Disconnected: the Perils and Paradoxes of the Global Value Chain
how we unwittingly opened the flood gates to highly ‘contagious’ risk
Posted 2011-03-28 18:14 in biology, business, culture, economics, energy, environment, ethics, human nature, marketing, politics, sustainability
Note: An abridged version of this article was published in Foreign Policy Digest in March 2011.
Newton’s theory of universal gravitation was founded on nothing that the ancient Greeks didn’t know. The germ theory of disease could have been advanced and confirmed centuries before it was, if someone had made the right connections. It follows that there must be yet undiscovered generalizations that are “overdue” right now. Quite possibly, we have all the necessary facts needed to deduce how to prevent cancer or the location of a tenth planet, but no one is putting them together in the right order. More than that: Maybe we’re missing all sorts of logical conclusions about the world. They could be implicit in everything we see and hear, but might be just a little too complex to grasp.
- William Poundstone, “The Labyrinths of Reason”
| Question: Why did we not see the financial crisis on the horizon beforehand? Why couldn’t steps have been taken to prevent it? |
We live in a complicated world. So complicated, in fact, that few anticipated the financial crisis that crippled the world economy in a span of a few short years. There was nothing stopping us from seeing its impending destruction looming, but yet our most esteemed economists, businesspeople, and politicians all failed to recognize it. Why did we not see this crisis on the horizon beforehand? Why couldn’t steps have been taken to prevent it?
To understand the answers to these questions requires us to first face something unsettling: the arrangement of our financial and economic systems is almost as mysterious, complex, and labyrinthine as any of the natural sciences we study on this planet. In many ways, we have even less capacity for understanding economic systems because natural sciences are governed by processes that are reproducible and testable in laboratory settings, while economics is not well suited to such studies, being governed by irrational and unpredictable human behavior within a changing environment that is continuously impacted by literally billions of other factors at once. We are excellent economic historians, adept at developing post hoc explanations that put it all in perspective after the fact, we are not all that skilled at doing it in advance— which is precisely when we really need it.
There are people who understand small parts of the economic whole very well, but there is no one in a position to single-handedly put it all together at this very moment.There are people who understand small parts of the economic whole very well, but there is no one in a position to single-handedly put it all together at this very moment; each minute portion is sufficiently complex that grasping the entirety would require the instantaneous processing of tremendous amounts of constantly changing information, and a capacity for superhuman absorption of knowledge. We don’t even have computers that can manage the herculean task of collecting and crunching those kinds of numbers at the rate necessary for us to make sense of it in advance.
The Paradox of the Globalized Society and Breakage of the Ecological Feedback System
The overarching complexity that has come to define our economic world is somewhat paradoxical, because we tend to think of the ascent of rapid transit, satellite links, and Internet telephony as forces acting to shrink the globe and increase levels of communication and understanding across political borders. However, in many respects, these same forces heavily obscure the mechanics of the global economy through the sheer multiplicity of interregional and international relationships, corporate partnerships, and business dealings, leading to an impossibly tangled and web-like global supply chain.
Just 50 years ago, an everyday household item in the United States was likely to be made from raw materials, labor, and resources that came entirely from the United States; it is now common for products to be cobbled together using the resources and labor of many different companies housed in many different countries. Aggregated over an exponential rise in the number of consumer goods available in the global marketplace, we can easily see how it has become much more difficult to understand exactly what went into making any particular object: Where did the materials come from? How far were all the parts shipped? Were the materials sustainably produced? How much net pollution was created in the creation of this product? Were there human rights abuses associated with any part of the manufacturing of this product? As intermediary steps are introduced to the process of taking a product from production to consumption, the feedback mechanism between economic action and global consequence becomes increasingly unclear.
