Replaceability and the Economics of Disequilibrium

Sam is a 2014 blogging resident visiting us from his home blog at Moore’s Hand.

One characteristic of personal meaning is irreplaceability. If you’re the only one who can do what you’re doing, your actions suddenly seem a lot more important.

We’re familiar with this principle in our personal relationships — perhaps a friend needs a piece of advice, or a child needs parenting, that only we can give.

But larger systems are designed to make most people replaceable.

If you are replaceable, the system will equilibrate without you. If you aren’t replaceable, it won’t.

This is good for you but bad for the system. So your manager’s job is to make sure that the company will survive you being hit by a bus.

Replaceability is a spur to the ambitious. Every law school grad applying for a Supreme Court clerkship; every Ivy League grad interviewing at Goldman Sachs or McKinsey, knows that ten other people want the job, and can do it.

But replaceability is existentially demotivating. “Just a cog in the machine” has been an epithet for employment since Charlie Chaplin filmed Modern Times.

If a system will achieve roughly the same outcome no matter who’s inside it, these people are by definition replaceable.

And so in seeking irreplaceability, we must ask: what systems are capable of achieving genuinely different equilibrium outcomes?

Feedback loops

Differential equations are a branch of mathematics aimed to model systems where the system’s change over time is heavily influenced by the current state of the system.

A spiral wishing well is a convergent system. When you drop a coin in, its route will be different depending on where it starts, but all pennies eventually funnel down into the same final destination.

On the other hand, Glacier National Park in Montana is a divergent system. A cup of water poured in the west will flow down to the Pacific Ocean. Poured in the southeast, it flows to the Gulf of Mexico; in the northeast, to the Hudson Bay. The point at which a divergent system diverges is known as the inflection point, or colloquially, the saddle.

Would-be system nudgers should note: convergence/divergence are characterizations of a system at a point in time/space rather than overall system traits.

The spiral wishing well is a convergent system throughout the lifetime of the penny. But the watershed is only divergent in Glacier National Park; it is convergent elsewhere as the water flows out of the park and its final destination becomes inevitable.

Zooming one step out

In the market, the fiercer competition is, the more strongly the system equilibrates.

Sometimes this is obvious — for example, if we are on the job market. But if not, zooming out one level often helps us see equilibrating forces.

Let’s return to our Ivy League grad, who has decided to accept the offer at McKinsey. Frustrated by a sense of meaninglessness, he spends five years on East Asian projects, becoming the firm’s resident expert on, say, the South Korean export/import market.

Suddenly he’s needed for every project with an outsourcing theme. This figures prominently in a new project one of the firm’s partners is pitching. Due to the now-senior-associate’s expertise, the firm lands the contract.

That evening, our protagonist is walking home from the office, pleasantly musing on the day’s events, feeling a deep sense of satisfaction that his work is needed.

While thus engaged, he starts to explore the counterfactual if he wasn’t around.

We wouldn’t have been able to land the contract, he thinks. It would probably go to our competitors.

And they probably have someone just like me, who’s spent several years becoming an expert on the same topics I have, who would have been doing the exact same work I’ll be doing now.

Our associate may be irreplaceable in his firm, but if his firm’s work is commoditized, then he is not irreplaceable existentially.

‘Great men’, revisited

This line of thought can be a bit demoralizing. Alas, we have a bit more convergent-system bath water to throw out before we get to our divergent-system baby.

Perhaps many run-of-the-mill elites are replaceable. But typically, if we think about people who made some dent in the world, we think about more well-known historical figures; people who, popularly represented, stood at some fork in the road and pushed society one way.

How replaceable are these type of figures?

If not for Watson and Crick, DNA’s double-helix structure would probably have been found soon thereafter, eg by Rosalind Franklin.

But the search for a polio vaccine had been going on for seventeen years without success before Salk. And no one was looking for antibiotics when Fleming discovered penicillin.

Pizarro and Cortes’s conquests were stunning. But had they failed, the Aztecs and the Incas would have continued to be (a) lucrative targets and (b) vulnerable to smallpox.

Napoleon, on the other hand, marched over Europe in a manner difficult to imagine an alternate leader doing.

Inevitable battlegrounds; contingent winners

Our focus moves now to technology, the standard source of economic historians’ illustrations of divergent systems (they use the term ‘path-dependent’).

