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Increased Efficiency Causes Increased Vulnerability

30 May

In the 1950s General Motors ruled the world’s automobile manufacturing industry.  GM was profitable and a prime target for union strikes.  Nevertheless, GM wasn’t too concerned about labor strikes because it had acres and acres of engine blocks, transmissions, quarter panels and wheels stored behind its factories.  If the union went out on strike, GM would hire scabs and keep on building cars with the mountainous, backyard inventory.

More importantly, GM’s mountain of parts allowed GM to keep working in the event that one of its suppliers suffered a production stoppage due to labor strikes, natural disaster or corporate bankruptcy.  Thus, GM’s huge parts inventory provided GM with a “margin for error” in case anything unexpected happened.

Today, thanks to computers and the internet, GM and its suppliers have become vastly more efficient.  Realizing enormous inventory wasn’t generating a profit, GM abandoned the massive inventory philosophy and adopted the “Just In Time” supply system.  Under the “Just In Time” supply system, suppliers know exactly which parts to make and deliver to GM and exactly when they’ll be needed.  As a result, within minutes of the time that a GM production line runs out of engine blocks, another small shipment of new engine blocks arrives at the GM factory.  The resulting efficiency is almost breathtaking.

Freed by the “Just In Time” supply system from the considerable costs of tying up capital in massive inventories, GM should be more profitable, more flexible, and better able to adjust to any unexpected changes in the market.  But the proven efficiency of “Just In Time” has been also been adopted by major corporations around the earth.  As a result, Just-in-Time supply systems are no longer particularly profitable so much as mandatory to compete with other auto manufacturers who also use the same super-efficient technology.

But there’s a problem:  Virtually all of this heightened efficiency came out of GM’s former “margin for error”.

The relationship of efficiency to “margin for error” was demonstrated about ten years ago when roughly 100 workers, employed by a small, private factory that supplied GM’s brake pads, went out on strike.  Almost instantly, the “Just in Time” supply system stopped.  Because GM relied on the super-efficiency of the “Just In Time” supply system, GM had no backup inventory of brake pads—no margin for error.  Because GM couldn’t build cars without brakes, GM had to close production lines employing tens of thousands of workers because a mere 100 brake pad workers in a completely different corporation went out on strike.  A single, small “glitch” in the super-efficient supply system closed the entire production process.

More, all of the other GM suppliers were also forced to close their factories because they could no longer ship products to GM.  And of course, GM stockholders took a financial beating when the brake pad employees’ strike dragged on for months.

My point is that efficiency is largely derived from an organization’s former “margin for error”.  Thus, the bigger, the more complex, and especially, the more efficient an organization becomes, the more vulnerable it becomes to any “glitch” or unexpected event.  This rule applies to corporations, governments, dinosaurs, and empires.  The bigger you become, the more massive you become, the more efficient you become—the more vulnerable you become to any event that even slightly disrupts your equilibrium.

•  To illustrate, consider the difference between a concrete sundial out in your backyard and a Swiss chronometer on your living room wall.  The sundial can tell time only by day, and then only roughly.  The Swiss chronometer can tell time with an exquisite precision 24 hours a day.  But—if I hit the inefficient old sundial with a five-pound hammer, it’ll keep right on working—possibly for several centuries.  If I hit the Swiss chronometer with the same hammer, it’s exquisitely efficient “works” may stop forever.  Increased efficiency causes increased vulnerability.

Another illustration:   Consider the incredible efficiency of modern travel.  In A.D. 1900, it could take months to cross this country from coast to coast by private vehicle and days or weeks by train.  Today, you can fly from New York to San Francisco in just hours for a fraction of the real cost of comparable travel in A.D. 1900.  Air travel is truly a marvel of efficiency.

But—if you were slowly and inefficiently traveling across country in 1900 and a major component of your train, wagon or automobile broke, you’d probably grind to a halt with, at worst, a few bruises.  On the other hand, today, if a single bolt breaks on a super-efficient 747, several hundred people could instantly die.  Greater efficiency comes out of our margin for error and thus:

Greater efficiency causes greater vulnerability.  I doubt that there’s a single example in all the world to truly refute that proposition.

•  Why do we pursue greater efficiencies?

Greater efficiency necessarily means less work to accomplish the same objective.  With greater efficiency, we grow more food from the same ground and therefore eat better.  With greater efficiency, the same amount of work can result in a higher standard of living and a larger population.  I doubt that there’s a single species that isn’t instinctively geared to acquire the maximum amount of food, shelter or energy with the least effort.  The drive for individual efficiency is in our blood.

However, efficiency becomes a problem when it’s in expressed in our organizations (like corporations, governments and nations).  At the organizational level, efficiency is no longer measured by more food or a higher standard of living; it’s measured by money.  An efficiency measured by money can be dangerous.

