Tuesday, May 4, 2010

Creative Destruction

Clay Shirk on The Collapse of Complex Business Models:
In 1988, Joseph Tainter wrote a chilling book called The Collapse of Complex Societies. Tainter looked at several societies that gradually arrived at a level of remarkable sophistication then suddenly collapsed: the Romans, the Lowlands Maya, the inhabitants of Chaco canyon. Every one of those groups had rich traditions, complex social structures, advanced technology, but despite their sophistication, they collapsed, impoverishing and scattering their citizens and leaving little but future archeological sites as evidence of previous greatness. Tainter asked himself whether there was some explanation common to these sudden dissolutions.

The answer he arrived at was that they hadn’t collapsed despite their cultural sophistication, they’d collapsed because of it....

In such systems, there is no way to make things a little bit simpler – the whole edifice becomes a huge, interlocking system not readily amenable to change. Tainter doesn’t regard the sudden decoherence of these societies as either a tragedy or a mistake—”[U]nder a situation of declining marginal returns collapse may be the most appropriate response”, to use his pitiless phrase. Furthermore, even when moderate adjustments could be made, they tend to be resisted, because any simplification discomfits elites.

When the value of complexity turns negative, a society plagued by an inability to react remains as complex as ever, right up to the moment where it becomes suddenly and dramatically simpler, which is to say right up to the moment of collapse. Collapse is simply the last remaining method of simplification.
The article is excellent throughout, so read the whole thing. It got me thinking about The Practical Rules of Bureaucracy and good ol' fashioned creative destruction. The first practical rule everyone has heard before: "spend your budget." The second is a little less familiar: "fail." Having spent its budget a bureaucracy must fail so that it can argue for a larger budget and/or more regulatory authority next year. For example, if the Department of Energy ever succeeded in curbing American dependence on foreign oil--more or less its stated mission--then there would be no reason to keep it around.

And that's where capitalism's creative destruction comes in, or, rather, doesn't. We simply have not figured out how to creatively destroy the atrophied remnants of our recent past. We continue to spend public money on libraries and public government schools while less expensive web-based alternatives are ignored. The Department of Energy, in addition to energy security, claims as its purview nuclear safety, scientific discovery, and environmental responsibility. Areas that should be the responsibility of the Nuclear Regulatory Commission, the National Institute of Science and Technology, and the Environmental Protection Agency respectively. In other words, not only have we not figured out how to curtail government bureaucracies, but those bureaucracies have figured out how to expand their regulatory scope adding to their complexity while further burrowing into the body politic like the ticks they are.

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