As part of this 10th year, I'm going to take a clue from one of my role models, Borepatch, who has posted a few of his memorable posts from his first 10 years (
for example).
From September of 2010,
On Germs, Weeds, Companies, Governments and Skunks. This was the first post I can recall getting a great deal of attention, and it was a heady experience to get linked to by
Doug Ross @ Journal. I got links from more places than I recall and for years this was my most read post.
At seven months short of 10 years old, I re-read it to see if I still thought it was worth standing by and I think it has held up well. I still like it. I find the wording a little awkward in places, but that happens with things I wrote 24 hours before. Most of the links are broken and some of the references might seem obscure.
On Germs, Weeds, Companies, Governments and Skunks
Has it ever seemed like we, as a country, can't do anything anymore?
The country that built the Empire State building in a blink has a gaping
hole where the World Trade Center used to be for 9 years? The country
that went to the moon from nothing in 10 years now takes 20 years just
to decide if we want to? There's a reason for that national arthritis
that keeps us from moving: regulation and its bastard sibling
litigation.
Credit Borepatch with this long post.
This post last week got me thinking along these lines.
When I was but a newly hatched larval engineer at a major defense
electronics contractor, a mentor systems engineer gave me a reprint of
an article from Defense Electronics magazine for August 1979, by Norman
Augustine, the CEO of Martin Marietta (now part of Lockheed - most of us
call them Lock-Mart these days, your one-stop defense supermarket -
watch for the flashing blue light special on cruise missiles…). The
article covered what's now called Augustine's Laws. I see they are out
in
book form: and some of them have been excerpted by
Political Calculations blog, but the version I have has a mere 15 laws.
There's a lot of wisdom in here and it's worthwhile to see if the
ensuing years have changed things much. I don't have the space to go
into everything, but a few of these are worth looking at. The first law
is "By the time of the tri-centennial, there will be more government
workers in the United States than there are workers" based on the growth
rate at that time. I think he's a bit long on this; it'll be before
2076. He goes on to say that the government will control all of the
money in the US economy. "This raises the interesting question of
whether the last person employed in the private sector will have to
support the entire nation's work force, or whether he or she will
individually enjoy the full benefit of those residual funds not yet
controlled by the government". This raises the guardedly optimistic
second law, "People working in the private sector should try to save
money if at all feasible. There remains a possibility it may someday be
valuable again". What a silly optimist: the Fed has had crosshairs and
laser sights on the backs of savers for almost a hundred years! He
presents a wonderful comparison of a contract for muskets for the
continental army in 1798 that was delivered in 1/3 more time than
contracted, and a survey of military contracts from 1978 that were
delivered, on average, in 1/3 more time than contracted. Some things
never change!
His most memorable law, and where I'm going with this, was "Systems of
Regulations created as a management surrogate take on a life of their
own and exhibit a growth history which closely parallels other living
entities observed in nature". He went on to show the number of pages in
armed forces procurement regulation vs. time along with a curve of weed
growth (from the journal "Weed Science"), and produced a graph any
biology student will instantly recognize as the sigmoid growth curve of
populations, also called the logistic function.
A usual example is the common bacteria E. coli. This species can divide
and produce a new generation every 20 minutes; if conditions could
remain optimum it would undergo geometric growth and produce a colony
the size of the planet in 24 hours. Because conditions can't remain
optimum, it has a logistic growth curve, producing much smaller
colonies.
The normalized logistic function.
Credit
In regulations, there is a price for this. Although the legislators and
regulators never consider this, every regulation consumes some amount
of time and money to comply with. The new Finance Reform bill has been
estimated to required the development of 250-300 new regulations. Every
regulation slows down, hinders and costs every honest business real
money. Despite the widespread talk of corrupt CEOs and general lack of
corporate ethics, I've been working in the manufacturing industry since
the mid 1970s, and every company has had an active, if not aggressive,
ethics compliance program with requirements for training and seminars
every year. There are exceptions but most companies do their best to be
honest and law-abiding.