The feedback mechanism between economic action and global consequence is becoming increasingly unclear.Case in point: on the outskirts of Delhi, India, there is a tiny, impoverished village called Tila Byehta whose economy revolves around the stripping and processing of e-waste imported from countries like the United States. E-waste consists of discarded computers, cell phones, and other electronic devices which contain highly toxic but expensive and critically important metals that can be reused to make new electronics. While Tila Byehta benefits economically from processing this e-waste, we also know that e-waste is highly carcinogenic, causes permanent neurological and reproductive damage, and has the propensity to contaminate groundwater. But that matters little to the peasant workers in India who are more interested in their next meal than they are about long-term health consequences.
The dominant paradigm in our global supply chain is tantamount to transnational NIMBYism.At a structural level, why is this village halfway across the globe littered with highly toxic waste shipped from the United States? The answer is that America’s social and economic footing on the global stage facilitates the ability to pay others not only to take on the work of manufacturing and production, but also to absorb the costs, whether that is implicitly (as in the environmental costs of mining copper for computer components in Chile or the human rights concerns involved in manufacturing motherboards in China) or explicitly (by making trade deals to ship hazardous waste to India). In other words, the dominant paradigm in our global supply chain is a kind of transnational NIMBYism, where the U.S. consumer can consume all the value while being completely alienated from the social and environmental costs.
It is possible to see through this example how modernity’s creation of rationalized industries has led to consumers being almost entirely shielded from both the production and post-consumer sides of the equation for any given product or service. It has also allowed those controlling the means of production to be able to run factories by proxy, without necessarily having to witness firsthand the extent of the damages they are tacitly responsible for.
The implications of this are profound. In an era of escalating environmental hazard, low-latency feedback mechanisms in which our actions can be immediately seen as being causally-related to undesirable social outcomes are crucial to prevent us from unwittingly entering into dangerous and unsustainable practices.
Imagine that for every consumer good you purchased, you were forced to discard all related waste and packaging into your own home.Here is a thought experiment to illustrate this point: Imagine for a moment that for every consumer good you purchased, you were forced to discard all related waste and packaging into your own home. There is a very good chance that this model would radically change your entire approach to consumption; for all value you consume, you must also accept and absorb the costs in a manner that forces you to recognize the consequences of your choices. It may make life harder in some ways, but it renders it far less likely that you will be ambushed by an unpleasant surprise down the road, since you can see what you’re doing as you’re doing it. Living in the Western Hemisphere, we many not care about e-waste in India at the moment, but the earth is not in homeostasis; it is an interconnected ecosystem where events in one place can have serious downstream impacts elsewhere.
Systemic Risk and the Inevitability of Failure
The movement towards “glocalization” has embraced the idea that we should “think globally, but act locally.” The sentiment is well-intentioned. As consumers, we should be reflecting on how our actions affect our planet outside of our political boundaries and geographic locales, while simultaneously focusing on doing our part within the confines of our immediate surroundings. But as an American, unless you specifically take action to understand what goes into making a computer monitor and what happens after you discard it, there is a good chance that you will never even be exposed to the concept of e-waste, much less that it is a growing problem that is causing serious injury to human populations. Because it is not happening in consumers’ own backyards, it is only advocacy groups and ideologically-minded consumer-activists who are actually going to be thinking of human rights abuses in Chinese factories or e-waste seeping into water in India when they are reflecting on monitors. Everyone else will be thinking about features and prices.
Unfortunately, our system as it is arranged discourages us from having to think about such things since we rarely have to deal with real consequences directly. But even worse, our supply chains are so long, convoluted, and non-transparent that it is virtually impossible to get information even when one wants it. Contrast this with the natural arrangement of traditional societies, where geographical proximity to production and consumption activity intrinsically bestowed upon a society the ability to monitor and adjust behavior to maintain balance with the ecosystem and to ensure the health of the society as a whole.
It is becoming increasingly hard to view consumption-driven failures like the BP Gulf oil spill or the Sendai nuclear crisis as geographically-limited disasters instead of catastrophic game-changers.We should all be concerned about the impacts of our consumption choices because at some level, we all may have to deal some day with the consequences, no matter how invisible they may be in the short term. It becomes increasingly hard to view consumption-driven failures like the BP Gulf oil spill or the Sendai nuclear crisis simply as one-time disasters causing serious but geographically-limited impacts. Once we take into account both natural global ecology and the globalized supply chain, we see that such failures can easily become catastrophic game-changers.