The textbook example is of the QWERTY keyboard layout in 1900. Widespread adoption of QWERTY created a virtuous cycle where it made sense for new typists to learn QWERTY rather than a different format.

Technological progress in general, and Moore’s Law in specific, tends to create an interesting interplay of convergent and divergent systems. It creates inevitable battlegrounds but contingent winners.

As processing power continued its relentless doubling, mainframes were replaced by minicomputers, minicomputers by desktop PCs, and desktops by laptops.

This progression of computing machines was more-or-less inevitable. But battlefield results — Microsoft and Apple won; Cray and Tandy lost; IBM pushed — were far more historically contingent.

As soon as the personal computers and the internet became widespread and fast enough to handle voice, something like Skype was going to become prevalent.

But once Skype became prevalent, it was, like most tech firms, an oligopoly.

Market structure is perhaps the largest factor in creating contingent results in tech — network effects and fast-moving markets typically result in one or two players dominating any tech-related market.

This market power enables flexibility in crafting product, which leads to idiosyncrasy.

Perhaps there could have been a sustainable mass-market social media platform that worked significantly different than Facebook. But we’re unlikely to find out now.

Convergent features; divergent backends

Another wrinkle in the tech story: among oligopolists, feature sets are more likely to converge than technical backends (just look at Twitter’s recent redesign).

Features are legible to customers and thus subject to the equilibrating effects of competition.

But on the backend, no one sees the programming language or technical architecture, there are usually multiple ways to achieve the same goal, and good gardening by software engineers tends to be a weaker force than than market pressures.

In college, I worked in the clothing department of the campus bookstore. All the sweatshirts in the retail area were neatly folded and the polos neatly hung. Our stockroom, frequented only by employees, was an ill-kept mess.

When an ill-kept mess becomes the initial condition for further technological development, things get interesting.

Don’t smash the butterfly

A good example here is the operating system market.

Back in 1997, Microsoft was king, Linux had not yet gained momentum, and Apple seemed on its death throes.

Asked what Steve Jobs should do, Michael Dell suggested the company close shop and return its cash to shareholders. Ultimately, Jobs convinced Bill Gates to invest $150 million and develop Office for Mac, and the company survived.

To the average consumer (though not to the Justice Department), this might not have seemed too consequential. So what if Macs disappear? There wasn’t a lot you could do on them that you couldn’t do on a PC.

But the technical gulf between these systems ended up playing a large roles in subsequent history.

Linux was open-source — thus both free to use, and easier than Windows to program on. Apple was vertically integrated, producing both its hardware and software.

In 1997, when software was “shipped” by mail and inserted into the consumer’s CD drive, software had to be written on the same OS it ran on. So ease of use for consumers, not programmers, was the relevant OS constraint.

But in 2014, when software runs on a remote server and is “shipped” via the Internet and a browser refresh, programmer ease of use suddenly matters.

Since 2000, the cost to start a tech company have fallen from around $5 million to around $5,000.  Linux-driven cloud computing played a large role in this trend, which has helped drive Silicon Valley’s current boom.

As for Apple — its hardware/software knowledge turned out to be pretty useful in dominating the smartphone market with the iPhone.

Google’s Android, in second place, is basically built on Linux. (and hardware integration has continued to be a pain point.)

Microsoft, of course, missed the boat.

Killing Linux/Macintosh in 1997 would have been, like Ray Bradbury’s butterfly-stomping time traveler, barely noticeable at the time but hugely consequential in the future. This is technical path dependency par excellence.

The scope tradeoff

Our journey began in a quest to make oneself irreplaceable. We’ve gone on what seems like quite a detour, looking for contingency and exploring path-dependent systems.

Let’s come full circle.

In deciding what to pour our energy into, we typically face a scope tradeoff:

If we work on large problems, perhaps in our professional lives, we usually see many other people doing the same thing. We wonder if we’re replaceable.

If we work on small problems, perhaps in our personal lives, we can likely see concrete impact. But we look around and see the vastness of the world and wonder if we’re actually doing anything consequential.

The standard coping mechanisms here are mostly internal, ie, identify with a larger narrative of which your actions are part.

But another tactic is to note that the above dichotomy is incomplete. Specific types of big systems are path-dependent and tend not to equilibrate.

And therein lies the opportunity.