When we want to change, build, or improve something we often only look one step in. That is, if we take action A we will get result B. End of story.
That’s only the end of the story because we stop looking.
Sometimes we only look that far because of a lack of imagination. Other times incentives are misaligned. Or when change comes at us too quickly. We also often only look one step in because considering more steps is difficult or impossible. The attempt to go beyond those problems is sometimes called “second-order thinking.”
Here are some recent events and proposal that clearly involve more than a single step when it comes to outcomes. Let’s look at ways the first step can result in unintended second steps and ways to change how we assess outcomes.
Remote Work
COVID-19 brought sudden changes to the way people around many parts of the world work today. One of those changes was that many employees would work remotely from home.
What should be some of the first step changes from temporary remote work? Common ones listed include:
- Employees save on travel time and expense. Less need for a car and associated fuel, parking, and maintenance. Less stress from long commutes.
- Employees have a change in distractions during the work day. A less or more comfortable office.
- Employees have fewer casual interactions (for better or worse) throughout the day.
- Employers furlough employees and cut benefits.
- Employers lose revenue from sales of food, parking, and other services.
- Employers save on amenities, events, office supplies and services.
- Employers (or employees) incur an expense to upgrade the home office to include needed equipment (duplicating what was in the office).
Many employees with jobs that went remote benefited from the new arrangement. Long-term, will their employers claw back some of that benefit even if the employer is net positive from savings on rent, events, and amenities?
Employees may be able to live farther from the office in cheaper, more comfortable settings. Likewise, Employer savings on rent (if office space is downsized).
Some companies, like Buffer, that always had remote work pay employees differently depending on location. But eventually, other companies realize that they can do that too, as Facebook has already announced.
Another impact is that remote work acts as a leveler of sorts. Rather than compete with people in the same location, will employees instead have to compete with potential hires everywhere? A good salary in an American city is a great salary in the American countryside and an amazing salary in most other parts of the world.
In other situations, another effect of remote work is contrary to the above. While those who don’t already have a strong business network or family support can perhaps build those resources in person, can they do it purely online?
We can already see some second-order effects in just a few months of COVID-19.
Mobility Services
Rideshare services using cars (Uber, Lyft, Didi Chuxing, etc) and personal mobility companies that use bikes and scooters (Bird, Spin, Mobike, Ofo, etc) are another place we can use second-order thinking when it comes to expected outcomes.
Car rideshare companies came before scooter and bike mobility companies because of a more efficient use of resources. In the first case, the companies push the vehicle costs to the drivers. In the second case, the companies must purchase the vehicles themselves. In the first case, cars can be scattered around a city and move to where the riders are. In the second case, the scooters and bikes must be present in enough locations so that pedestrians can easily walk to them.
It’s easy to see the consumer benefit to rideshare and mobility services. More options, cleaner (possibly) and less expensive than legacy transportation. But these services were also sold to municipalities as ways to decrease traffic, when it looks like they may have increased traffic instead.
Effects of scaled-up rideshare also include depressing the market for taxi medallions — for decades a stable investment that was priced like a bond. What do you do when medallion owners lose their biggest personal investment and ability to retire, especially as the rideshare companies’ tactic was to enter markets first and negotiate their legality later?
Much of the argument for personal mobility stressed the low-cost environmentally friendly transport that scooters and bikes enabled. The argument was also that they would help reduce traffic by decreasing the number of cars on the road. But in order to provide service to consumers spread around a city, the mobility companies needed enough inventory of scooters and bikes in high demand areas. In some places scooters and bikes blocked sidewalks and roads. On my last trip to Shanghai, this was the scene on the sidewalk and street.
One of the drivers behind such investment-fueled fast growth is a winner-take-all market. Rideshare and mobility companies don’t need sustainable businesses in the very beginning — they are acquiring customers and launching geographies. They don’t need sustainable businesses later on — they are battling competitors and offering customer and provider subsidies. During this phase, consumers can benefit from greater availability and lower costs than normal. Long-term though, these companies need to be able to outlast their competitors so that they can eventually build a sustainable business. Early-stage behavior that seems ridiculous makes sense later on, if they last that long. In the meantime, there are many other effects that we live with.