With high levels of interdependency, a failure in one area creates unpredictable effects that ripple throughout unrelated industries, societies, and environments. The BP oil spill, for example, was not just a disaster for BP’s oil drilling and stock price. It impacted the fuel supply chain, which influenced oil markets and increased transportation and heating costs for everyone who buys fuel. The spill ruined the Gulf fishing industry, decimating thousands of jobs. The Gulf Coast’s tourism industry was destroyed, and may be gone for a long time to come. The animals that were killed by the oil were an integral part of the food chain, and thus affected the reproduction of marine life all over the Atlantic. And these are all just the first level of entities affected by this one disaster. Imagine the exponential effects that this might have once we take into account how the aforementioned groups interact with other groups and industries that normally have no direct connection to the Gulf. Most likely, you were somehow affected even if you live nowhere near the Gulf Coast.
Painting Ourselves Out of the Corner
The BP disaster, the nuclear crisis in Japan, and the financial meltdown illuminate how we are rapidly moving into a future where we, as individuals linked into the global supply chain and the global flow of capital, are perpetually exposed to serious systemic risks. Yet, despite the alarming disconnect between consumption patterns and very real threats of global ecological catastrophe, it is difficult to imagine how our civilization might ever revert to a system in which we take steps to mitigate the systemic risk we have introduced through the global value chain. We have come to rely on this chain in every sphere of our lives; we require newer and faster computer components for our economic growth, and thus need the copper that is strip-mined from developing countries; our transportation infrastructure leaves us heavily dependent on foreign fossil fuels; nearly every item that populates our Wal-Marts and Targets is sourced and manufactured many thousands of miles away to maintain affordability; and many of us enjoy eating fruits and vegetables that are completely out of season, something that the global supply chain is happy to provide, to name but a few things.
Trying to put a dollar value on natural processes is a lot like trying to put a dollar value on having your sense of sight; its work is so utterly irreplaceable that to assign a monetary value is almost pointless.Unfortunately, our leaders and indeed most of us tend to be fixated exclusively on growth, profit, and convenience motives rather than balancing them with a hard look at social and environmental costs— especially when these costs tend to be intangible, elusive, and difficult to monetize. How do we put a dollar figure on a systemic problem like the decline of the honeybee population when the role of bees in crop pollination is so central and taken-for-granted that no one in the agriculture industry ever conceived of the possibility that someday they might go away? Trying to put a dollar value on natural processes is a lot like trying to put a dollar value on having your sense of sight; its work is so utterly irreplaceable in the global economy that to assign a monetary value is almost pointless. Currently, the value of natural processes in the U.S., as far as anyone has ventured to estimate, has been ballparked at $33 trillion a year. The entire U.S. GDP is estimated at $14.26 trillion.
It’s only when we look at numbers like that that we can recognize the impossible frailty of the global ecosystem, and how we could all easily be facing an catastrophe of unparalleled proportions should something go wrong.
Unfortunately, the unpleasant reality is that there isn’t a simple solution we can implement without severely scaling back many of the positive changes that have come with globalization and modernity. Some relevant ideas have been discussed that could aid in solving this problem; each has a set of advantages, disadvantages, and headaches in instituting, but all are worth thinking about:
- Stronger incentives for corporations to not outsource labor and manufacturing
- VAT taxes that incorporate social costs into product prices
- Data that quantifies social impacts of products, which consumers can access at point-of-sale
- The “locavore” movement, encouraging consumers to voluntarily limit consumption to products they know are made entirely within a certain geographical proximity
These suggestions are serious ones, but yet they all seem quite inadequate; facile solutions for problems requiring drastic shifts. Regardless, whatever we do, it’s important that we do something, and ensure that we are encouraging politicians, manufacturers, businesspeople, academics, and consumers to develop engaging methods of reuniting the isolated regimes of production, consumption, and post-consumption in our global ecology.
