Stability in a Superpower-Dominated Global Economic System

By Pavlov, Oleg V.; Radzicki, Michael et al. | Journal of Economic Issues, June 2005 | Go to article overview

Stability in a Superpower-Dominated Global Economic System


Pavlov, Oleg V., Radzicki, Michael, Saeed, Khalid, Journal of Economic Issues


The real world is awash with "soft" variables. At the personal level, we often refer to such amorphous concepts as self-esteem, fatigue, anger, and love. At the organizational level, companies value their intangible resources, such as brand recognition, trust of their market partners, and market perception of quality (Warren 2002). However, often researchers are hesitant to include qualitative variables in their models (Richmond and Peterson 2000, 9.1). System dynamics, which originated in the 1950s as an application of control theory to industrial and urban problems (Lane 1994), holds the view that leaving soft variables out of a model is equivalent to stating that intangibles have zero effect within the modeled system (Sterman 2000, 854). Hence, qualitative variables are an integral part of system dynamics models. As an illustration, this paper provides a modified version of a model that was originally developed by Khalid Saeed to explain the relationship between civil liberties and economic development in Third World countries (1990). The model is reinterpreted for the global economic system.

The crux of the model is the idea that governments of powerful states, whether they are the old Roman Empire, England of the nineteenth century, the USSR, or the modern United States, allocate limited national resources between productive and nonproductive sectors. The nonproductive sector is the military and security forces; the productive sector is the economic sector. In reality, matters of war and peace are affected by many factors (Brecher 1996). Additionally, because conflicts as well as sustainable development affect each other and in turn are influenced by the same set of forces and parameters--demographic pressure, environmental degradation, natural resources, technology, and so on--the influences form an intertwined complex web of cause-and-effect relationships (Wils et al. 1998). Due to its complexity and many intangibles, the problem is ideal for analysis using system dynamics methodology.

The paper is organized into the following sections: model description, base run, a specific case simulation, conclusion, and appendix. A characteristic feature of the system dynamics method is an extensive use of graphics to represent and communicate models (Lane 2000). The appendix shows the rendition of the model completed in the computer simulation software package Vensim DDS. (1) A complete description of the model, including mathematical equations and computer code, is available from the authors upon request. Due to the brevity of this paper, we omit a methodology section and, instead, refer the reader to an excellent text on system dynamics by John D. Sterman (2000). Institutional economists may also find interesting an article by Michael Radzicki (1988) in which he drew parallels between institutional economics and system dynamics.

Model

The model (see appendix A) assumes that the government distributes limited national resources between two sectors. On one hand, the resources can be used for productive economic uses, but on the other hand they can be channeled to the stock of control resources. Control resources are used to produce control, which is, in this context, a generic variable that represents a combination of forces used to manage total national resources, fight insurgency, and contain censure. The resources are continuously redistributed between economic and control sectors based on the perceived need. Total national resources only grow through the activities in the economics sector. Using economic resources for production of social goods is also the only way to improve the welfare of the population at home and abroad. Therefore, diverting significant national resources from productive economic activity limits growth in terms of resources and welfare. Potential censure, or disagreement with the current status quo, grows when domestic and foreign populations are not provided with adequate social goods and are too actively managed through government controls. …

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