THE GOOD AND BAD OF COMPLEX SYSTEMS

The Good and Bad of

COMPLEX SYSTEMS

As is usual, I will begin this article relating facts that seem to have nothing to do with commercial real estate or economics, so please be patient. Once upon a time, the United States and Soviet Union allied to fight socialism’s little brother, fascism.

Winning that fight, the Soviet socialists decided to take up the fascist baton and continue spreading the glory of their prison camps, extrajudicial executions and famine to the rest of the world. Thus began the Cold War.

The United States and its allies chose the strategy of training and high technology to win that war – i.e. quality. The Soviet Union and its allies went instead for quantity. As an example, even into the 1990’s, the Soviets maintained thousands of old tanks in their arsenal. These tanks were hopelessly outmatched by modern NATO vehicles, but there was a method to the Soviet madness. The NATO tanks were highly complex machines, and were prone to break down frequently. Each tank had to have a long line of maintenance vehicles backing it up to stay in the fight. The Soviets reasoned that even an old tank was a match for a modern tank that was not working, thus the arsenal of old – simple - machines.

The Soviets ultimately lost the Cold War, but their reliance on simple machines to perform simple tasks had some merit. We are faced with a similar situation today in our reliance on ever more complex systems that are used to make our economy highly productive. Make no mistake - these complex systems function well – Americans are more prosperous today than even a generation ago, and worldwide poverty has been reduced significantly in the past 50 years. It is worth noting, of course, that many American believe they are poorer than ever, even while ordering food online while sitting on a couch watching a giant flat-screen television hooked up to a global network of computers and satellites. Still, perception is not reality, no matter how many “likes” it gets on social media.

The downside of complexity, though, is that complex systems are more prone to failure than the less complex systems people had to use in the past. A complex economy is something like the highly tuned engine of a supercar. When it works, it works beautifully. But it does not always work, and keeping it working is expensive. In the past few months we have seen, as an example, our “just in time” supply network take a real licking. It still operated fairly well, but many have seen a need to install back-up systems in that network to avoid a future collapse. These back-ups somewhat defeat the purpose of the “just in time” system, which is to make e-commerce logistically cost-effective. If delivery becomes more expensive, fewer will use it. If it does not become more expensive for customers, who is going to pay for it? Will it be employees, managers, shareholders, tax payers … it has to be somebody.

There is no doubt that complexity has its advantages, but it is also worthwhile thinking about its disadvantages to avoid problems in the future. In The Collapse of Complex Societies, Joseph Tainter outlines numerous instances of rich, productive societies falling into ruin because their highly tuned, complex systems could not survive unexpected shocks. Perhaps it is a good idea to think about ways we can simplify the way we do business, so as to become more resilient in our next crisis … which given the pace of 2020 is probably due right about the time you are reading this newsletter.

Las Vegas Reopening

FLIGHTS UP 25%

At the airport, flights were up 25% to 190 arrivals on Thursday, June 4th and Friday, June 5th, compared to an average of 141 per day throughout May