While that process lumbers on with the regrettable torpor we afford only to the critically important issues of our day, it will, in the meantime, become harder and harder to predict when we’ll suddenly realize that we’re in way over our heads. There is, of course, the distinct possibility that we’re already there and we just haven’t put it all together yet.
Comment [4]
Is Recognition of Human Empathy the Solution to our Environmental Problems?
according to Jeremy Rifkin, we’re on the verge of a massive revolution
Posted 2010-02-19 11:36 in biology, consumerism, culture, economics, environment, human nature, improvements, marketing, politics, sustainability
There’s a fascinating interview with writer Jeremy Rifkin over at the New Scientist website. In it, he lays out why he thinks there is going to a be a massive shift in human consciousness as a result of new forms of information accessibility combining with the human ability for expressing empathy. This revolution, in his estimation, will solve the energy and environmental problems our world is facing. Borrowing from evolutionary biology, philosophy, marketing, and many other fields, Rifkin sees hope in the current turmoil where others don’t.
Incidentally, Rifkin’s vision of changing human behavior runs completely contrary to that of Steven Levitt (of Superfreakanomics fame), who as I stated in a previous entry is stuck in neutral with his “solve problems created by technology with more technology” rut.
Personal Control and the Existential Salve
autonomy and the implications of purpose through purchase
Posted 2010-01-21 13:55 in biology, consumerism, culture, economics, human nature, marketing, religion, unanswered questions
Our Endless Search
We have moved far from the sort of ‘subsistence’ mental existence that our prehistoric ancestors may have experienced. To make a simple example, as a society, we’re tending to spend less time and energy thinking about where our next meal is coming from and more time worrying about whether we’re ‘accomplishing’ things and whether we are ‘optimizing’ our life experiences. I realize that this may seem like an odd point on my part; wouldn’t anyone rather worry about something relatively frivolous like their status than the fear of starvation? After all, the benefits and penalties are at extreme odds with each other. If you’re worrying about your status and your goal is to make more money than the guy next door, the worst that will happen if you fail is that you feel bad about yourself. If you’re worrying about whether you’re going to be able to eat and you fail at your goal, the worst that could happen is that you actually die of starvation. In this context, most rationalists would probably say that if you had the choice, it’s clearly better to have your fundamentals neatly secured and spend your energy focused on the non-fundamentals— the stuff that’s higher up on Maslow’s Hierarchy of Needs.1
However, there may be other dimensions of this choice whose repercussions perhaps aren’t so obvious, and perhaps touch on the very central tenets of life fulfillment, happiness, and transcendence. If you spend all your daily energies and time on searching for food, water, and shelter, these tasks will form the basis for meaning and fulfillment in your life; for example, note that ancient mythologies revolve around things like weather and harvests, while modern mythologies revolve around things like entertainers and populist worlds attained through consumer goods (for example, the keys to the Wild West lay in a pack of Marlboro cigarettes). If your daily energies and time are spent on building your company’s profits so you can have a nicer car or go on vacation or enjoy recreational activities, then these external fruits will form the basis of your goals and your meanings in life. The question is, which of these will ultimately prove more psychologically rewarding and meaningful in the long run?
The Supply Chain of Uncertainty
It is interesting to note that if your life is defined by the search for food and your reward is the food you find in your search, there is a relatively small chain between your actions and the consequences of your actions. The act (i.e. the search) leads directly to the outcome variable (i.e. food). This inherently implies a simplicity and control in daily life activities, and a greater attachment of meaning to fewer things. As the chain between your acts and the outcome variables becomes more convoluted and unclear, there becomes increased complexity in daily existence, and a more uncertain relationship between effort and results. What does this mean? At the very least, it almost certainly introduces a longer lag time between action and outcome, which means you have to spend more time and effort thinking about and preparing for the future. It also means that you are more likely to be reliant on others (as producers and consumers) to relay desired outcomes to you, since your actions do not directly lead to the outcomes (working in an office for 40 hours a week does not magically produce money that appears on your desk; your work goes into some action that leads to some other action and another, which eventually leads to your company getting paid by someone, and then a portion of that money is given to you). The chain is much longer, more uncertain, there are more things that could go wrong, and less of a direct causal relationship between action and outcome.
