Downstream effects

Better decisions can be made by taking a moment to think about downstream effects.

When Wal-Mart cut costs by removing store employees, they just ended transferring the massive burden of stopping shop-lifting to the local police.

In an attempt to improve their demographic balance, Russia tried paying women money to have kids. But, they found an increase in abandonment rates. After collecting their pay outs, women were dropping these kids in orphanages. Sweden’s answer to helping improve demographics was to have an incredible range of maternity benefits. A Swedish woman can take 16 months of maternity leave (13 of them paid at 80%) until her child is 8 years old. If she has 3 children, that’s 4 years of leave. Sadly, women in their twenties are among the largest unemployed groups in Sweden.

On the flip side, Google outsourcing TensorFlow, an open source machine learning library, helped a Japanese farmer and former engineer create a system for sorting cucumbers.

And, the African Great Green Wall initiative is likely to have long term ripple effects beyond just preventing the Sahara desert from increasing in size. When 21 countries come together to plant trees, there’s plenty Africa and the world gains from the effort.

downstream effects, externalities, unintended consequencesThanks to The Economist for the image

Every one of these stories is a story about the downstream effects of decisions. In Economics, these are called externalities or unintended consequences. Every decision we make has unintended consequences. In some cases, the negative downstream effects can be so powerful that they can just override any positives from the first order consequences of the decisions.

As a result, we must discipline ourselves to push all decision making conversation into the realm of downstream effects. All company destroying decisions started out as good ideas in the short term… with bad downstream effects.

Who is paying for it

Every time you get a ridiculously cheap deal, it is worth asking – who is paying for it? Here are 3 examples –

1. The “fast fashion” movement pioneered by retailers like Zara is all about designer product fads at low prices. Manufacture it quickly, use it for a short period and dispose it. It feels like a great deal for the customer.

2. Parents of new born babies have the pick of diapers at 15c/diaper. These diapers are a massive upgrade from dealing with cloth diapers that require a tremendous amount of maintenance.

3. Cheap beef. If there are no religious connotations to this, that’s only a good thing right?

Who is paying for it?

In every case, the environment. And, in the case of fast fashion, workers in developing countries who are subject to very difficult conditions. The fast fashion movement is unsustainable because of the tremendous amount of waste it generates. Diapers use hundreds of thousands of trees to manufacture and are one of the top sources of landfill waste. Since most parents do a bad job actually cleaning disposable diapers before dumping them (even if they’re asked to do so on the label), all baby waste on the diapers create a massive bio hazard as they seep out of landfills into the ground water. Cloth diapers are not all that better either – their water usage makes them just as bad. And, beef has among the worst carbon footprints possible.

The Economic term for these is “externalities.” Every one of these has negative externalities. Every one of these seems good for the customer in the short term but has really bad consequences in the long term.

So, what can we do?
1. Look for and support alternative solutions. Counter fast fashion with slow fashion – buy your clothes and actually keep them for a while. When you are done using them, donate to people who need it more than you. Don’t just use biodegradable diapers – pay for a service to compost them. Eat less beef.

All of these will cost us a bit more in the short run. Maybe we’ll find ways to make space for them by cutting other less necessary expenses.

2. Be aware of your own carbon footprint by asking – who is paying for this? It is hard to be perfectly “green.” But, we can all be a lot greener and reduce negative environment externalities in our lives. Small actions, over time, can have big impact.