For example, saving $0.50 doesn’t sound like much to an individual.  Very few of us would be tempted to take a risk or commit a crime for fifty cents.   But saving $0.50 on every brake pad on 20 million automobiles = $0.50 X 8 brake pads/vehicle X 20 million = $80 million.  $80 million.  What kind of risk or even crime might you be willing to take for $80 million?  Thus, the super-efficiencies found in the “economies of scale” in large organizations create incentives to cut seemingly insignificant corners and even commit criminal acts.

Thus, if by using a slightly inferior brake pad, Toyota could save $0.50 per brake shoe on all of its automobiles, the temptation the use the cheaper pad could be economically irresistible and the result could be a rash of Toyota wrecks.  The pursuit of efficiency—especially when measured in money—can drive us to “push the limits” until the limits finally break and we suffer a catastrophe.

•  As we become increasingly efficient, we become increasingly immoral.  Human values (on which we base concepts of morality) succumb to economic values (on which we base modern concepts of efficiency).  People are degraded to the status of “human resources” and “units of production”.  Offices become cubicles.  The object becomes not more food or a higher standard of living for all the people, but rather mo’ money, mo’ money, mo’ money for the organization.  As we pursue increasingly economic efficiencies, we’re increasingly tempted to commit crimes to acquire more money.

Perhaps the most salient illustration of how increased efficiency creates increased vulnerability is seen the current catastrophe surrounding the British Petroleum “Deep Horizon” offshore oil drilling platform.  Reports on CBS 60 Minutes revealed that two weeks prior to the explosions, the BP crew was testing the “blowout preventer”.  The blowout preventer relies on a mass of neoprene that can be squeezed around the well pipe so as to shut off of the flow of oil.  During the BP test, the neoprene seal was tightened around the well pipe, but one of the BP employees accidentally caused the well pipe (that should’ve been stationary) to rise 15 feet.  The result was a tearing of the neoprene seal that showed up as chunks of neoprene later coming up in the oil.  An employee reported the chunks of neoprene to the BP supervisor.  The supervisor assured him that it was all OK and quite normal; nothing to worry about.

Why did the BP supervisor ignore the evidence of neoprene seal failure?

Mo’ money.  More profits.  Less losses.  More efficiency.

Deepwater Horizon was running behind schedule.  BP was already losing millions of dollars.  You can bet that BP executives were breathing down the supervisor’s neck to finish, finish, finish! drilling that damn well!  In the name of monetary efficiency, corners were cut.  It would cost time and money to repair the blowout preventer, so—in the name of efficiency—a risk was taken.

Similarly, evidence is also emerging that BP chose to use a inferior grade of pipe in the well.  Reason?  Lowered material costs translate into greater economic efficiency resulting in higher profits.  But that increased efficiency ultimately translated into less margin for error, greater risk, greater vulnerability, and potential calamity.

•  The whole concept of “super-deep” drilling technology implies levels of efficiency that border on genius—and madness.  Look at the incredible risk BP (and the world) took in drilling an oil well 30,000 feet deep.  Eleven men died in the initial explosion.  BP may ultimately be destroyed.  Hundreds of thousands of Americans may be unemployed as the oil pollutes the Gulf and then Atlantic.  An environmental catastrophe was unleashed that may cause more harm to the globe than all the bullets and bombs expended in WWII and Viet Nam combined—including the two atomic bombs dropped on Japan.

Do you see my point?  BP bragged that BP alone had the technology (the efficiency) to drill “super-deep” oil wells to 30,000 feet.  And, yes, that may be so.  But don’t these wells become increasingly dangerous as they are deeper and deeper?  Isn’t it obvious that BP’s increasingly efficiency would ultimately push BP to a point of inescapable vulnerability?

At what depth did BP plan to stop drilling?  At 40,000 feet? 50,000?  100,000?  Inevitably, BP and others in the oil drilling industry would drill deeper and deeper until their super-efficient technology exhausted the last fraction of a percent of their margin for error and caused a catastrophic failure.

•  The Gulf Stream current moves about 4 mph.  According to one man’s calculation, if the BP well is not sealed, the crude oil that is wrecking the fishing, beaches and tourism the southeastern United States will reach the North Atlantic in about 80 days.  He predicts that if/when that happens, the North Atlantic fishing industry will be destroyed—perhaps for 100 years.

I doubt that the problems caused by the crude oil spill will last for a century.  I’m usually skeptical of various theories of impending doom.  Things seldom go as badly as some fear.