This has a lot of implications. If you are searching for food, the amount of time you spend searching will most likely be directly proportional to the amount of food you find. If you are working in an office, the amount of work you do may or may not be directly proportional to your pay; some secretaries do as much or more work than the head executive, but get paid way less. You might work 100 hours weeks to find that you are going to be promoted to a higher paying job— or, as many people are currently finding out, you may do the same only to find that your company is doing very poorly and you’re going to get laid off. You have little direct control over how your actions will manifest in an outcome; the ultimate goals of modern work situations are not typically the direct result of actions, but rather the result of multiple concurrent and mutually dependent processes.
The nature of the uncertainty is different because of the different number of linkages in the chain. The search for food has one link: the search for food leads to food. A job, on the other hand, has many links, and each link has many horizontal and vertical links associated with it, which amounts to a mess of related events of varying causation (e.g. single causation, multiple causation, conjunctural causation, mediated causation, and probabilistic causation). In other words, the relationship between the input and the output is much more complex, and depends on a lot more factors (each of which depends on a lot of other factors). This chain of events is inherently less predictable, and the actions you take have little direct relation to the goals you reach towards.
You might counter at this point that surely there’s a generally positive correlation between how hard you work and how well you are rewarded. Maybe, but note that this is not an unmediated chain of events. There are many linkages that depend on the successful occurrence of other events for the desired outcome of wealth to come to you after a lifetime of hard work. Wealthy people have a habit of saying that their hard work got them where they are, and it is perhaps true that if you looked at data regarding this, you would find some correlation between levels of effort and wealth among an already selectively chosen group (an example of the problematic survivorship bias). But looking over the entire population, it would also not be hard to find people who worked hard their whole lives and got nowhere due to, for example, always working for horrible companies, personal problems, and just bad luck. How would this exact same situation differ amongst individuals searching for food? Logically, it would be very hard to argue that with individuals starting in similar circumstances, the guy who spent less time searching for food over a longer period would end up in better circumstances. I would suggest that this is because the greater the number of linkages in the chain between action and ultimate goal, the less predictable or certain the outcome of the action; therefore, in a situation in which the action leads directly to the goal, the individual who works harder at that action is in greater control of the outcome.
Another point to consider: there are a lot of people involved in these longer chains, which means you (as an actor within the chain) have to spend much more energy considering what others think about you, because you have to engender their trust and respect to enhance the probability of your goals being met; this means you have to be more cognizant of social and power structures for your survival. Such concerns create a fertile soil for existential angst borne from the constant need for validation from others. I would also argue that it creates a disincentive to focus on securing only your fundamentals in favor of procuring such things as status and comfort since there is a greater importance placed on your position in a social structure— in network theory terms, one’s centrality. The stronger and more connections one has, the more central an individual is. The more connections you have with others who are central, the more power you have over the whole network and people in it. Network centrality means that you control resources and people; people look to you for instruction and they listen to you if you are central. Rupert Murdoch and Warren Buffet, for example, have high centrality. They can get things done because they know other powerful and central people in networks. They also have a lot of money, which also means power (money and centrality correlate heavily), even among people outside of their networks. I, on the other hand, have very low network centrality. I know no powerful people and have little control over important resources.
Reaching for Predictability
For better or for worse, people who are looking only for their next meal don’t have time (or need) to worry about such things as their network centrality. They just don’t want to die of starvation. And though they need to think about that, they don’t have an immediate need to think about how others in the network might think of them (though in the long run, they may want to consider that they may be able to leverage network connections for future security). Of course, people with near unlimited financial resources also don’t need to consider what others think of them either— unless a mass exodus of network connections could lead to that financial reservoir being unceremoniously drained. Then they do. But for the average person, we have to think about this a lot, because what others think about us dictates our network centrality. The more central we are, the easier it is for us to achieve the goals we seek, and the higher the likelihood that actions we take will actually achieve the goals we want them to— because, again, the long chain between action and outcome involves a lot of people, and if the people in this chain know that you’re trying to get something done and you’re a central figure, they’ll work harder to make it happen (because they themselves are trying to raise their network centrality, and repeatedly following the orders of someone who is more central than them is a good way of doing that). Therefore network centrality grants an individual control, because doing something and knowing it will have a certain effect is the very definition of control, and being able to command the obeisance of others is tantamount to being able to shorten the chain of events.
