Ever wondered how your iPod or PC was put together? An American writer, Thomas L Friedman, did and in his 2005 book, The World is Flat, analysed the making of his Dell laptop. He thought — as most of us would — that it was assembled by Chinese labour on a sweatshop assembly line.

The truth was much more complex. What Friedman found was a logistics chain that stretched all the way around the world, taking in miners in South America and Australia, high-tech chip makers in the UK and California, and manufacturing operations across Asia, all of which worked in (near) harmony to produce his Dell.

That global interconnectedness was brought home to us this year, and in the worst possible way. One underlying message of the credit crunch and resulting recession was that national economies are now closely tied together, and when some of the large players catch a cold, the rest of us have no immunity.

And there was a sting in the tail. Not only are we more closely linked to other economies than ever before, but the speed of our communications — an example of which is the logistics chain that enabled the laptop to be put together — means problems in one part of the world are rapidly transmitted to others.

The current crisis began in the American financial-services industry with a surfeit of easy money. One outlet for that money was loans to a new group of home buyers — buyers who would not normally have qualified for such advances, but under new, lax lending rules were welcomed with open arms. When it turned out they couldn’t afford the loans, the pyramid began to crumble. In the past this problem might have been confined to America. The risky real-estate lending that savaged the savings-and- loans sector in the US in the 1970s and 1980s, for example, didn’t precipitate an international banking crisis.

This time, though, the bad loans were able to find their way across national boundaries, and in particular into the City of London. Deregulation of British financial services in the late 1980s meant many of the largest players on Wall Street were also the largest players in London, and were up to their necks in the nasty loans, not to mention some awful home-grown deals on commercial and residential property in the UK.

It’s not just the financial-services world that has shrunk. This year also gave us a graphic demonstration of how the markets in the most basic items necessary for a modern economy — coal, iron ore, aluminium, copper, platinum — are now interconnected.

Early in the year mining companies like Rio Tinto were still enjoying a bull run, buoyed by the notion that even if western economies turned sour, the booming demand from China that had driven commodity prices to new highs would keep going strong. Rio’s shares were given added support by a hostile bid from rival BHP Billiton which was predicated on the assumption that when it came to feeding China’s insatiable appetite for raw materials, big was beautiful.

Now both ideas look past their sell-by date. It turned out that China wasn’t decoupled from the rest of the world economy after all, but prey to swings in the cycle same as the rest of us. Rio’s shares have fallen as the Chinese economy has faltered and dragged commodity markets down.

It closed the year at £13.75, 75% lower than where it began 2008. As our chart shows, it significantly underperformed the FTSE 100, which hardly had a stellar year. The bid from BHP Billiton, meanwhile, evaporated along with the commodities boom.

The speed of the swing in the commodities cycle was an example of how modern communications have quickened the pace of change in economies. What happens in one market can rapidly be felt in another. If you ask David Smith, chief executive of Jaguar Land Rover, what the turning point was this year for sales of his luxury and four-wheel-drive cars, he will point to the collapse of Lehman Brothers.

When an American bank fell over, would-be Jaguar drivers all over the world realised the situation was serious, and — almost overnight, according to Smith — stopped buying new cars.

He couldn’t have suspected it at the time, but when Hank Paulson, the US treasury secretary, decided not to save Lehman, he was creating a headache for Lord Mandelson, the business secretary, who this new year will be wrestling with the question of whether to provide a state loan to tide Jaguar Land Rover over the worst of the recession.

Rapid communications can also bring chaos. Bombarded by events, it is difficult to discern any pattern.

Only a few months ago our big worry was inflation, in particular rising oil prices and high household food bills. That fear now seems to have disappeared entirely. Instead we are nervously watching falling oil prices and record retail discounts for the latest evidence of deepening recession.

This picture of a closely connected global economy with near-instantaneous communications should provide us with some hope. After all, if the speed of the onset of recession took us by surprise, then perhaps the speed of our emergence from it will as well.

In this respect it is worth keeping an eye on events in China. The recent public pronouncements of its leaders show that they are only too aware that if economic growth slows too much civil unrest may result. Job creation will be their priority, which will mean dipping into the country’s large cash reserves to fund an economic-stimulus plan.

There is also the prospect of Chinese groups using their financial muscle to pick up the bargains that are emerging in western markets. This may take time — some of China’s early forays into foreign markets are looking sick at the moment, due to the crash in financial services and economies — but it can’t be long before they want to try their luck again.

If China gets working quickly, then maybe the rest of us will, too.

Man of the year

CONGRATULATIONS to Marc Bolland, chief executive of supermarket chain Morrisons, who is our Business Person of the Year for 2008.

It wasn’t easy to find a winner in a year of losers, but Bolland was the obvious choice, having made Morrisons the victor in the latest round of the supermarket wars.

He was also your choice. Around three-quarters of those who sent in e-mails picked Bolland from our short list of 10. Happy New Year to him, and to all our readers.

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