Economic Networks

I'm reading The Shock Doctrine by Naomi Klein. It's a very good book about how the Western powers have induced and exploited economic and political chaos in developing nations to lay a framework for free-trade and little economic regulation, generally very unpopular with the people of the nations they are imposed upon. She never mentions networks in the book, but it occurred to me that much of what she describes could be reconceived in a network structure. I know that thinking of the global economy as a network is certainly not a new idea, but it is interesting to take the situations she describes and think of them in a new way.

One situation was in early 1970's Chile. The government was moving farther and farther left creating an increasingly socialist society with the support of the people. The US was worried that the government would nationalize American holdings and subsidiaries. So, Nixon wanted to induce an economic crash and depose Allende, the president. To do this, the US government tampered with the flow of money in and out of Chile, playing with the structure of the network. If thought of with a valued, directional graph, we could see that the US pumped a significant amount of money into Chile with loans and was a significant buyer of Chilean exports, mainly copper. The US government severed these edges by both public and private American loans and by suspending the purchase of copper for six months. It's interesting to me to think of it not just as the US changing policies regarding Chile, but rather in the context of a network being manipulated. If Chile and the US are thought of as nodes, the US reduced Chile's degree, and this drastically affected Chile.

Another example is the economic collapse of South East Asia in the 90's. Klein states that it started with a rumor that Thailand didn't have sufficient reserved to back its currency, and mutual funds share holders started divesting from Thailand. The problem was that the mutual funds had holdings in Thailand, Indonesia, South Korea, and other SE Asian countries, so divesting from the mutual fund meant pulling money out of all of the countries at the same time, inciting economic crashes across the board. I picture this as a two-mode graph showing that the countries all belong to the same mutual funds. This way the graph would indicate that what happens to one, happens to all of them. While the countries may not have been linked directly with trade, they were all connected by an outside organization, and that meant the failure of one meant the failure of all of them.

I haven't fully thought it through, but it seems like to hold its prestigious economic position, the Western powers need to hold on to centrality in the network. By opening up the world to free trade, Western multinationals have been able to syphon money out of the economies of developing nations. Western corporations seek to increase their indegree by placing branches and gaining holdings in countries around the world. They may also hold a high level of betweenness by being the countries that are able to make finished products or refine raw materials. One of Ghana's economic problems is that they have raw materials and they have factories, but they have to way to refine materials sufficiently for the factories. So, ore has to be shipped out to be refined, only to be shipped back to be made into a finished product. The transportation and the cost of trade significantly increases the cost of the final product (as well as other factors), making domestic products less desirable. Clearly, it is in the interest of the Western countries to be in the middle of this transaction. Not only are they making money on refining ore for Ghana to produce their own goods, but Western good are still cheaper and more desirable. This gives Western powers a higher level of betweenness than Ghana because more trade has to go through them.

I'm no economist, and I'm sure I have a few thing mixed up. But I'm very interested in this stuff, so please comment and set me straight if I have my facts wrong. Really, I'm just trying to imagine the information I'm getting from this book with the network terms that we discussed in class yesterday.