Petre Roman

The New Global Economy cannot be about molding society as if we can see far into the future. Why? Because the global economy is complex, more often than not, the disordered system because it is a dynamic system, which is a non-linear, unpredictable one.

We seek transformation towards better, timelier, and more rational decision-making. Real-time revolution is also, or should be, about alternative and augmentative communication.

Complex behavior is all around us. The economy has many components, each with its own rules, and all interact in complicated ways. The system’s behavior is strongly sensitive to the initial conditions, which are not, as a rule, under our control.

It doesn’t mean that we are compelled to navigate without a compass. We can select the elements which drive the system’s evolution towards a more predictable behavior and better know its already present elements.

While climate change is predominant in the global approach of the economy, we can’t say that it all comes down to this challenge and how to mitigate its consequences. A global environment under uncertainty should be considered within the reality derived from complexity.

Mastering complexity is the next big challenge for science. Understanding and managing complexity are of critical importance if we are to find ways of solving environmental challenges such as global warming and if we are to build societies that do not destroy themselves through conflict and war.

Eliminating carbon gas emissions inevitably implies higher energy costs and slower growth. There is no miraculous economic boom. Let’s take the hydrogen-fuel issue.

The cost of producing massive amounts of hydrogen from renewables is nowadays five times greater than from natural gas. Everything meaningful should be a combination imposed by complexity.

NGE is revealing, among other energy-related solutions, an era of electricity becoming a tradeable commodity thanks to connecting power grids and matching supply and demand by transferring electricity across distances.

Nuclear power needs to be reconsidered as a lot greener than gas. Nuclear energy is crucial as a complement to renewables. Indeed, nuclear provides always available power while renewables are naturally restricted by the lack of wind or sun.

It is an ambivalent connection. There is also an important advantage: it has a small footprint. Less than 1% of the solar or wind is needed. Whenever we attempt to resolve conflicting claims, we try to avoid unexpected decisions or outcomes.

We are compelled to produce more with less. How? By learning from nature. Without working procedures to induce cooperation, we cannot enjoy the benefits of civilization and formidable technological progress.

The New Global Economy

Ervin Schrödinger, in “What is Life?”, states that: “Life seems to be an orderly and lawful behavior of matter, not based exclusively on its tendency to go over from order to disorder, but based partly on the existing order that is kept up.” (Schrödinger, 2013)

The NGE, like any other economy, is about maximizing jobs and growth. The pandemic is becoming a catalyst for change. The essence of post-pandemic economic policies represents a real-time revolution, i.e., quality and timeliness of information emerging from using instantly available data.

Indeed, digital devices have become ubiquitous, monitoring all kinds of economic and commercial activities, machines, and objects tracked with sensors.

Improved data and new ones developed in a perpetual feedback loop. We are dramatically increasing our ability to observe the economy accurately and, in doing so, improve it more quickly.

And even more remarkably, battering the decision-making process in the public sector is of utmost importance. The gap between official data and what is happening in the real economy is often flagrant.

And there is often no time to wait for reports and official surveys. Insufficient and late data cause errors and jobs, and much money is lost. There is a strong demand for economic research to understand unpredictable and confusing situations.

A documented example is the financial crisis, when the Federal Reserve cut interest rates near zero in December 2008, when America entered recession.

Had the Federal Reserve cut them in December 2007 (one year earlier), the financial crisis would have been much less harmful. Now, real-time policies do not eliminate or reduce the work of statistical agencies.

The NGE cannot be about molding society as if we can see far into the future. Why? Because the global economy is a complex, more often than not, disordered system because it is a dynamic, non-linear, unpredictable one.

We seek transformation towards better, timelier, and more rational decision-making. Real-time revolution is also, or should be, about alternative and augmentative communication.

Complex behavior is all around us. The economy has many components, each with its own rules, and all interact in complicated ways.

Last year (2021), the Nobel Prize for Physics was awarded to Giorgio Parisi, a physicist. He uncovered the hidden rules that govern complex disordered systems, i.e., the properties that emerge from particles’ random, disordered movements on the microscale, at the macroscale level.

Such a mix of complexity and emergent behavior also affects the economy and the ecosystems under the impact of climate change, biological phenomena, or financial systems.

It’s often much more difficult to predict the behavior of a highly complex system like the global economy or a global financial one. And we are well aware that NGE should not denude the planet of its resources. That is the only way towards a sustainable future.

NGE is a complex system, and the questions around this new dynamic are, as before:

  1. Is it robust? Which are the engines of growth?
  2. Is it sustainable? Can we replicate the conditions of growth in the long term?
  3. Is it resilient? When the system is submitted to shocks, inevitable in a world full of uncertainties, does it withstand the shocks and bounce back to a normal state, perhaps even better?

The system’s behavior is strongly sensitive to the initial conditions, which are not, as a rule, under our control. It doesn’t mean that we are compelled to navigate without a compass.

We can select the elements which drive the system’s evolution towards a more predictable behavior and better know its already present elements.

