Overreliance, continued

I found, on The Economist, two charts that were rather intriguing yet baffling. They both show how, in today’s world, corporate and international, we are becoming more and more dependent on single entities that have rose and braved through multiple storms. They both reinforce the thought on ‘Overreliance’ – https://theaveragedollar.wordpress.com/2012/08/02/overreliance/

Sinodependency

A chart depicting ‘Sinodependency’ – how dependent other players in globalised capitalism are on the Chinese economy. Source: http://www.economist.com/blogs/graphicdetail/2012/08/daily-chart-9

As seen on the left-hand-side, firms listed on the S&P 500 with Chinese operations have been really depending on the world economy’s next big thing to thrive and do far better. This isn’t really a good sign amid good growth – the rippling impact felt should the Paradox of Thrift seep into Chinese markets during a recession would be impeccable. The right-hand-side chart, more economically inclined, exemplifies how bad economic growth would be affected, should China crash all of a sudden.

The dependence for growth and survivability on China, its firms, and its consumers seems to me to be a rather worrying issue. Yes, China is enjoying great progresses in development and so are we benefitting from its cheap consumer goods. But should just one economy go into a downturn, we’ll all be sent into jitters.

One-Firm Economies

Relative dependency on the largest listed firm per country, as a percent of GDP. Source: http://www.economist.com/blogs/graphicdetail/2012/08/daily-chart-10

As the world may rely on China, so could one economy depend on its largest firm. In Luxembourg, ArcelorMittal apparently generates revenue equivalent to 161% of its GDP. Having such a large mass of national income able to be earned by just one company sounds like a good deal, but it is not until when these firms come to a crash (touch wood). They typically control industries, employ many, develop productivity, and lead innovation.

Without a firm which could possibly be the economy’s hallmark (e.g. the revenue earned by Sands China goes to prove how much Macao relies on the gaming sector) could cause serious repercussions, and even possibly and industry-based domino effect. In Macao, a collapse of the gaming industry could mean a total economic standstill.

There ought to be serious thought given to diversification and critique over not doing so. As far as it might seem easy to manage one-firm or one-industry economies, the impacts their fall could produce would not be the same.