Nevertheless, the BP catastrophe illustrates how badly things might go if we continue to pursue increasing efficiencies at the cost of diminishing margins of error.  If BP manages to seal off the Deepwater Horizon well head, how long before BP drills another well, cuts a few more corners in the name of “efficiency”—and finally causes a disaster of such proportions that nothing can stop it but God, Himself?

As I write this article, some believe that BP may have already sealed the Deepwater Horizon well with their “top kill” technology.  I hope they succeed.  But I don’t think they will.

I think we’ve hit a “Tower of Babel” moment.  According to Genesis 11, “Now the whole earth had one language” (that’s pretty efficient).  And they said to one another “Come, let us make bricks and bake them thoroughly”. Thorough baking was evidence of the era’s hi-tech efficiency.  “They had brick for stone, and they had asphalt for mortar.”  Using man-made bricks instead of God-made stone, and using asphalt for mortar was more evidence of the era’s hi-tech and super efficiency.  Therefore, beguiled by confidence in their super-efficient “hi-tech,” the ancients determined to build a Tower to reach up to God, Himself.

The Bible claims the Tower of Babel fell by the hand of God, but it could just as easily have fallen under the weight of its own human “efficiency”.  Common sense alone should’ve told the ancients that even “thoroughly baked bricks” couldn’t support a tower able to reach Heaven.  Man’s hubris, however, overcomes common sense almost every time.  Especially if there’s a buck to be made.

At Deepwater Horizon, BP didn’t build a “tower” to reach God, but they figuratively drilled a well deep enough to tap into Hell.  And now, truly, “all hell has broken loose”.  Again, we see evidence that as an organization or society becomes increasingly efficient, it also becomes increasingly vulnerable.  The failure of one, lousy (but super-efficient) pipe that’s less than two feet in diameter may cost hundreds of thousands of jobs, kill off fishing on two continents, and subject the entire world to an unprecedented man-made catastrophe.

•  On May 6, at 2:42 p.m., Dow Jones prices suddenly plunged more than 5 percent in five minutes. When prices bottomed at 2:47, the DJIA was down nearly 990 points—over 9% below its morning opening. In another 90 seconds, prices quickly rebounded by 543 points.

No one knows why the stocks suddenly fell.  No one knows why the stocks stopped falling.  No one knows why the stock prices rebounded.  The reason no one knows is that the entire process was caused or controlled by super-efficient computers that trade stocks in factions of a second based on prices changes of fraction of a cent.  This super-efficient process was automated—meaning that no human being was (or could be) in real-time control.

The Dow finished the day down almost 350 points, over 3.2%.  Almost 200 stocks briefly lost almost all their value, trading in some cases for a single penny. Overall, shares were worth $212 million at 2:40 p.m sold for $557,516 within 20 minutes.   Investors lost over $200 million in 20 minutes in the “flash crash” that’s blamed on super-efficient, computerized trading.

Wall Street brokers had devised an “automated” (super-efficient) means to generate huge profits from even tiny, momentary movements in the market prices.  In their increasingly efficient pursuit of mo’ money, Wall Street caused the stock markets to become so vulnerable that over $200 million disappear in less than 20 minutes—without human intent or control.  This level of automation (super-efficiency) is insane.

The pursuit of more profits and more money is a good thing, but it’s not everything.  The unbridled, automated, de-humanized, super-efficient pursuit of money (the “love of money”) pushes us to embrace a system of values that is increasingly “economic” and “efficient”—but decreasingly human.

As we pursue higher levels of economic efficiency, we create increased human vulnerability.  Inevitably, our increasingly efficient technologies fail when one just one seemingly trivial “glitch” triggers an “automated” cascade of failures.  Result?  Another “Tower of Babel” moment causing an economic and social calamity.

History suggests that the world’s greatest corporations, fortunes, nations, economies, governments and empires have all collapsed (or will collapse) under the weight of their own increased efficiency (increased vulnerability).   Increased economic efficiency may seem to create more strength but does, in fact, create increased vulnerability.

I’m no fan of big government and I never expected to say that increasing efficiency would create the need for increasing regulation.  I hate to say that, but the Deepwater Horizon event and the “flash crash” makes that conclusion inescapable.

If we’re going to have higher technologies (greater efficiencies), then there must also be greater regulation (loss of freedom) to shield us from the correlative increases in vulnerability.  If we don’t want greater regulation (loss of freedom), it follows that we must either restrict or abandon higher technologies—or accept rising levels of risk that can lead only to calamity.

We not only live in “interesting times,” we live in increasingly interesting times.  We are now faced with an incredible, unpalatable choice.  We must choose between super-efficiency (on which our economy currently depends) and our personal freedom (which we passionately desire).  Our economy is so complex and interdependent that the idea of abandoning super-efficiency seems absurd.  On the other hand, our tradition of freedom causes us to long for simpler, safer, and less “efficient” times that are geared to the survival of people rather than corporations.

