Loonshots and Collapse

by
Charles Hugh Smith
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The momentum of franchise success and centralization of power are fatal.

Loonshots are like moonshots, only crazier and trickier to commercialize. Author Safi Bahcall titled his book on how to nurture change-the-world innovations Loonshots: How to Nurture the Crazy Ideas That Win Wars, Cure Diseases, and Transform Industries.

But as Bahcall persuasively argues, loonshot innovations aren’t enough. You also need to nurture franchises that commercialize the innovations into products and services that pay the bills and fund the search for loonshot.

Bahcall identifies two kinds of loonshots: product and system. One of his examples: the 747 Jumbojet was a product innovation, the SABRE airline reservation software was a system innovation. Both are essential.

The book has much to say about structuring organizations–corporations and agencies–to encourage the fragile emergence of loonshots and commercialize them into change-the-world products and services. Organizations that excel at fostering innovations often fail to capitalize on their discoveries, and Bahcall identifies two sources of this failure: the supreme leader who leads the organization astray with hubristic self-confidence, and the organization lacking managers with the means to push the innovation into production / adoption.

Near the end of the book, Bahcall explores a topic that has engaged historians for decades: why didn’t China capitalize on its vast trove of change-the-world innovations? Why didn’t China leverage its monumental technological advantages from 1500 to 1800 to dominate the world?

This has long been of interest to me, and I found the book The Man Who Loved China: The Fantastic Story of the Eccentric Scientist Who Unlocked the Mysteries of the Middle Kingdom helpful in providing context. It’s the story of Joseph Needham and Lu Gwei-djen’s assembly of the multi-volume Science and Civilisation in China.

Setting aside the many specifics of China’s culture and history, we can identify general principles for this systemic failure to capitalize on innovation within organizations. These principles are scale-invariant, meaning they operate at the level of small enterprises, corporations and nations.

When the organization’s franchises are successful, there’s little selective pressure to gamble on innovations. Scaling innovations up (i.e. commercializing to ubiquity) is tricky and failures are the norm. Taking chances on new ideas and products is risky. As the Loonshots book explains, there are false start failures where the initial product is tossed aside as a failure but the problems were fixable.

When the franchise of an empire or movie studio is running smoothly, the risks of investing in loonshots are daunting. The inevitable failures will not only hurt the bottom line, sucking up capital, they are risky for managers promoting the innovations.

Even worse, the innovation might morph into a threat to the core franchise and thus the organization’s dominance and leaders. Some folks in the lab invent digital cameras while the franchise’s dominance and revenues are based on selling film–hmm, what to do? How about burying the innovation as needlessly risky?

The greater the centralization, the stronger the risk aversion and the greater the odds of the supreme leadermaking a catastrophic error of judgement. As the supreme leader moves from success to success, critics are dismissed as naysayers and the inner circle fears being cashiered / sent to Siberia, so over time the supreme leader is surrounded by sycophants and toadies who serve their own ambitions by praising the supreme leader’s every move and elevated self-glorification.

In this self-reinforcing feedback loop, the decay of the core franchise is rationalized, ignored or discounted.Bad news is unwelcome, and anyone who gives voice to the news risks elimination from the leadership pool. All the system incentives favor downplaying the decay of the franchise or cloaking it with massaged statistics.

In this sealed echo-chamber, the supreme leader coasts along, confident everything is peachy while the empire, army, trade and the currency all slide toward collapse. The worse it gets, the greater the danger for those who dare to reveal the true measure of the decline.

Better to game the numbers and announce you met your quota / sales number.

In other words, the momentum of franchise success and centralization of power are fatal. When you’re making steady profits from selling typewriters, why invest in some crazy homebrew computer thingy that might sink the company if it fails and kill typewriter sales if it takes off? Since our division lives and dies on typewriter sales, who is dumb enough to support some innovation that has the potential to destroy everything we’ve built and everything that enables our success?

And what organizations dominate the planet? Hyper-centralized franchises, states and corporations alike. The selective pressure favors protecting the franchise from innovation, because innovation could upset the entire apple cart. So centralized organizations only support innovations that increase the power of centralized authority.

But that’s not how innovation works. As the franchise decays and the supreme leaders start believing their own PR and making catastrophically misguided decisions in an echo-chamber of cheering toadies, the whole system slips into a non-linear dynamic that ends in a dramatic phase change, the collapse of the franchise and all those who clung to it as no-risk and permanent.

Stifle decentralization and dissent and you stifle innovation. With potentially threatening loonshots safely buried, the system has only one pathway: decay and collapse.