Resilience in Global Value Chains: A Systemic Risk Approach

Global value chains (GVCs) have increased efficiencies, accelerated production, reduced costs, and increased wealth and opportunities for workers, firms, nations, and the global economy as a whole. However, the benefits and efficiencies provided by these GVCs come at the cost of increasing risks. This is largely because the emergence and evolution of GVCs have been enabled by advancements in globalization, complexity, and technology, as well as the development of critical global systems that underpin these industries—such as communication, transportation, financial systems, and others. GVCs are thus only as stable as these underlying global systems upon which they depend, and are vulnerable to potential shocks to these systems. The COVID-19 pandemic and other recent global interruptions in GVCs have demonstrated the importance of applying a systems theory approach, which allows us to identify—and eventually begin managing for—the multidimensional risks that these global industries face. Studying the stability and reliability of these global industries requires not only an understanding of risks within just the GVCs but also an awareness of vulnerabilities in numerous critical underlying systems that form the infrastructure of GVCs and the global economy. As examples, we examine six such underlying systems: health care and public health, supply chain and logistics, technology and cyber, finance, sociopolitical, and the environment. Each of these examples illustrates that disruptions, fragilities, or failures in critical underlying systems can dramatically impact GVCs as a whole and make the geographic regions in which these systems are vulnerable less attractive to industry investment and expansion. Introducing methodologies and concepts from systems theory, we illustrate that these underlying global systems that expose GVCs to vulnerabilities are complex adaptive systems (CAS). As systems of systems composed of CAS, these GVCs consequently also can be modeled as CAS. We argue that not only does this CAS perspective help to mitigate the multilayered GVC risks through better understanding and the application of CAS tools like “adaptive management,” but it also empowers policymakers to better attract GVCs to their borders by prioritizing the creation of more resilient underlying systems.