unity without diversity is bad for everyone

It's not the size, it's the lack of diversity -- the world financial markets show us the risks of unity without diversity, and the 366 point drop in the Dow Jones last friday is just a taste of it.

There is also a risk in perverting the language that is not mentioned, as the term "hedge" used to mean "to make safer with a contrary bet" whereas today it appears to mean "to make riskier by highly leveraging the same bet".

Of course, once upon a time, a "bank" was a conservative, responsible place that had long-term plans and stability, not a place with a fortune that could rise or fall, as one shocked European banker noted, with the federal funds rate changing by one point for one quarter.

Here's the highlights from an article today that touches those points.

One World Taking Risks Together
New York Times
by Nelson D. Schwartz
Oct 21, 2007

HUGE financial losses in the United States spark fears in Europe.... the Panic of 1907, which culminated exactly 100 years ago today.

But this time around, it may take much longer to repair the damage and restore confidence than it did a century ago. It’s not only that the sums are larger now...It’s also that the breadth and complexity of today’s global markets create risks so great that no group of business leaders — or even a single country — can control them.

It wasn’t supposed to work this way. Interconnected global markets should make the world economy more stable, according to traditional economic theory, with risk spread more widely and strength in one region offsetting weakness in another.

“In practice, we’re not seeing that happening,” says Richard Bookstaber, a veteran hedge fund manager and author of a new book, “A Demon of Our Own Design: Markets, Hedge Funds and the Perils of Financial Innovation.”

Although international financial links are nothing new, as the Panic of 1907 shows, what’s different now is how closely international markets are correlated with one another.

“As markets become more linked, diversification doesn’t work as well.”

As a result, Mr. Bookstaber argues that today’s global financial markets may actually be more risky than in the past. That’s because the same types of investors are taking on the risky bets and then simultaneously heading for the exits when trouble comes, even if they’re on opposite sides of the world.

Actually, there's nothing wrong with this aspect of traditional economic theory, only with how well people read the book. Statistics says that the overall risk will go down if the individual risks happen independently - which is to day, it's a truly diverse world, where knowing what's going on in place A doesn't tell you what's going on in place B. And that is true.

But if everyone uses exactly the same strategy, the power of diversity reduces to the leaf-in-the-wind behavior of one individual, just with everyone else along for the ride.

This is also why tyranny doesn't work, and cannot work as a governmental system for very long, or why we see the same risks in "Theory X" companies that may be huge but really are only slaves of a few guys at the top with a big magnifying glass.

Diversity is not what unity must overcome - it is what gives unity strength.

An ecology with a single kind of plant in it will collapse as soon as the first virus figures out where lunch is located. Any global world with a single kind of thinking is equally unstable. This is a basic law of nature and statistics and cannot be overcome by wishful thinking or by anyone who was "right in the past."

Including diverse cultures and people in the decision-making process is not "accommodation" -- it is recognizing a case where all of us are actually much wiser than some of us.

It also illustrates the need for actually educating people so that they actually understand basic concepts and don't simply try to echo mindlessly what others are doing. Without "independent investigation of the truth", the system breaks down.

Again, let me refer to the basic principles held and advocated by the Baha'i Faith, as a set of guidelines I urge everyone to investigate independently. These are the kinds of things we should be studying in school.

Whether it is "race unity" or "unity of religions" the "unity" the Baha'is advocate is not the false "unity" achieved if everyone comes around to my point of view - it is the true unity that emerges from everyone keeping their independence on all but those things we need to stop killing each other and talk like adults about common issues.

It involves submission to God, not to some different self-appointed leader, and just enough civilization to have a "learning culture" that doesn't rip itself to shreds over the fact that the world appears very different to different people and at different times.

Global domination or "conquest" by any one nation or culture or way of thinking is a recipe for disaster, as the financial markets are telling us over and over. We do not all want to be clones of any one approach. Those who dream of global conquest are chasing a phantom that only exists in dreams, because simplifying any system that much will cause it to collapse.

That's the key lesson that we need to understand. Systems require diversity for the magic to work. You can prove it with math and you can simulate it on computers. Or we can keep on watching what happens around us when we try to deny that natural law - about like trying to deny the law of gravity.

This is just critical at this stage in nation-state development, where huge countries are in the middle of preparing for a massive confrontation over who will "dominate" the world. No one can "dominate" the world without destroying it and imploding. We are gearing up on a fool's mission that cannot possibly succeed for anyone. There will be no winners of that fight.

The reason world conquest has failed in the past is not that it was incomplete, but that it tried to be too complete. It squeezed the life out of all it touched with a unity without diversity. It didn't work not because of some error in execution, but because the whole idea is fatally flawed. It's impossible. It can't ever work, regardless how brilliantly executed. We need to let go of it.

So here's the take-away lesson.

All the frequencies matter. There's no point in reading the "news" if you don't spend equal time reflecting on the "olds", or you'll end up with a false impression of what's going on, really. In fact, as the Times article begins, we should have learned more from exactly 100 years ago friday and what happened then. Most of what is around us is actually more "old" than "new".

I remember watching two experts play the board game "Go" one day. Every now and then what looked like a surprise move would take a whole army and change the board. When it was over I comment on how much the board changed from move to move. They both looked at me baffled and replied that the board hadn't changed by more than half a point in the last 100 moves. I just wasn't able to see what was really going on by looking at what was changing. I needed to stop looking at the "field" and look at the "ground" instead for a while.

In regards to world conquest? To quote the "Whopper" computer in the old movie "War Games" -- "Hmm. Curious game. The only way to win is not to play."

(photo credit: moto browniano on Flickr)