Creating an Economic Tsunami

The point about yesterday’s piece was not so much about radiation and bombs, but the fragility of our society.

In the interconnectedness of our world, people and places have become specialized. Transportation and manufacturing and finance have their centers and are concentrated at places like Rotterdam and Shanghai and New York. Even more, the world has developed a ‘hand to mouth’ strategy for success.

Instead of building slowly and developing clients and products over the course of years, companies compete with each other in how fast they can dominate new markets and new client populations. They buy companies and spend heavily on advertising. Subsequently, they take on massive amounts of debt to finance business strategies that are marginal, at best.

Unfortunately, lenders tend to be nervous people. When things go bad, they stop lending to companies that are going bad. They call in loans. They raise interest rates. They stop returning phone calls.

So, when a marginal business strategy doesn’t meet its profit target, an otherwise successful company suddenly needs more money to fund operations so that it can climb out of the hole that it dug for itself. But, that is precisely the time when a company is least able tao obtain the extra money that it needs. And if the company is successful in obtaining another loan… well, the more debt a company takes on, the more a company depends on the world operating smoothly, so that it can reach profit targets, meet loan payments, and satisfy creditors.

And my friends, there is lots of debt out there, lots and lots.

Now, think about what happens when you disrupt a key area that must run smoothly. Disrupt transportation for a week and products aren’t delivered and deals are lost and companies go under. Disrupt communications for a week and customers can’t talk to suppliers, which means that deals are lost and companies go under. Disrupt manufacturing for a week and products aren’t assembled on time, which means that deals are lost and companies go under.

Then, add to this the interdependence of companies. When one company disappears, often a host of companies disappear with it.

It’s all one big ripple effect, and there are some pretty ripple possibilities out there.

As our societies become more and more specialized and centralized, we like to concentrate aspects of our society. London, New York, Hong Kong, and Tokyo are our banking centers. Singapore, Shanghai, South Louisiana, and Rotterdam are our shipping centers. Shenzhen, Seoul, Taipei and Kuala Lumpur are high tech manufacturing centers. The worlds busiest airports are in Atlanta, Chicago, London, Tokyo, and Los Angeles, and you know how easy it is to shut down an airport.

Shut down these centers all at once and the ripple effect becomes a tsunami.

Our vulnerability to a worldwide economic tsunami increases every day, and highly educated terrorists like Osama bin Laden understand this.