History of the world economy

Our Economic System: Badly Designed?

By Roberto Verzola
9 January 1998

The international financial crisis which struck Asian countries in 1997 and continues to cause widespread damage this year is a perfect example of what system designers call "the side effects of global variables."

Take the most complex systems ever designed by people -- like the spacecraft system which took men to the moon and brought them back, or computer chips that are made of tens of millions of components, or a complex operating system with one hundred million lines of code. They work as designed because the system designers followed certain rules of design which time and again have been proven correct.

Follow the design rules, and you get a system that is robust and reliable. Violate the design rules, and you get a system that is unreliable and crash-prone.

One of the most important rules that good designers will never violate is modularization: breaking up a complex system into relatively independent modules, which are isolated from each other except for a few well-defined interfaces. This design rule can be found in all engineering and computer science texts. It is true for hardware and software designs. Without exception, all complex systems, which have violated this rule have ended as miserable failures, while those which have tried to implement it have shown much better rates of success.

The reason for the rule is simple: as the number of components in a system increases, the number of possible interactions between components increases dramatically. Beyond a certain number of components, it becomes impossible to double-check or even to trace the results of every possible interaction. Such cases increase the possibility of undesirable interactions, called "side effects." Because these potentially undesirable side effects increase at a faster rate than the number of components, they eventually bring the whole system crashing down.

The history of systems design is replete with crashed spacecrafts and crashed computer operating systems that drive home the point: complex systems must be broken up into smaller, more managable, independent modules; otherwise, you get an unreliable, crash-prone, or unworkable design.

The opposite of modularization is globalization. No kidding. The favorite word of President Ramos and World Bank economists is an absolute no-no among systems designers. Open any respectable textbook on computer science or system design, and one of the first design rules you are going to meet is: avoid global variables. Avoid anything that affects the entire system globally. Break up large systems into smaller modules. Protect your modules from interference by other modules. Isolate your modules from each other. Build firewalls.

Most of all, avoid global variables.

In an economic system, a global variable is anything that affects the system as a whole, particularly one with significant effects. Global corporations, because they operate worldwide, are a good example. The IMF, the World Bank, and the World Trade Organization (WTO), because they intrude into almost every economy in the world, are also good examples. Their moves and decisions affect so many subsystems of the economy, and result in millions of other interactions, that undesirable "side effects" proliferate. Eventually, these side effects can bring the whole system down.

Unfortunately, most economists appear to have little understanding of system design. (When I was in college, many of those who failed our engineering subjects shifted to economics.) Instead of following good principles of design, our economists repeat the most common mistake of amateur programmers: they rely on global variables.

Instead of building a protective firewall around our economy, they tear down existing walls of protection. Instead of strictly regulating those global variables that penetrate the remaining protective walls we have, they launch a perverse program of "deregulation". Instead of blocking IMF, WTO and World Bank interference, they kneel and bow before them. Instead of relying on local variables and local interactions, which are manageable locally, they put greater reliance on global markets and global players. All those legal infrastructures which in the past protected us from the side effects of global variables -- such as protective tariffs, foreign exchange controls, regulatory mechanisms and others which would have dampened the impact of global side-effects on our economy -- are being torn down.

Worse, the reliance on global variables is even being touted as "sound economic fundamentals."

Until we learn the basic lessons of systems design, and apply these to our own economy, we will be saddled with an unreliable, crash-prone economic system, one which will cause us endless suffering.

There is another lesson we can learn from successful designs of the past. If a system is badly-designed, and suffers from too many global variables, any attempt at modification will likely produce even more unintended side effects. Often, it is better to discard the misdesigned system altogether and to start again from scratch.

Perhaps, this is what we should do with the system and a regime that embraces globalization, leaving us at the mercy of its side-effects.

* Roberto Verzola is an engineer who specializes in computers. Funded by the Philippine government, he designed a computer system in 1981, the first Filipino to do so. He also designed the software for first online systems used at the Philippine Senate and House of Representatives in 1991. He has devoted a lot of time studying the social impacts of technology.