Wednesday, August 14, 2013

Sustainable Systems

I think a lot about sustainability, systems, and sustainable systems. Back in the late 1980s, Japan was surging and there was general consensus that it was about to overtake the U.S. as the world's economic superpower. The Japanese were buying up American landmarks right and left, and absolutely killing it in consumer electronics, cars, and many other industries. Where Japanese companies were nimble, innovative, and driven by excellence, competing American companies were slow, stupid, and lazy. So what happened?

Conventional wisdom says that irrational exuberance created a bubble in real estate and stock prices, and when the bubble burst, the Japanese economy stalled and became mired in either the Lost Decade, the Lost Two Decades, or the Lost Two Decades and counting (depending on who you ask). Bubbles happen, especially during periods of extreme growth, but that doesn't explain why the Japanese economy wasn't able to absorb the shock and then move on. After all, the declining American economy was able to recover relatively quickly from the dot-com bubble and may even recover from the recent housing bubble before the Japanese economy pulls out of its decades-long slump.

I was in college at the time and it seemed obvious to me that the Japanese economy would never be able to reach superpower status, at least not without some major restructuring. It was designed to be a fast follower and not a leader. It didn't have the legs needed to sustain its growth if or when it did reach number one status.

The Japanese economy is centrally managed; a few key decision-makers at the top pick winners and losers. This means that resources get funneled into a few strategic initiatives, enabling you to make rapid progress in those areas. This works great if you know what those strategic initiatives should be because someone else is blazing the trail ahead for you. But it is not a system that is going to be able to pick out the next big thing because the next big thing is almost always something that comes out of left field. Is it biotechnology? Green energy? A system that relies on one person to keep picking a string of winners is never going to last. One day it is going to make the wrong bet and get left behind.

By contrast, the U.S. economy is a complete mess. Everyone is doing their own thing. Entrepreneurs and venture capitalists are pursuing all kinds of harebrained schemes, most of which will end up failing. It makes me furious to see how many dumb ideas get funded. At the same time, it gives me hope that my own dumb idea might get funded some day and change the world. You can think of pathfinding in the U.S. economy as crowd-sourced, or like an ant colony where hundreds of scouts are sent out so that one can find the next sugar pile. It seems incredibly wasteful, but any sustainable economic system is going to need something like it.

Another place where I see sustainability problems is in democratic systems. This is on my mind because of the Arab Spring, but I first started thinking about it after the break up of the Soviet Union. Democracies are great, but they are incredibly fragile, especially when first taking hold. There are a number of things that a democratic system needs to guard against, but the one that I want to highlight is the tyranny of the majority. How is it possible that the Egyptian constitution was ratified by a simple majority vote? Designing the system this way almost guaranteed that minority groups would be disenfranchised and, with absolutely no protections in place, either leave or attempt to overthrow the government. At a minimum, supermajorities should be needed to ratify or amend a constitution. If you want a system to last, you need to design it with sustainability in mind.

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