When More is Not Better: Overcoming America’s Obsession with Economic Efficiency

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  1. The economy is currently seen as a machine we can optimize, but is more accurately seen as a complex adaptive system. In this view, it changes how we should approach, understanding any action will have an impact and will require constant adjustment. It also forces optimization of a second feature beyond efficiency, resiliency. If the machine metaphor is kept in place it will simply allow those who are in control to profit for longer then if we treated the economy as a complex adaptive system

Key Takeaways

  1. In a CAS, there is no perfection or end in sight. The players adapt reflexively and this must always be taken into account. Relentless tweaking is the best route to steer towards a perfection that will never be achieved
  2. Metaphors are so powerful, which is why changing the “economy is a machine” to the economy is a complex adaptive system is so important
  3. Surrogation – when you surrogate the terrain for the map, when proxies become goals. The followers of great thinkers often take their ideas too far, mistaking more for better. More trade agreements, more efficiency, more division of labor is not always better
  4. Economic effects are not independent. One action could cause more of that action as scale and efficiencies increase. Interdependence moves us from a Gaussian to a Pareto distribution
  5. Pressure can help drive efficiencies and progress but it can also be taken too far if the incentives are not aligned. You just also introduce some limits and fridtion in order to ensure resiliency. These can be thought of as productive frictions in the long term. For example, pitchers are more likely to blow out their arms in the end of a game than the beginning. Pitch count restrictions help limit how much a pitcher can do and therefore prolongs the pitchers life in the long term
  6. Must balance connectedness with separation, efficiency and resilience, pressure and friction, perfection and improvement
  7. Anomalies are a treasure trove. Answers to really difficult problems tend to be found in Data points that don’t fit the current framework. Don’t ignore them, dive into them
  8. Joe’s Stone Crab is the most profitable standalone restaurant in the US. It has been around for over 100 years (resiliency) and is profitable (efficiency). They treat their company like a CAS and don’t fall prey to linear and reductionist thinking. They understand how some frictions actually make the overall system healthier. Similarly, The Four Seasons takes a win/win mentality with every stakeholder and enjoys the longest employee tenure in the industry and massive profits. They take a holistic view and don’t have a “head of guest experiences” because they feel that is every employees’ responsibility. Slack is not the enemy – seek optimal slack rather than zero slack
  9. To avoid proxies becoming a goal, use multiple internal proxies that tend to be contradictory to measure progress of the model against the goal. This forces a systems thinking rather than a reductionist one. Southwest Airlines uses 4 proxies – cost, customer satisfaction, employee satisfaction and profitability
  10. Argues against monopolies as it leads to complacency, bloat and fragility. Great companies need great competitors to keep them great

What I got out of it

  1. Fascinating deep dive into complex adaptive systems and how organizations can learn from complexity science how to build a robust firm that is also efficient. Efficiency is not the be all end all, some slack is necessary. Infinite tweaking and adjusting is necessary in an interconnected and dynamic world

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