If we continue to pursue super-efficiencies, we will inevitably hit another “Tower of Babel” moment that’s even worse than the current BP oil catastrophe.  If we give up our super-efficiencies, our standard of living will at least stagnate and will probably fall.  Many of us will suffer.  Some may die.

We are damned if we do, and damned if we don’t.  We are therefore headed for trouble that cannot be escaped.  The only real question is When?

Buckle up.

At arm’s length and within The United States of America,

Alfred Adask

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6 Comments

Posted by on May 30, 2010 in Economy, Moral Hazard

 

6 responses to “Increased Efficiency Causes Increased Vulnerability

  1. MargaretSchaut

    May 30, 2010 at 10:28 PM

    You’ve made some excellent points well worth considering by any thoughtful human being. However, I disagree that your conclusion of the necessity of greater regulation follows. Perhaps the disagreement comes from the fact that regulation ‘protects’ us is actually illusory- no more than insurance ‘protects’ us against accidents, or that life insurance ‘protects’ us against death. If we’ve seen ANYTHING through catastrophes like Katrina and this BP oil spill, NO ONE including BP experts, knows enough about this to regulate it, end it, protect us from us or to even clean it up. The idea that some faceless overpaid bureaucrats or the crop of politicians that we have who IGNORE every conceivable solution to our difficulties could possibly regulate these things effectively is at best a fantasy.

    It seems to me that humility in the face of unintended consequences, respect for the lives, property and rights of the people, and a renunciation of unmitigated avarice would be a good start. How to get THAT out of greedy people is as much of a problem as how to get good regulation out of the same group.

     
    • adask

      May 30, 2010 at 11:23 PM

      More, I’m all too aware that relying on government to provide necessary regulation is a fool’s errand. In fact, there’s evidence that the US government (which was supposed to inspect the Deep Horizon platform at least once a month) only stopped by once a year. Part of the reason for the disaster was the government’s breach of duty.

      In the final analysis, the only “regulation” likely to eliminate the kinds of problems we see in the Gulf is a genuine capacity “self-government”. It’s easy to govern others, but who can government himself? To be “self-governing,” the men and women of the world must find the force of character to make personal choices to avoid implementing or relying on advanced, “super-efficient” technologies. We need to resist the temptation to drill wells 30,000 feet deep. We need to resist the temptation to “create life” (another “efficiency” that’s certain to end badly) or build a super-collider to find out what happened in the first one-billionth of a second at the purported “big bang” (and risk causing unpredictable and potentially cataclysmic events today). In the final analysis, who gives a damn about whatever happened in the first billionth of a second, a billion years ago? Why take the damn risk to seek knowledge of little or no immediate consequence? There are hundreds of other technologies that we need to resist, not because government say so, but because we have sufficient sense to realize they pose more risk than reward.

      And I know how stupid I sound advocating that there the only effective brake on the efficiency that leads to catastrophe is “self-government”. As if, hmm?

      Do I seriously think mankind will ever stop its drive for greater knowledge and greater efficiencies? Of course not. Mankind’s attitude is summed up in the old joke about an alcoholic on a binge who says, “If I live through this one, I’m gonna go on a really good one!” The BP blow-out is probably not the “really good one” that finally finishes us off. But mankind will continue to binge on efficiency, until we eventually find the “really good one” that finishes us off.

      That’s why I closed my article saying we were “damned if we do, and damned if we don’t.” I see a problem with pursuing greater efficiencies, but I don’t have a credible or acceptable solution to that problem. Thus, I only conclude “buckle up”. Get ready.

      Trouble’s coming. Big trouble. Maybe this year, maybe next year, maybe 30 years from now. But the longer we wait, the more efficient we become, the greater the problem’s impact will ultimately be. It’s like playing with matches. Sooner or later, you’ll not only burn yourself, you burn down your house and maybe your neighborhood.

      We are at a time when human power/efficiency has truly grown far beyond mankind’s character. What can you do but try to get out of the way and “buckle up”?

       
  2. john denton

    May 31, 2010 at 6:13 AM

    A neat thought more effeciancy = more risk what are your thoughts on abortion mr. adask ? jd

     
  3. adask

    May 31, 2010 at 1:35 PM

    I’ve recently responded on the abortion issue issue elsewhere on this blog. I won’t belabor the point here other than to say that under Genesis 1:26-28, 9:6 and the “Declaration of Independence,” abortion is murder, a crime against both man and our Father YHWH Elohiym, and an act of blasphemy. Abortion is an abomination.

     
  4. Robert

    August 17, 2010 at 9:32 PM

    javascript required for comment?

     
    • adask

      August 17, 2010 at 9:46 PM

      I have no idea.

       

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