The entire world is built on our ability to get to this point of predictability and “no surprises” as often and as reliably as we possibly can. It is this foundation-level quality that we work constantly for and which we sell to others. Without this unyielding human desire to gain control, the world as we know it would cease turning. We earn money to gain control of our environment because we believe that having the money will buy us security. People hire us for jobs because they believe our skills can confer control onto their businesses. Pharmacies sell us medications to give us control over our health. Construction workers build roads to give us control over our transport. Television gives us control over our boredom. We pay deeply (at times in financial terms, at other times in other ways) to gain that control, and there is little that surrounds us, either physical, institutional, or conceptual, that did not arise in some way to present us in some way with the promise of control.
In my view, materialism is a by-product of the angst produced by a lack of control. Things can provide us a sense of stability. Things, we think, don’t go away or betray us. They ground us. When we feel insecure, we can cling to them and they will not abandon us. We feel secure in our homes, with our things. When we have jobs, we aren’t filled with fear about losing things we’re accustomed to, like our lifestyles. But it is not just this “negative” quality of materialism that is fueled by this apparent dark side of humanity. Altruism, too, is a response to the lack of control in the world, and an effort to counter it (see related: Just-world hypothesis).
The Marketing of Predictabilty
Marketers know well that we are on a constant hunt to quell our existential anxieties; but it is not with malice that they do this, for they, as humans, are subject to it as well (they have their own existential anxieties to quell). They know intuitively that the search for meaning, purpose, and belonging is a universal human experience. And they know well, implicitly, that our society is on a search for transcendence— not through inward searching or contemplation as perhaps the people of the distant past have (and by virtue of the non-industrial nature of their societies, were forced to), but through material goods.
Without putting a judgment on it, it is hard to deny that our world increasingly looks to consumables to act as existential salves, if not vehicles to transcendence and meaning. It is a matter of conditioning; our economic and cultural systems increasingly push us in this direction (for example, the common definition of success has little to do with personal fulfillment and everything to do with financial and/or social capital, a definition that nearly everyone has blindly embossed on their roadmap to personal success). Our cultural values tell us that the houses we buy give us our sense of security and well-being. Our cars and vacations transport us to places we think will offer us moments of joy and escape. Our televisions and media will confer us with the sorts of meaning and realities that we cannot find alone. For better or for worse, our modern search for transcendence is one littered with consumer purchase and consumer desire; part of this is because of the increased availability of consumer goods. The other side of it is that there has been a mainstream psychological shift towards it as a by-product of industrialization and economic growth. More than being a deliberate shift of societal priorities, it is the result of a rapid change in technology, expansion in marketing communications, and an across-the-board raising of the bar of what constitutes the bare necessities of existence in the modern world.
I think most people walk towards this consumer salvation without the slightest conscious awareness of their fundamental underlying purposes; for many, this constant search for new things is simply a lifestyle that they were born into and have integrated into their psyches as the result of a process of reproduction of societal values— a concept referred to by Bourdieu as habitus. For these people, the search for the latest-and-the-greatest and for personal comfort is all there is, because in a climate where this ideology is the norm, they have never been challenged to think otherwise.
As with anything, there are good aspects and bad aspects of this. On the plus side, this mentality opens us to a breadth of experiences, and a wider mindset that can facilitate a deeper array of thoughts and understandings about our world. Because of the advent of advanced economic systems, complex experiences can be bought and sold, and there’s a wide range of experiences available to modern societies that we might not otherwise have been privy to. You wouldn’t expect, for example, tribal peoples of Papua New Guinea to pack their bags, board a plane, and vacation in the Virgin Islands, nor would you expect Australian Aborigines to go out on a Sunday evening to sip on a Tom Yum Gai soup at a Thai restaurant.
