The System Strikes Back

The US government is earnestly focused on solving complex problems (health care delivery, climate change, terrorism, etc.) but tends to think very linearly. "If we could only implement some government policy, everything would change". The difficulty is that we are dealing with complex systems and the systems will fight back.

Here's an example from an island nation in the central Pacific, Kiribati (pronounced KIR-a-bahs) that has a simple Robinson Crusoe economy. The natives either catch fish or pick coconuts (I'm not making this up). The government was concerned about overfishing so it decided to subsidize coconut production to give people a better standard of living and reduce overfishing. The result was that fishing increased by 33 per cent and the reef fish population dropped by 17 percent. What's going on here?

The standard textbook economic analysis says that as people's incomes increased they would choose more leisure. And, that's what happened, except they chose to spend their leisure time fishing!

Textbook economics does not provide the only lesson here. Most governments approach policy making with a linear mindset: subsidize coconut production and we will solve overfishing. But, we're intervening in a system with three positive feedback loops that the government policy disrupted. And, the system worked to defeat the policy initiative.

There has been a debate in economics about whether people's expectations defeat government policy initiatives (rational or model-consistent expectations theory). Although there is a kernel of truth in the theory (people do have expectations), it entirely misses and could easily be confused with the system aspects of government interventions.

The Kiribati economy and the problem of over-fishing is more complex than presented in the diagram above. In 2004, my wife and I visited Fanning Island (Tabuaeran), an atoll in the Gilbert (Kiribati) Islands. The highest point on the island is only a few feet above sea level and there was even concern when we visited that any sea level rise might flood the island. In the face of looming environmental problems, the government did not really try to understand the reasons for over-fishing: are the the coral reefs dying and supporting fewer fish? Is population pressure created by economic growth pressing on declining resources?

There have to be some lessons here (similar to the Robinson Crusoe lessons from textbook economics) that would inform our current policy debates. Understanding systems is a prerequisite for effective government policy. How well do we understand the US economic system or the US health care system or the World environmental systems? How likely to be effective are policies based on linear thinking? If we don't understand something, it's a signal to invoke the precautionary principle.