Why so many top-down decisions fail
Policy resistance | Making more robust decisions | Systems thinking
Hi everyone,
I hope you’ve been doing well these last few months! Alas, my hiatus from writing was longer than I expected. But the fruit of my ideas have now had time to ripen.
Lame analogy. Really bad.
In Signals & Stories, I write about concepts from various analytical fields that can help you make better decisions. Each article will have a story and (maybe) a few bad jokes to make the bitter potion of learning a little easier to swallow.
Is that one better?
—Brendan
📖 The Story
In the 1960’s, Romania faced declining birth rates, and its authoritarian leader, Nicolae Ceaușescu, was desperate to restore growth and prosperity. In 1967, he issued his innocuously named “Decree 770”, which suddenly restricted abortions and birth control, intending to motivate couples to conceive more children. The solution worked… for only about a year. Then birth rates declined even lower. Ceaușescu did not expect women would dare to find other avenues to access birth control, such as back-alley abortions or smuggled birth control pills. Deaths from botched abortion rose. Meanwhile, the country continued to suffer from a demographic and economic malaise. For over 20 years after the ban, birth rates continued to decline until Ceaușescu’s overthrow and execution in 1989. Decree 770 was the first law repealed after his death.
🧠 The Concept
Ceaușescu’s Decree 770 suffered from policy resistance. Policy resistance happens when our attempt to fix a problem—usually through some rigid, top-down mandate—actually makes the problem worse. Examples are legion across government, business and technology:
The broad availability of student loans has contributed to drastic increases in the cost of higher education (source: Federal Reserve Bank of New York)
Road building programs designed to reduce congestion have increased traffic, delays, and pollution (source: Business Dynamics, John Sterman)
Wildfire suppression causes more dangerous wildfires. “When forests aren’t allowed to burn, they become more dense, and dead branches, leaves and other biomass accumulate, leaving more fuel for the next fire.” (Mark Kreider, ecologist)
Antibiotics have stimulated the evolution of drug-resistant pathogens (source: Business Dynamics, John Sterman)
In a famous experiment, Israeli day care owners started charging parents $3 for each late pickup. Late pickups subsequently increased. (source: “A Fine is a Price”, Uri Gneezy)
Last month, TikTok encouraged American users to contact their local representatives to complain about the potential ban of the app, inadvertently justifying the ban to legislators worried about the app’s political influence (source: WSJ)
Policy resistance, you can see, is common and costly! It occurs whenever one attempts to fix a problem within a complex system without accounting for the full range of feedback effects and delays.
To prevent policy resistance, you can keep in mind the below principles to make decisions more robust to unintended consequences:
Have some humility. “When you are confronted by any complex social system, such as an urban center or a hamster, with things about it that you’re dissatisfied with an anxious to fix, you cannot just step in and set about fixing with much hope of helping. […] You cannot meddle with one part of a complex system from the outside without the almost certain risk of setting off disastrous events that you hadn’t counted on in other, remote parts.” —Lewis Thomas (biologist)
Cultivate a feedback-oriented perspective (instead of an event-oriented one):
Event-oriented (rigid, too linear): Cause and effect are sequential and linear. You have goals, you make decisions to reach those goals, and then you experience results. For example, cutting prices will lead to a permanent increase in sales and more market share, forever-ever-and-ever-Amen.
The simplistic event-oriented perspective; Source: Business Dynamics, John Sterman Feedback-oriented (dynamic, accounts for nonlinearity): Cause and effect are intertwined with feedback loops, delays and nonlinearity. Cutting prices temporarily increases sales, but also motivates competitors to react, which can decrease your market share in the long-term.
The more sophisticated feedback-oriented perspective; Source: Business Dynamics, John Sterman)
Simulate the whole system. Below is a simple model of Australia’s financial system in 2008, when the country decided to introduce deposit insurance. This top-down decision was intended to improve financial stability, but it actually did the opposite. Let’s see how. Introducing deposit insurance on bank accounts did increase bank safety (steps 1 and 2), but it also increased money market withdrawals as bank accounts became more attractive (step 3), leading to an unintended withdrawal spiral (step 4) for money market funds. As more people withdrew from money market accounts and switched to bank accounts, the money market accounts became riskier, leading to more withdrawals. The Australian government had to freeze withdrawals to prevent a collapse; millions could not access their own money to pay living expenses. The field of system dynamics (which is an extremely underrated field that I’ll be writing more about) is focused on developing these models of complex systems so you can simulate policy decisions and understand unintended effects before they happen.
Because having a feedback-oriented perspective and familiarity with complex systems are both uncommon, policy resistance remains pervasive and punishing across government, business, and science. As our systems grow more complex and connected each year, we need leaders who can better anticipate and overcome policy resistance. As we’ve seen, having a feedback-oriented perspective and familiarity with systems can help. We’ll further explore these ideas—as well as other systems thinking and system dynamics concepts—in future Signals & Stories articles.
Donella Meadows was a prominent thinker in this space who summarizes well this new “systems thinking” mindset:
“Watch out! If you see feedback loops everywhere, you’re already in danger of becoming a systems thinker! Instead of seeing only how A causes B, you’ll begin to wonder how B may also influence A—and how A might reinforce or reverse itself. When you hear in the nightly news that the Federal Reserve Bank has done something to control the economy, you’ll also see that the economy must have done something to affect the Federal Reserve Bank. When someone tells you that population growth causes poverty, you’ll ask yourself how poverty may cause population growth.” —Donella Meadows, Thinking in Systems
Looking forward to exploring more of these topics with you.
—Brendan
🎓 Further Reading
Thinking in Systems, Donella Meadows: A classic for developing the systems thinking mindset. "Thinking in Systems is required reading for anyone hoping to run a successful company, community, or country. Learning how to think in systems is now part of change-agent literacy. And this is the best book of its kind."―Hunter Lovins
Business Dynamics, John Sterman: A more in-depth textbook on system dynamics. For the math and management nerd.
Thanks for reading!
Signals & Stories is a newsletter that explores the recurring patterns we can recognize to make better decisions—in business and life.
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—Brendan