The Larger Perspective of Consumer Society and Meaning
Certainly such experiences as the ones mentioned above can be and often are valuable both in the developmental sense and in the sense that it opens our eyes to new opportunities and ways of thinking. As members of advanced societies, we are privy to such benefits, and we tend to think of them as normal experiences that are not all that remarkable or out-of-reach. In fact, we expect, within reason, to be able to purchase pretty much any experience we want provided we have the money for it, and usually there’s someone willing to make the exchange with us to make it happen. Knowing this, our brains develop the not unrealistic notion that we can externally procure any experience we may want to have; thus, we may be simultaneously, and unwittingly, developing an increasing reliance on salable external phenomena to confer meaning and substance onto our lives.
The question remains, however: can there be fulfillment in this? Is fulfillment in purchase any different than fulfillment in being a hunter-gatherer? This is a question that deserves serious inquiry.
1 A model that I find flawed in certain respects, but one that is instructive for the purposes of this discussion
Comment [3]
Business, Social Justice, and the Problems of Fairness
Posted 2009-03-28 11:03 in biology, business, business models, economics, human nature, politics, sustainability
If you observe traffic in India long enough, you’ll arrive at the conclusion that there are no road rules in India. But this is not true. There is one rule that dictates driving behavior: Might is right. To Westerners, this is a discomforting thought, because it bypasses the systems of social justice that we are used to in the West. Shouldn’t you, as a small car, have the same rights on the road as a mammoth SUV? Shouldn’t you, as a pedestrian, be able to cross a crosswalk without fear of being flattened by a speeding vehicle?
Most Westerners probably think so. Fairness and equality is ingrained in our outlook on the world. We look for courts and governments to level playing fields for us. If someone smashes our car in an accident, we use the law to restore ourselves to the situation we were in before the accident. We call that justice.
The ideals of social justice, fairness, and equality are lofty; it’s hard not to get upset when you hear stories of unfairness (persons being wrongly convicted of crimes, people losing all their money in elaborate frauds, etc.), and it’s even harder not to demand justice when something like this happens to you. Yet, I have recently begun to understand the sorts of costs that this has had on our society, both in an economic sense, but also in a psychological sense. I fear that despite the high-minded ideals of social justice, it does not always serve us well as a society to rectify every injustice leveled against us.
I wonder about how the concept of justice fits into an evolutionary context. Does it fit in it at all? Evolution would suggest that some individuals (organizations) are better suited for prevailing conditions than others. The weak and frail will be consumed by the environment, and the strong will soldier on, and grow. Evolution is the law of nature for all beings, and it is a law that is the supposed lifeblood of capitalism. Despite this, our system (at least in the U.S.) continually ensures that those who cannot compete— fairly or not— can be sustained artificially by a system that will nurse them regardless of their strength or potential to compete effectively in the future. This is not true for all firms, but it’s true for many. Think of GM and Ford, think of AIG, think of the ridiculous amount of subsidies given to industrial farms.
You might be wondering where I am going with this. What does bailing out companies have to do with social justice? Remember why the government is currently bailing companies out; it has very little to do with the companies themselves. It has everything to do with the idea that some people unfairly lost their life savings in them, and hundreds of thousands of people will unfairly lose their jobs, and the resulting economic meltdown will unfairly ripple throughout society and affect people who had nothing to do with it. So what is the solution? A lot of people feel that ‘investing’ billions of dollars into these organizations will re-establish justice to not the auto company, but people who might have been impacted by their problems. All those hapless investors won’t lose their hard-earned money. All those dedicated auto-workers who labored at GM for 35 years won’t lose their jobs. And all those bystanders won’t be leveled in the narrowly-averted nuclear winter.