Government seems to think it's mere coincidence
that countries with lower tax rates and lower regulation attract
business, and they demonize companies for moving to countries where the
environment is better.
A simple way of determining if someone you talk to has any economic
sense is to ask them about corporate taxes. The economically ignorant
(I'll be polite) will scream to tax the corporations. Those with sense
will tell you corporations are fictitious and can't pay tax. Tax is
part of the cost of doing business and therefore passed on to the buyer
(the people calling for them to be taxed). Corporations can
collect taxes for the government (for which they are punished with more costs, not paid) but cannot generate them.
Every penny a company has comes from its customers. In a global market where they compete with companies in cheaper environments, they are at a disadvantage.
At least in our society, regulation often leads to litigation, and
companies are sued regularly for offenses (real or imagined) against the
environment or against people; possibly employees, possibly customers,
possibly people in the communities they work in. When special interest
groups, like environmentalist or animal rights for example, don't get
the laws they want passed, they litigate to prevent companies from doing
their business. For example, some of the most verdant farm land in the
country, the central valley of California, is currently not being
farmed because a group got the courts to stop the irrigation on the
basis that it harms a minnow, despite considerable scientific
disagreement that irrigation has anything at all to do with the minnow's
population. (
Summary here) The human impact in terms of unemployment and lack of food production, however, is undeniable.
Regulation and litigation are sand in the gears of society. Big, sharp,
40 grain silicon carbide abrasive particles that grind the gears and
shafts away.
They have the awful side effect of discouraging companies to grow and
innovate. Industries can die off because of the threat of litigation,
or because the regulations make it simply too expensive for the industry
to survive. Sometimes this is deliberate: we just survived the EPA
banning lead ammunition, something that could well kill off hunting and
recreational shooting in the country. The requested regulation was a
back-door attempt to do something that can't be passed as a law.
Sometimes killing an industry is an unforeseen side effect. The
woodworking tool industry is in crisis right now. A few months ago, a
lawsuit was won against Ryobi tools' parent company, for producing a
"defective" table saw. The plaintiff was awarded $1.5 million when he
sued for $250,000. The defect? It did not include an expensive safety
option that was invented around year 2000; (the modern tilt-arbor table
saw was invented in 1939; the basic idea goes back to 1813). In 2000,
an inventor produced a technology called a Saw Stop that senses when
flesh touches the blade and stops the blade in milliseconds. In the
process of stopping the saw as fast as it does, it destroys the saw
blade, and possibly other parts of the saw. The user still gets cut,
but typically will require stitches instead of having a body part cut
off. He shopped this invention to the major tool makers and none of
them agreed to license his invention. Their major concern was that the
idea was untested; they had no idea how durable it would be
(contractors' tools live a rough life); they had no idea if it could be
added to existing products (were they rugged enough to survive the
abrupt energy dump that destroys the blade?), or how to roll it out
across their product lines. The inventor started his own company, and
sells table saws with this feature.
This suit will end the production of low-priced and bench top table saws,
seriously impacting hobbyist woodworkers as well as the tool industry. Professionals will buy the more expensive saws and raise their prices to you and me.
I'm most familiar with the electronics industry, so let me give you a
story from my world. Most people have heard about Silicon Valley, which
certainly was, and may even still be, the innovation capital of the
world. A typical scenario might be like this. In satellite
communications, there is a couple, of large companies who dominate the
industry. Like all large companies, they have a large set of policy and
procedure manuals that show everything that must be done for any
situation that comes up. Perhaps a new market is perceived; the company
must conduct a study to see if there's enough money to be made to
pursue the market. They must do a developmental budget, have decision
agreement ("buy-in") from many levels of management, and so on. Perhaps
a previous customer had sued them over delivery of a product that they
thought didn't meet the contract promises, for example, so they may
require marketing surveys to understand just what the market wants.
