Economics and Snapshot Thinking

There is a tendency in all of us to think in terms of immediacy. In other words, to look at the world as it’s currently structured and imagine it will always be that way. I call it snapshot in time thinking. By trying to make legal changes in the system we ignore the technological changes making those rules obsolete. Snapshot thinking leads to bad policy ideas and lack of innovation. American companies naturally want to protect their industries from competition, both foreign and domestic. They assume the current economic situation will remain steady. But it never does.

Take a look at the auto industry in the fifties and sixties. Assembly workers put in overtime nearly every week and made good salaries. America was king in cars. There were hurdles in countries with high tariffs but basically no one could compete. The snapshot in time view insists, this couldn’t change anytime soon. The good times went on until about the late eighties when Japanese car makers started selling in the US. In the 1990’s American dominance had dropped off, primarily due to foreign sellers putting lower cost autos within reach of price conscience consumers. Also, the costs of building cars increased. As a result, American car makers like GM and Ford cut back on the workforce.

The auto industry shows what can happen to any industry over time. Technology, labor costs, free trade deals and shifting demand all force businesses to change. Cars are better now both from American makers and from foreign. Better because they run longer and need less repairs. Competition helped this improvement along but mostly, the cost of materials and labor in countries like Japan fell. After that, Toyota set up factories in the US to sell direct to Americans and save on freight and taxes, not to mention pesky quotas. Even though Toyota is a foreign owned company, the jobs they provide are for Americans. 

The auto manufacturers’ business didn’t change dramatically, but economic realities forced change in the nature of the work. More automation and less physical labor allows companies to run leaner than before.

Computers changed the way people work as well. An old photograph of an office environment in 1965 (above) would show rows of desks with typewriters and adding machines. Everyone has a computer now. If you sold typewriters you couldn’t imagine being out of a job. Almost no one uses them anymore. Typewriter sales fell very quickly. Thinking about economics in the snapshot stunts possibilities for growth. It hurts the prospect the business will break new ground, see additional opportunities. The best companies are the ones that innovate. It doesn’t require seeing the future as much as taking risks and spending wisely.

Uber is starting to do this. By now we all know, and have probably used, the car shuttle service that ferries riders around like discount taxis. Their model is innovative because it took an old idea, taxi cabs, and improved it by making it cheaper and quicker. GPS linked phones allow drivers unfamiliar with big cities to transport customers anywhere. Now they are starting a food service. Called UberEATS, restaurants use the service to deliver their orders. It’s still quite new and no one knows for sure how big the demand for delivery food is. But the ride share innovator isn’t sitting back and hoping to keep doing taxi service forever.

Amazon still sells books after all, but the business they developed is more online box store than niche library. That isn’t even counting their cloud services (AWS) that raked in over 17 billion last year.

Snapshots equal short term thinking.

The industry with the biggest need for innovation is health care. It needs to innovate because it’s too expensive. From hefty insurance premiums to expensive hospitals and high co-pays, the whole bloated sector is ripe for pairing down. Trying to untangle the mess and understand how we got here is difficult. But more important is finding a way out. People want to be responsible for their own health and not have to sign a stack of forms at every clinic and verify employment while cross checking medication coverage. Only by taking out all the layers (middlemen) does this mess begin to correct. Too many insurance companies and drug wholesales take a percentage at every level. These layers between hospitals and patients lead to expense and confusion. Once health care becomes affordable for workers outside of employer plans, it will get easier.

I am confident that health care (and skyrocketing costs) will be less of a concern for people in 30 years. For all our problems of over-regulation we live in a dynamic country that keeps growing and changing old models. One promising area for reducing costs for healthcare, is in tech. A few companies are using blockchain technology to keep patient data secure and easily accessible by doctors. Because of the decentralized nature of blockchains, the costs of medical billing are greatly reduced because verification of patient information is instantaneous. It may not radically change the industry but it’s a good example of where to start.

Every business changes over time. What worked in a previous generation may not in the next. Snapshot thinking is the culprit. The rule for the future is “stay flexible with your offerings and don’t overextend”.