While climate change is predominant in the global approach of the economy, we can’t say that it all comes down to this challenge and how to mitigate its consequences. As we stated before, the initial conditions are more diverse.

In his famous paper “Complex Systems: a Physicist’s Viewpoint,” Giorgio Parisi defined the complex system: “A system is complex if its behavior crucially depends on the details of the systems.” (Parisi, 1999).

Threats to the future are not only natural (physical or biological), but they are also political. The cultural propensities of people and communities don’t disappear. When they evolve, there is only an alteration of the existing ones.

It is important to notice that acknowledging the threats to the future of a global zero-carbon economy. It shouldn’t be that we somehow become the moral slaves of that future.

Under the threats, we can still imagine and compute new routes and new solutions. A global environment under uncertainty should be considered within the reality derived from complexity.

Mastering complexity is the next big challenge for science. Understanding and managing complexity are of critical importance if we find ways of solving environmental challenges such as global warming and if we are to build societies that do not destroy themselves through conflict and war.

Stephen Hawking said, “the present century will be the century of complexity.” Heinz Pagels was more specific: “I am convinced that the nations and people who master the new sciences of complexity will become the economic, cultural and political superpowers of our century.” (Pagels, 1988).

In physics, we reach a critical point when a series of conditions – with a decisive impact on the system – have the same intensity. They are temperature, pressure, and density. In the economy, there are four fundamental things:

  1. Capital (investments);
  2. Energy;
  3. Trade and commerce;
  4. Labor force.

So, what would be the most reasonable policy expectation about the NGE? Eliminating carbon gas emissions inevitably implies higher energy costs and slower growth. There is no miraculous economic boom.

Behind the shortages (energy, transport, semiconductors), deeper forces can stay even long-term. Green alternatives are not solving the problem of shortages.

On the contrary, that shows, among many other things, the new complexity of the global economy. The NGE is not about a bright future.

It is about selecting a positive rule among many possible rules, a rule that indicates a positive behavior of the global economy. Green should transform itself from truism into beating reality.

Let’s take the hydrogen-fuel issue: The cost of producing massive amounts of hydrogen from renewables is nowadays five times greater than from natural gas.

Everything meaningful is a combination imposed by complexity. For example, kilowatt-hour produced is not equal in terms of footprint or costs.

  1. From what source of energy is hydrogen produced?
  2. When is it very useful to produce hydrogen with zero or minimal negative consequences and low cost on the market?
  3. What kind of storage of electricity is beneficial to investments in hydrogen production?
  4. Can hydrogen replace classical combustion sources in steel production and other industrial activities? (Hydrogen can be pressurized to be consumed in transportation, but it can be liquefied only at -253 degrees Celsius)
  5.  How large would the necessary stimulus to supply hydrogen be, and how unprepared would the markets for such a move be?

Incumbent technologies (not the black ones, but the gray ones) and the financial constraints of governments could represent a major obstacle.

An NGE is already coming, but being a complex system means going even a little off balance and risking having it tear apart. A clear example today is the price surge of the global shipping of goods.

Under the WTO rules, the average global tariff fell between 1990 – 2017 by 4,2%, but for developing countries, it fell even more: India by 51%; China by 28%.

The system supported an explosion of global trade as a share of global gross output from 30% in the early 1970s to 60% in the early 2010s.

International commerce received a great boost from the radical reduction of transport costs and stability, meaning predictability. Reduction in uncertainty was so important. Today free trade is not a mantra anymore.

One reason is the pandemic-associated restrictions, but another one is political, related to the national protection of inefficient firms. The question appears again: Does protecting national firms make the country more resilient to shocks?

As developed and militarily powerful states promote, sometimes aggressively, their big national companies (especially industrial), what can the less developed countries do to keep up with the general nationalistic trend?

The Economist, in October 2021, stated: “In the global economy, power increasingly trumps rules” (The Economist, 2021). NGE is revealing, among other energy-related solutions, an era of electricity becoming a tradeable commodity thanks to connecting power grids.

It matches supply and demand by transferring electricity across distances. With advanced technologies, undersea cable-laying is easily feasible, even at depths below 1200 meters.

An estimation shows that by 2030, 72.000 km of cables will be laid underseas. Another project is also very promising.

Before 2030 energy islands – the first one is in the North Sea (Vaughan 2019), with many different technologies in one space: wind, battery, hydrogen, connected by cable with one or two or more countries.

And size is crucial when returns tend to grow exponentially in time. Remember, we are in the Exponential Age. Be exponential or bust.

By mid-century, the world will need to completely remake its energy system and still face the same crucial issue: to grow again as the demand for improving living standards will continue to manifest as it is today.

Redesigning energy markets is possible and very much needed. The bigger safety of the nuclear plants and big reserves not only in gas but also in battery storage and hydrogen are all very near or sufficiently near to technological completion.

The Climate summit outcome in Glasgow has shown that the world is already falling behind on pledges (to reach carbon-zero emissions) that were never enough to begin with.