Somewhere in that company is an experienced engineer; typically someone
with 5-15 years of experience. They see the opportunity and realize
their company is so slow that someone else is going to beat them to it,
and decides to be that "someone". Perhaps doing the design on their
kitchen table, or over lunch breaks, they come up with a concept that
they believe will create a sellable product, if not the "killer app"
product. At this point, he quits the company, often with a few friends,
and they form a start-up company that gets to market first, wins a lot
of market share, and completely skunks the former employer. All of this
by being free to make decisions, do what they think needs to be done,
and usually by working 60 hours a week for a while.
The big companies have those manuals of policies and procedures for a
reason. To borrow a saying, good decisions come from experience and
experience comes from bad decisions. The big company is so afraid of
someone doing something wrong, they try to write procedures that will
eliminate all chances of errors, which means they eliminate all
independent thought from the day to day running of the company.
Smart companies, however, are aware of this conflict between carrying
out procedures and try to remain nimble enough to be competitive. Fads
such as the 1980's Japanese Management techniques (e.g., Quality
Circles), and this decade's Lean Manufacturing (also out of Japan) sweep
the industrial world regularly as managers strive to understand how to
walk this balance.
As another example, a large company might want to try and compete with a
lower cost company that is trying to edge into their marketplace; for
example, a Defense contractor making a GPS receiver might fear a
commercial competitor's cost advantages. They might want to change
their entire approach to design of a product, taking more risk, instead
of exceeding their requirements by large margins, they may try to just
meet them. Instead of a receiver that will work from deep winter in
Antarctica to the worst of the Sahara, they decide to make one that
would work for a day-hiker. When they try to do it, the company's
process manuals haunt them, and internal organizations, desperate to
prove they are adding value, force the "low cost" program to adopt the
same high-cost approaches they use in all of their products. This
destroys the attempt to lower the cost and ensures the failure of the
program.
Smart companies have addressed these problems by spinning off what are
called "skunkworks". The original skunk works (note it's two words, not
one) was an offshoot of Lockheed, and their most proud achievement (at
least, that they could speak about) was the SR-71 Blackbird. A group of
talented engineers went off in isolation from the rest of the company
and created the fastest aircraft in the world, in record time, in the
1950s. Skunkworks as a single word is the term used for such a group
set aside by any company for a similar purpose. This has been shown to
be a successful technique, but note that the original company is still
there, still working as an arthritic bureaucracy.
This is where we find ourselves as a nation.
We are strangling in a bureaucracy with a Code of Federal Regulations
that has grown like a bacterial culture. A nation that was founded by a
constitution that fills about 14 printed pages in today's technologies,
passes financial reform bills that go over 2000 pages, health care
bills that go almost 3000 pages, and more. Each bill creates hundreds
of new regulations, which are so poorly written they have to be refined
by hundreds of court cases. The court cases effectively create new law
and new regulations. Since congress is in session every year and passes
at least one new law every year, the total number of laws and
regulations increases without limit and everything eventually becomes
illegal.
What can we do? We can't form a "skunkworks country" that can get
around our laws and create a more mobile, productive society. We only
have one option: we have to create a national process, like industries
do, to become more "lean, mean and low to the ground". Get rid of
superfluous laws. We simply must reduce the size of the CFR and reduce
the destruction caused by the regulation and litigation in our society.
To me, Tort Reform is absolutely essential. A big part of the
industrial lean activities is to study what policies need to be gotten
rid of because "we've always done it that way". The same should be done
with the CFR.
To be honest, there's more than one option. The second option will
result in blood in the streets, the deaths of thousands or even
millions, and suffering on a colossal scale. When companies don't
handle their tendencies to be become too arthritic they go out of
business. The equivalent for the country is collapse, civil war and
chaos. Something to be avoided if at all possible. Without reform, and
without throwing out large chunks of regulations, we are headed there.
