Clay Shirky on the Collapse of Complex Business Models (and Complexity) – Great Read

Clay Shirky on the Collapse of Complex Business Models (and Complexity) – Great Read

Great piece by Clay Shirky entitled “The Collapse of Complex Business Models.” It’ll make you think, for sure, as Clay points out the mysterious tendency of complexity to simply collapse throughout human history – think Romans, Mayans, etc.

Sometimes the more a society or sector advances, the stronger the pull back towards simplicity – with outright collapse being the quickest and most violent way to achieve this.
Clay writes:
In 1988, Joseph Tainter wrote a chilling book called The Collapse of Complex Societies. Tainter looked at several societies that gradually arrived at a level of remarkable sophistication then suddenly collapsed: the Romans, the Lowlands Maya, the inhabitants of Chaco canyon. Every one of those groups had rich traditions, complex social structures, advanced technology, but despite their sophistication, they collapsed, impoverishing and scattering their citizens and leaving little but future archeological sites as evidence of previous greatness. Tainter asked himself whether there was some explanation common to these sudden dissolutions.

The answer he arrived at was that they hadn’t collapsed despite their cultural sophistication, they’d collapsed because of it. Subject to violent compression, Tainter’s story goes like this: a group of people, through a combination of social organization and environmental luck, finds itself with a surplus of resources. Managing this surplus makes society more complex—agriculture rewards mathematical skill, granaries require new forms of construction, and so on.

Early on, the marginal value of this complexity is positive—each additional bit of complexity more than pays for itself in improved output—but over time, the law of diminishing returns reduces the marginal value, until it disappears completely. At this point, any additional complexity is pure cost.

Tainter’s thesis is that when society’s elite members add one layer of bureaucracy or demand one tribute too many, they end up extracting all the value from their environment it is possible to extract and then some.

The ‘and them some’ is what causes the trouble.

You can read the full piece on Clay’s blog – highly recommended.

Hat tip to our boy Carson for sending the link along! As he put it in his email, this outlines potential deflationary implications for our economy and government – implications that right now are not fully understood.
Also the theme of decreasing marginal value reminds me of the diminishing returns on debt we’ve seen discussed of late. When the marginal value drops below zero is when we get into real trouble!