The Speed of Change

There was a great opinion piece by Brian Wesbury in the WSJ yesterday that discussed how change, and especially the impact of change, is accelerating.

The U.S. economy (really, the global economy) is transforming at an absolutely astounding rate. We're living in Internet Time, where policies and their consequences travel the world at the speed of light. The normal human reaction to such a rapid pace of change is to be overwhelmed, stressed out, anxious and fearful.

Interestingly enough, his first example has to do with manufacturing productivity.

America's manufacturing output, as measured by the Federal Reserve, is up seven-fold since 1950, but manufacturing jobs as a share of all jobs have fallen to 10% from 30%.  The problem, if it really is one, is not foreign competition or evil financiers. It is technology and productivity. In the 10 years ending in 2007, durable goods manufacturing productivity averaged an annual growth rate of 4.8%.

For the economy as a whole, overall U.S. business productivity rose 2.7% at an average annual rate during the decade ending in 2007, 1.7% in the decade ending in 1997 and 1.4% in the 10 years through 1987. Change is everywhere, and it's accelerating.  

That becomes pretty evident on the chart below, and is something we've discussed many times, especially when we explored the consequences of offshored intermediates.

But here's where it really gets interesting: the accelerating consequence of change.

Decades ago the feedback mechanism was slow. The unintended consequences of the New Deal took too long to show up in the economy. As a result, by the time the pain was publicized, the connection to misguided government policy could not be made. Today, in the midst of Internet Time, this is no longer a problem. So, despite protestations from staff at the White House, most people understand that food riots in foreign lands and higher prices at U.S. grocery stores are linked to ethanol subsidies in the U.S., which have sent shock waves through the global system.

Another specific example from the past few years.

For example, President Bush put steel tariffs in place in March 2002. Less than two years later, in December 2003, he rescinded them. This is something most politicians don't do. But because the tariffs caused such a sharp rise in the price of steel, small and mid-size businesses complained loudly. The unintended consequences became visible to most American's very quickly.

The acceleration of consequences, or the recognition of consequences, is a good thing.

This is the good news. Policy mistakes will be ferreted out very quickly. As a result, any politician who attempts to change things will be blamed for the unintended consequences right away.

He then gives a final diatribe on the free market, which although a little beside my point, I'll include here just to satisfy my libertarian proclivities.

In contrast to what some people seem to believe, having the government take over the health-care system is not change. It's just a culmination of previous moves by government. And the areas with the worst problems today are areas that have the most government interference – education, health care and energy.

The best course of action is to allow a free-market economy to reallocate resources to the place of highest returns. In the midst of all the natural change, the last thing the U.S. economy needs is more government involvement, whether it's called change or not.

Proclivity satisfied, I now return to my point.  Which is that the acceleration of change, coupled with increasing communication technology, creates an accelerating recognition and accountability (hopefully) for the consequences of change.  The faster feedback loop will presumably create quicker iteration and therefore improved results.

And finally, this is obviously not limited to government.  The same happens in any organization, public or private.  Business leaders are held more accountable for the immediate impact of their actions.  An upside in that they are held accountable before they can transfer to a new position, but a downside in that time horizons for fundamental change, such as lean manufacturing, may be shorter than the time it takes to create that change.

Comments

[Andy Wagner]

Basic lean thinking: find and correct the error as close as possible to the point of generation, only applied to macroeconomics. I love it.

[Mike G.]

"As a result, any politician who attempts to change things will be blamed for the unintended consequences right away." Excuse my skepticism, but won't this lead to a LACK of politicians AND MANAGERS who will work FOR change? I tend to agree that we don't really want politicos running around trying to "change" everything, but as leaders in business change is our real role. What's required is a culture wherein failure is OK and unintended consequences are foreseen as much as possible and the effects mitigated as well as can be done.

[Kevin]

Mike- that's a really good point. We don't want "change" just for the sake of change, but failure needs to be accepted and learned from, unintended consequences expected and learned from. Otherwise we're relegated to the status quo instead of continually (or continuously?) improving.

[ANON]

Why are Canada and the UK both making at least some efforts to private healthcare while some in the US want the government to take over?

The grass is always greener on the other side??