Tuesday, August 23, 2011

Solving Big Problems

It seems that we know the solution for most of the problems. We know big government is bad, huge national debt is worse. We know banker-politician nexus is ruining the economy - they are privatizing profits and socializing losses. We know we waste a lot of resource when the world is starving. We know we all can use public transport and significantly reduce our carbon footprint. We know we have limited fossil fuels, our alternate energy solutions are nowhere near sustainable model and we should invest significant effort, money and talent in discovering new energy technologies.

But still nothing changes...we continue to print money, waste huge amount of stuff(including food), drive gas-guzzlers, package debts in more complex CDOs and get excited about next about generation iPads (and think that our innovation can solve any problems). Why?

I think we have not really understood the root causes and/or have been able to solve those.  

Let me give some examples to clarify this. Let's start with Game-theory issues. Most of the Americans know that they are one of the biggest per capita greenhouse gas producers. Still most of them are really not interested in improving on this(I am talking about significant efforts(not using hybrids but using Public transports) and only motivated by the thought of 'good karma'(and not for controlling cost in the days rising fuel prices)). Are they bad people who are destroying our world for material comfort. Not really. It's a game theory problem. They are not sure even if they reduce the greenhouse emission their life(or for that matter everyone's life) will be any better. They don't have a guarantee that even if they compromise with their lifestyle billions of people in China and India will also do so. It's a case of prisoner's dilemma. Nobody wants to compromise because they are not sure about the other parties.

Another case - Politician and Business lobby nexus - again a story of short term gain('in the long term we will all die'). Do you think Obama has no idea how to fix the economy or for that matter Ben Bernanke. There may be some amount of analysis-paralysis but know for sure that they have the most informed and knowledgeable advisers available in the world. Above all they have enough amount of intelligence to understand the situation. Then why they cannot take bold action? Why can't they solve the 'Too big to fail' problem? Why can't they solve conflicts of interest problem between business and rating agencies? Because politicians need financial supports from banks and businesses. A too big to fail bank can provide huge campaign support which an average Joe cannnot. 

Last case(most won't agree) - our technological or business process innovation is highly overrated and we have misinvested our talent in low priority problems. We see a lot of changes. But I have a feel that most of our changes are cosmetic and there has been very few epoch-making improvements in recent past(except Internet or few other stuff). Think about it - most of us still drive to office everyday, do 8-5 job, comeback home, see TV/movies and sleep. We still have very low level of control over many diseases(AIDS, Cancer etc.). We still can not control natural forces(flood) or even predict them(earthquake). We still have billions of people in the world who are dying for basic needs - food, drinking water and safety. Millions are people fight against each other and die. If you think Apple will can save the world - think again! Companies concentrate on opportunities which can be monetized quickly(low hanging fruits). Solving big problems such as energy is a high risk high gain play. Most investors do not have capacity or attitude to take that risk. Governments should pitch in but again government is never good in execution(different parties have different views, less focus etc.).All in all no progress.

Bottomline: We need to solve big problems. Our Innovation need to tackle these root causes(game-theory, Information Asymmetry, conflict of interest, pricing etc.) and should not be busy in walkman-> ipod kind of progression. I don't have a answer on how to do it but I have a sample solution how it should look like.You must have heard of 'invisible hand of the market'.

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