you today we found they're both

interesting and stunning we first want

to identify who are the major economic

players in the world

so let's start with a map this is the

map we see every day the countries like

the US and Canada and West Russia and

China in Easter all big countries but

what if are they still the same an

economic war so we rescale the countries

by economic activities re by GDP the map

changes you see really different and the

Russian become very small so us the

Canada but the US and China remain big

even bigger because the largest second

largest economy in the world we also

want to see who are the major trade

players so resize country but

international trade activities indeed

the map changes again this time Europe

become very big we're more interesting

to see who are the financial centers so

we resize countries or economies but

it's pause for the financial captive law

the money flow indeed the map changes

again you see there's a quarter back

shape in the center of Europe and we

know what is this country it is a

Luxembourg

Luxembourg is a such a tiny country in

the normal map but it's such a big

financial power in the global financial

map that's another shape in Asia and

then we know what is this economy it is

a Hong Kong China I heard a thing couple

it's not hope which are the once again

such a small in a normal map but so big

because the financial gateway for China

and the mainland China you see with the

1.3 billion people the country I come

from become very small what does this

tell us it tell us today the country's

position in the world is now defined by

a size of a land but by its economic

strength we move further because we want

to see how the country associates

connects them to each other so go back

to the map and we do a lot of

calculations with all the painters who

try to find correlations closeness

between among the countries and with all

those calculations with fun country now

say moving together and indeed today's

global countries divided them into three

big groups we call clusters the first

group is a service clusters Muslims

advanced economies like us in the UK and

the second group as a manufacturer group

feeding the very mature age of supply

chain but wait you will see Brazil and

Chile also in their map why there

because many Latin country today export

commodity to the global supply chains so

today economically many determining tree

belong to the Asia supply chain and the

third proof is oil group is energy

groups it's also very interest you see

Saudi Arabia Russia and the Nigeria's

they're all different in the different

part of the wall but they share one

thing in common

seppius energy what is tell us

it tells us the wall structure is very

different from before before we divide

the country by income level by reading

but today the country proves himself by

one thing the product one more

interesting try to found whole country

connect to each other because that's the

way is important to understand it a

little bit konami situations so we did

the more calculations we found a fairly

fascinating structure we caught a closer

structure this is the stylized Clausen

structure in those countries

everything's represent our countries and

country close to each other form a small

clusters their leader in their classes

in green color we called gay people and

the gay people will bring these small

cluster to the media and the big cluster

and the big cluster they keepers were

bringing them to the pool in red color

today is a whole wall the all economic

activity is actually is happens around

the pool the big countries let me give

you one real example there's a small

Nordic clusters the country like Estonia

Latvia Finland and Sweden's assume a

country in Estonia or to produce a very

innovative products in either hundred

million dollars captures what do we do

as well pick up the phone

Paul Wall Street the people in New York

place or the brain of an impact Estonia

no that's not way what we found is the

Estonia will first to reach out to

Finland and Sweden their gatekeeper and

the Sweden and the finger were further

carried order move to UK and the United

States the globe of nation centre this

cloth of structure fundamentally changed

the global economic and financial

activity behave

there tell us a few things number one

the relationship between the country is

no longer the point-to-point linear

relationship if it's a pointer point if

something goes wrong you will see only

impact on this to conjure here Estonia

and the United States in these

structures something goes wrong in one

country the whole system effect

the second issue is because it's close

of structure intact if it increased

dramatically among the process between

the cluster interactive factor become

more important and the furthering

politicians will learn Francis's studies

because it's closer structures so the so

country's economic activities may impact

as a country seemingly unrelated we cost

me over now that's become the key factor

for global economic financial situation

today let me give you another example

u.s. is being the largest global economy

and a financial center that we try to

understand what is the u.s. economic

activity spit over to the whole world

indeed the big assume 1 percent of u.s.

GDP equals to the job what is impact on

her wolf across all the world that's a

very interesting who received the

largest bill from United States well you

see Canada and Mexico well that's

understandable because they are not only

enables their economic and financial aid

closely linked to each other through the

free trade zone the whole country

received the third largest spillover

frying that estates it's a Saudi Arabia

Wow you will say why Saudis thousands

miles away there's so different

economies yes because so this has a

fixed exchange rates linked with yes

dollar and the Saudis are your

production and investment supreme

chilling with US market Hui the third

the fourth the Inkpen receiver countries

mister China once again sold as a miles

away is a very different come trying to

manufacture Aloha

but us involving so many trade and train

financings and both of us in China pull

when sins have been cool the impact to

each other more importantly if we take

in direct impact into the considerations

the spillover become ever larger the

color Ingrid show us the indirect impact

today is a much bigger than directly

impact it can be double or quadruple for

directing path for many countries for

example in the country here in France

now we understand why the 2008 the

global financial crisis happened there

way with the human breast collapse in

New York because yours to being the core

of a global financial centre so quickly

distress to the whole financial systems

economic way is also rich to Saudi and

China quickly spread to the energy

cluster and a manufacturer closed

shortly they brought a whole global

economy and a financial system Tom it is

a changing war and this changing world

particularly the closer structure has a

profound implications to all of us for

us at the International Monetary Fund we

learn from these studies because it's

closer structure generator spill over

and provide opportunities and the

manager financial stability is a key for

sustainable growth and for job so we'll

quickly relook at the resources to put

more or more efforts on the gatekeeper

and poor countries we do more

multinational surveillance and we

develop products like an early warning

exercise like external report like spill

over reports a vulnerability rolls on

top of things advice authorities tell

them what possible shocks they may

receive how they prepare for the shots

and provide insurance to them this is

also have important implication to the

ordinary people that you

and me the study says today where we are

is not important we all linked to the

whole wall we all face the global

competition or possessing is defined by

our strengths or inference is defined by

the way we connect to the whole world

it's also important for us to remember

if you want the people job and the

savings safe we have to pay more

attention and global financial economic

activities these are clusters structures

produce the post upside benefits and

downside risks depends on whether we can

work together or can learn more who can

share more indeed we have to work

together we have to learn more we'll

have to share more thank you very much