Nuclear power needs to be reconsidered as a lot greener than gas. Nuclear energy is crucial as a complement to renewables.

Indeed, nuclear provides always available power while renewables are naturally restricted by the lack of wind or sun. It is an ambivalent connection.

There is also an important advantage: it has a small footprint. Less than 1% of the solar or wind is needed. More than fifty years ago, Jean Monnet wrote: “approaching our atomic future separately would have been insane.”

The presently available resources are, in general, in economic terms, more valuable than future resources. Having resources now means that we can or should expand our opportunities.

This is simple economics, yet quite complex at the level of the global economy. The present command of resources is one of the most sensitive issues on the global stage.

What stays unchanged when the economy is subjected to symmetrical transformation, i.e. transformations which do not alter the absolute validity of the system? (in physics, validity is expressed in the fact that the appearance of the object is not changed).

The obvious answer is cooperation, interconnectivity, and trade. We speak a lot about transitions in the global economy. Therefore, we must speak about some critical points and order parameters.

The global economy should also be based on continuously expanding and charging towards the frontier of innovation. Governments and businesses working hand in hand make economies more innovative.

In a disordered phase of transition, the parameter of order is zero. But, while asymmetries are inevitable, the global disorder is not. Even if critical thresholds signal abnormal behaviors, patterns emerge in the long term.

Examples teach us to organize the multitude of objects in classes. But how many examples do we need to extract a rule of the certain architecture of the set (system)? It all depends on the architecture.

Now, what would be the architecture of the NGE as a system? Intuition, the talent to accidentally discover something true and powerful, have an important place.

Umberto Eco, in his essay “Serendipities,” expressed this firmly: “We should rely on a criterion of truth. But if I were to choose it too dogmatically, I would risk ending my argument at the very moment I begin it” (Eco, 1999).

And he quotes Dante (“Paradise”, XXVI): “For no product of human reason, from the human taste for always having something new… is ever stable.”

While the science of climate change is firmly established today on powerful truths, the outcome is not necessarily a simple extension of present-day trends. We are compelled to produce more with less. How? By learning from nature and mimeting nature.

We are more and more, in some respects again, living in a world where cooperation is challenged by the power relationship or the standing forces.

But, let’s remember that the functioning of the economy, along with the functioning of the government and the social institutions, depends eventually on our mutual ability to secure cooperation.

Without working procedures to induce cooperation, we cannot enjoy the benefits of civilization and formidable technological progress.

All discussions on global cooperation should be rooted in and growing out of convictions, i.e., out of what we believe to be true, important, and useful. If it is to become a reality, global cooperation is about shared convictions.

Indeed, we have no option but to act in the presence of uncertainty, which often means that a better situation could be simply unattainable. And we should, much more than now, resort to diplomacy as a global tool to cope with global uncertainties.

Outlook

We may consider that the future is a product of interplay between the states of nature on the one hand and our choices on the other. So, what would be the most reasonable policy expectation about the new global economy?

Eliminating carbon gas emissions inevitably implies higher energy costs and slower growth. There is no miraculous economic boom. Green should transform itself from truism into beating reality and the economy should grow again as the demand for improving living standards will continue to manifest as it is today.

Connectivity between physical and social systems is a fundamental characteristic of natural risk. Hence, the representation of natural risk cannot rely on one theory or discipline alone. Indeed, it encapsulates a huge range of research fields.

Acknowledging connectivity is a defining feature, and the need for a multi-disciplinary approach is crucial. The emerging new global economy is a case in point. Increasing connectivity is likely to result in higher complexity.

Natural processes are complex phenomena displaying interaction with humans and their built environment. Regarding natural hazards, such as floods, tsunamis, severe droughts, and landslides, the crucial questions are: How far away is the system from its internal threshold, and when will the next external disturbance occur with the power of destabilizing the system?

When you can’t say what a system will do next, you are confronting a situation of unpredictability that generates uncertainty and disorder.

The moment of truth, unpredictable, can appear in the form of a drastic change when a critical threshold is reached. Thresholds, which must be crossed before a reaction can follow, can be assigned to internal or external factors, either embedded within the system configuration or as part of external systems influencing the natural environment system from outside.

In a highly sensitive system, small external climatic triggers can foster a reaction – a natural hazard- while a non or low-sensitive system possesses a buffer capacity, and no or little reaction will result.

New patterns of risk and uncertainty should be analyzed and included in the new politics. We often have to resolve the tension between the desire for coherence and the facts and experiences of living which are almost entirely fragmentary.

As a result, we have difficulties in elaborating action plans. This is even more evident in the politics of today. There is no more predetermined politics; what happens doesn’t have to happen, i.e., it is not a planned outcome.

*Petre Roman is a former Prime Minister of Romania (1989-91), President of the country’s Senate (1996-99), and its former Foreign Minister (1999-2000).

**The Diplomatic Insight does not take any position on issues. The views represented herein are those of the author(s) and do not necessarily reflect the views of Diplomatic Insight and its staff.

Leave a Reply