Universal Basic Income (UBI)
Unlike the two examples above, where some results are emerging, UBI remains theoretical.
I wrote about UBI twice while Andrew Yang was in the primaries and also outlined other UBI plans from Nixon, Alaska, Finland, and Y Combinator. I like safety nets and dislike saddling people with debt — say from education and healthcare — but think that a top-down policy to put 100% of a country on UBI is risky and irreversible.
It’s not that people haven’t tried to test UBI. It’s just that the problem with localized UBI experiments are not similar to actual UBI, making national predictions something else entirely. That is, there is a big difference between granting everyone the same monthly UBI and granting a small number of subjects a monthly stipend. But the results of such experiments are not presented as such. One recent article, “The Promising Results of a Citywide Basic-Income Experiment” did just that.
The argument I make is that there is a missing second step in thinking about UBI. That next step is how behavior changes when there is UBI long-term. When UBI is truly universal, how does it impact willingness to work and where to live and what costs does it create elsewhere in the economy (rent, food, drugs, debt repayments, bankruptcy, and others)? UBI as described by Yang’s campaign is implemented top-down (itself a theme that you’ve seen me warn against with systemic changes) and forever (assuming funding via savings generated from AI).
Once you start that top-down experiment, can you stop it if it doesn’t serve the purpose?
The recent Cares Act is a different story since it is a temporary emergency measures. The $2 trillion in aid is broken into different categories, with an estimated $560 million going to individuals directly (the part that could be compared to a UBI). Another $877 million went to businesses, with an expected maintenance of employment, also impacting individuals. This unprecedented aid amount is not seen as a constant, but is rather an emergency support during COVID-19.
What Stops the Second Step?
There are a few main blockers of second-order thinking.
It may not be in anyone’s interest to think beyond step one. In the case of the mobility services described above, huge funding rounds enabled subsidized growth and also the need to make good on the investment. Investors, employees, and customers were not interested to seriously consider eliminating these services. In the case of UBI, once potential policy-makers wed themselves to the concept, it’s difficult to reverse course.
Another cause is fast growth. When a system’s inputs change quickly, it’s difficult to adapt, re-balance, rethink. These changes often happen faster than we can react. We see examples of this with fast growth companies that displace incumbents. My argument here is not against innovation but in pointing out that by gaining speed we sometimes lose something else.
Emergence. Considering more steps is difficult, but it can also be impossible where we have no reference for how interactions create unexpected outcomes. I wrote about this in more detail in “What is Emergence?” but here is a common quote from Aristotle and the way I interpreted it.
“In the case of all things which have several parts and in which the totality is not, as it were, a mere heap, but the whole is something beside the parts…” — Aristotle, Metaphysics
So in other words, writing 2,400 years ago, Aristotle meant that when parts combine to form the whole, they are:
“Not a mere heap… Rather than ‘the whole is greater than the sum of the parts,’ we have ‘the whole is something beside the parts’ — a different meaning and one that I think better represents emergence. Emergence is not about being greater or less than something without that quality. (After all, how would we define ‘greater’ or ‘less’?) Instead, emergence is a quality of a system’s parts that interact in new ways as part of a system.”
Linear thinking (the whole is just the sum of the parts), such as that in pure support of UBI, or remote work, or shared mobility, reduces our ability to think of other outcomes (good or bad).
While we can’t completely predict outcomes, we can at least question what might change and prepare. If outcomes are worse than what we started with, can we slow down and push some of the costs back to the creators?
Consider
- To learn more about second-order thinking you can also go back to my article Categories of Unintended Consequences to see how we create Unexpected Benefits, Unexpected Drawbacks, and Perverse Results.
- Can you bet on outcomes? Or, what if you had to bet on outcomes and tie your future upside or downside to results?
- Ignorance is different from the lack of knowledge.