There is a fundamental tension between efficiency and resilience, you are completely correct. And yea, it’s a systems problem, not limited to tech.
There is an odd corollary, which is that capitalistic systems which reward efficiency gains and put downward pressure to incentivize efficiency, deal with the resilience problem by creating entirely new subsystems rather than having more robust subsystems, which is fundamentally inefficient.
This is exactly the subthread of this conversation I’m interested in.
Is what you’re saying that capitalism breaks down resilience problems into efficiency problems?
I think that’s an extremely motivating line of thinking, but I’ll have to do some head scratching to figure out exactly what to make of it. On one hand, I think capitalism is really good at resilience problems (efficient markets breed resilience, there’s always an incentive to solve a market inefficiency), on the other (or perhaps in light of that) I’m not so sure those two concepts are so dialectically opposed
To understand the effects, we first have to take a step back and recognize that efficiency and resiliency problems are both subsets of optimization problems. Efficiency is concerned with maximizing the ratio of inputs to outputs, and resiliency is concerned with minimizing risk.
The fundamental tension arises because risk mitigation increases input costs. Over a given time horizon, there is an optimal amount of risk mitigation that will result in maximum aggregate profit (output minus input, not necessarily monetary). The longer the time horizon, the more additional risk mitigation is required, to prevent things like ruin risk.
But here’s the rub: competition reduces the time horizon to “very very short” because it drives down the output value. So in a highly competitive market, we see companies ignore resiliency (they cannot afford to invest in it) and instead they get lucky until they don’t (another force at work here is lack of skin in the game). The market deals with this by replacing them with another firm that has not yet been subject to the ruinous risks of the previous firm. This cycle repeats again and again.
Most resilient firms have some amount of monopolistic stickiness that allows them to invest more in resiliency, but it is also easy to look at those firms and see they are highly inefficient.
The point is that the cycle of firms has a cost, and it is not a trivial one: capital gets reallocated, businesses as legal entities are created, sold, and destroyed, contracts have to be figured out again, supply chains are disrupted, etc. Often, the most efficient outcome for the system is if the firms had been more resilient.
So there is an inefficient Nash equilibrium present in those sort of competitive markets.
That’s a good clarification about firms vs. the broader system. I think that’s a pretty good breakdown, overall, and fits well with the general notion that capitalism is resilient, not efficient, by offloading efficiency onto smaller entities which are efficient, not resilient. You could compare to command economies where a firm failure is basically a failure of the state, and can destabilize the future of the entire system.
There is an odd corollary, which is that capitalistic systems which reward efficiency gains and put downward pressure to incentivize efficiency, deal with the resilience problem by creating entirely new subsystems rather than having more robust subsystems, which is fundamentally inefficient.