2014.10.27 The problems from being "first movers"

Joseph Schumpeter is one of the thought "heros" in entrepreneurial circles. He focused on "creative destruction" and most of the innovators who have become really famous have left havoc in their wake by radically changing the way we do things and making the old ways obsolete.

USA has over the last couple of centuries been one of the places where "creative destruction" happened first. From Edison providing electricity to the New Yorkers over self service supermarkets and television to internet; in so many of the things that are part of modern life the early adopters could be found here.

But Americans have also paid a high price for being out in front:

  • Their electric infrastructure runs on 110V and the back bone is perilously fragile. New Yorkers may have been the first to get access to the upsides but they are now stuck with updating an over 100 year old network with a downtime that is over 10 times as high as Tokyo's.
  • Until the television providers decided to go digital earlier in this century, American NTSC color standard was different from the European newer PAL standard and the acronym was mockingly said to stand for "Never The Same Color".
  • Americans got used to credit cards in their every day transactions long before plastic money became the norm in other parts of the world. But they still generally haven't gotten chips embedded in their cards and terminals with abysmal security as a consequence.

The advantage of being a "first mover" is that you can get productivity gains much earlier than your competitors. The downside is that the systems you build to support the new way of doing things are first iterations. If a big system using not the best standard is widely implemented, it can be very difficult to upgrade because a huge investment needs to be scrapped.

For individual companies, Kodak's demise exemplifies what happens when big investments in the status quo leads to willful ignorance about changes.

Today America's digital television standard is as sharp as anywhere else. They finally made a step forward when the gap between what was and what was possible became too great. The abysmal mobile telephone system took a quantum leap with the smart phone, bringing European competitors to their knees.

When America does get its act together, all the advances made anywhere in the world are baked into the next iteration. The advances are fueled by all the people who flock to the country because it is still the center of the free world.

As a socity, changing can be more difficult. It is like having to repave a central freeway: Your are damned if you don't but while it happens you are damned if you do. And it is even worse if the people who benefit from "the new pavement" are not the same as those who were "stuck in the traffic jam" caused by the work in progress.

While we are waiting for a new mix of people on Capitol Hill, we may wonder if the innovators of modern democracy finally have come to a point where that system needs an upgrade. Indirect and non proportional selection of government representatives was perhaps necessary when the pony express was the fastest mean of communication, but today there is no excuse for systems that disgust the electorate while letting "The American Dream" slip through the fingers of the next generation.

For the sake of all of us, let us hope Washington can also change.