I can’t help but anthropomorphize this situation a bit by comparing it to the way a parent welcomes back the proverbial prodigal son with open arms despite the kid’s waywardness. At least to some degree, we expect this from good parents. Madonna’s song “Papa Don’t Preach” has the narrator begging her religious father for support instead of judgment despite what in his eyes is her grievous sin of becoming pregnant as an unwed teenager. But we’re talking about supporting wayward organizations here, which will have broad social impacts. Welcoming back companies that recklessly screwed over investors and their own employees should not necessarily be supported in return, though it’s tempting to do it because of the other parties that might be affected by a failure to do so. So let’s start with why it may not be a good idea to bail out these companies, and then move on to why it’s even bad for the related parties.
There’s a good chance that Madonna learned her lesson and won’t get pregnant again, but the guys at GM are more akin to heroin addicts than teenagers who made some bad decisions. They’ve been supported by government money so long, are so far from market-orientation, and so incapable of the sorts of organizational change that are necessary for detoxification that it seems impossible to give them any sort of support without tacitly feeding their addictions. Sure, you can give GM money to go rehab, but there’s absolutely no indication that they’re interested in rehab. They want to stave off the looming disaster on the horizon for one more day. If perhaps they showed the least bit of interest in market orientation and willingness to be innovative, it might be different. But that’s not the case at all. They simply expect to be saved because they always have been, and the government plays into their hands largely out of habit.
Despite this, no amount of money given to the company is going to restore the lives of the victims of corporate irresponsibility, and no amount of money alone will prevent the threats of insolvency from being constant and recurring events. Of course, we are often victims of the sunk-cost fallacy, which suggests that because we’ve already wasted so much money on these companies and they’ve already created so much chaos, that we should escalate our commitments to them to hoist them from the tarpit from which they’ve carelessly driven into (again)— which is precisely the wrong tack in this situation. The best thing to do is to walk away and never look back, despite their anguished screams.
I know that many people would be affected negatively by this course of action. I realize that many retirements will be ruined, many workers will hit the skids, and their kids may never be able to attend college. I understand and empathize with this hardship. But what worries me is that trying to correct these unfairnesses actually set us up to create exponentially more of them, and make us more susceptible to future crises of the same or greater magnitude— and it has nothing to do with the actual transfer of money, and everything to do with economic incentives.
Put bluntly, these organizations are drains on the system, and further feeding them and the people who they have hurt is an even bigger drain on the system. That said, I understand that we live in a society, and we can’t always think about things in these terms. I don’t advocate, for example, that we stop all social services, which many perceive as drains. But it’s damaging to the business environment and ultimately consumers to support businesses just because we always have. It not only encourages organizations to be reckless about their management habits, but it encourages those who work for them and invest in them to behave carelessly and greedily. Aggregated over a nation and over decades, it’s primes us perfectly for future disasters of equal or greater magnitude.
Put the right incentives in place, and you can avoid this sort of thing. If you knew that no one was going to bail you out, your company would probably act in a much more controlled manner. If you were investing your life or your live savings in that company, you might spend a bit more time scrutinizing the management practices of that company. Which is what these organizations and people are supposed to be doing in the first place.
Consider this: a herd of antelope will never try to nurse or save an injured antelope, regardless of whether it was maimed by a predator or by another antelope. To do so would jeopardize the future of the rest of the herd. Standing around and attending to the injured puts them all at risk. And indeed, some antelope will need to serve as fuel for the predators. These predators probably aren’t viewed positively by the antelope (if they have such a capacity), but in a way, they are actually protecting the antelope society as a whole because they enable a systematic checks-and-balances that promotes a balanced ecologic sphere that keeps the antelope’s environment stable. Without this, the antelope would overpopulate and eat themselves to famine. Then all of a sudden, the seeming prosperity would reveal itself to just be an elaborate illusion, and they’d see that actually there wouldn’t be enough food or resources to go around. Does this sound at all familiar?
The Food Supply Chain
a pictorial representation to ponder
Posted 2008-06-26 08:14 in biology, business, business models, consumerism, economics, environment, marketing, operations management, pictures, politics, semiotics, sustainability
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