Interdependence

Interdependence

It is not the similarity or dissimilarity of individuals that constitutes a group, but interdependence of fate. —Kurt Lewin

Specialization leads to interdependence. The two models are closely related, yet distinct enough to consider them separately. The more specialized an individual, company, nation, or other group is, the more reliant it must be on other specialists to meet its needs. We can’t do everything on our own. We are all dependent on one another, in webs of various sizes and complexity. These interdependencies create both opportunities and challenges.

As economies become more specialized, complex networks form among economic agents. In a famous 1958 essay, “I, Pencil,” Leonard E. Read encapsulated the astonishing interdependence of the world by positing that no one on earth knows how to make a pencil from start to finish. Even such a simple device, Read wrote, involves numerous specialists: loggers to harvest the wood, workers in a sawmill to cut it, designers of machines used to work the wood, and so on.

Read’s essay was intended to illustrate the concept of economic interdependence: how individuals, companies, and nations all become dependent on one another, forming complex trade networks. Global economic interdependence is considered beneficial for giving people more opportunities, disincentivizing war, and improving standards of living by reducing the cost of goods and services. If we all had to produce the ingredients to make a chicken sandwich ourselves, few people would be eating them. If we value our ability to buy chicken and buns, we will stay on friendly terms with at least two producers of each. The jobs we create in bringing together dozens of specialties to make and sell a chicken sandwich increase both the diversity of jobs available and the places in which people can do them.

There are a couple of downsides to economic interdependence. The first is that it can lead to dependencies that can be manipulated. If a country is dependent on another country for something it needs, it may be forced to tolerate bad behavior, not to intervene in the other country’s affairs, and to bow to demands to keep the relationship going. It’s easy to be a good partner when things are going well, but you want to be careful upon whom you are dependent in a crisis.

In addition, if one part of a supply chain breaks down (such as if one country faces a natural disaster or war), it can be difficult or impossible to find alternatives. This means that catastrophes now have more of a global impact. When the Chūetsu offshore earthquake struck Japan on July 16, 2007, Riken Corporation, an automobile parts manufacturer, suffered serious damage and briefly shut down production. Riken held a very large market share in the production of piston rings, which are necessary for the production of cars. Since most Japanese auto manufacturers use just-in-time inventory (meaning they carry little buffer stock), they were dependent on Riken’s consistent production. When Riken stopped sending piston rings, they also had to shut car production down.

If substitutes or buffers are unavailable, the failure of a small but essential component can stop production across an industry.

Interdependence can also lead to cascading effects. In the 1950s, Kenneth Arrow and Gérard Debreu looked at the far-reaching and nonobvious ripples that interdependence can produce in an economy. For example, Arrow traced some of the cascading effects when new oil fields were discovered in the 1930s. First, oil prices went down all over, and because none of us collect and refine our own oil, there was widespread reaction to the windfall our dependency created. Homes started to heat with oil instead of coal. Great; it’s cheaper! But then employment in coal mines fell, and the price of steel went up because coal became more expensive. We drove our cars more. Railway usage declined. Highways grew. Towns caught in the wrong location or dependent on the wrong resource stagnated or died out, while other towns boomed. New oil produced effects that cascaded far outside the oil industry.

Another note on interdependence is that we can only appreciate the ripple effects our actions might create if we’re honest about where we are truly dependent. Economic accounting has often focused on goods and services that are exchanged for money. The field has not been great about acknowledging, for example, how the whole economic system is dependent on the unpaid labor performed in the home, mostly by women. Although that is starting to change, the legacy of early economists such as Alfred Marshall, who argued against counting work in the home as part of the economic equation of a country, means that some dependencies are still overlooked.

Some linked problems require a coordinated response. Mapping dependencies helps identify who needs to be involved and where cooperation could help.

In personal life, we rely on family, friends and communities for practical help and emotional support. Ask whom you depend on, what support you provide in return, and whether too much rests on one person. Those questions can reveal both a source of help and a vulnerable relationship.