When Apollo 15 returned to Earth from the Moon, three parachutes were supposed to retard the speed of the module containing the astrodnauts. One of the parachutes failed – but because the design included an extra parachute, all the astronauts landed safely.
As we have seen in recent months, sometimes things can get damaged. Unusual events can disrupt suppliers. This is obviously true in the case of pandemics, but can also be true in the case of other natural disasters – floods, earthquakes, volcanos, fires and so on.
These disruptions are exaggerated by the perverse impact of laws against price gouging. If we artificially try to keep prices low through the use of force, then suppliers have no incentive to provide resillient services. If it costs extra money to provide a resillient service (eg, by having two smaller plants rather than one, larger and more efficient plant) and we prohibit resillient suppliers from being reimbursed for their investment, then they won’t invest in more resillient services.
In the case of disasters and other unusual events, we have a choice between reliability and cheap. It seems that we cannot have both.
American security leader Bruce Schenier has written about these issues in the context of security:
First, we need to enforce antitrust laws. Our [American] meat supply chain is brittle because there are limited numbers of massive meatpacking plants — now disease factories — rather than lots of smaller slaughterhouses. Our retail supply chain is brittle because a few national companies and websites dominate. We need multiple companies offering alternatives to a single product or service. We need more competition, more niche players. We need more local companies, more domestic corporate players, and diversity in our international suppliers. Competition provides all of that, while monopolies suck that out of the system.
The second thing we need is specific regulations that require certain inefficiencies. This isn’t anything new. Every safety system we have is, to some extent, an inefficiency. This is true for fire escapes on buildings, lifeboats on cruise ships, and multiple ways to deploy the landing gear on aircraft. Not having any of those things would make the underlying systems more efficient, but also less safe. It’s also true for the internet itself, originally designed with extensive redundancy as a Cold War security measure.
With those two things in place, the market can work its magic to provide for these strategic inefficiencies as cheaply and as effectively as possible. As long as there are competitors who are vying with each other, and there aren’t competitors who can reduce the inefficiencies and undercut the competition, these inefficiencies just become part of the price of whatever we’re buying.
The government is the entity that steps in and enforces a level playing field instead of a race to the bottom. Smart regulation addresses the long-term need for security, and ensures it’s not continuously sacrificed to short-term considerations.The Security Value of Inefficiency
We can see that the best way to have reliable services – of literally anything – is to have a diverse group of suppliers. When there are multiple suppliers in competition with each other, we are able to withstand any one operator withdrawing.
This makes sense when we compare the food supplies of Singapore and North Korea. Because Singapore draws its food supplies from a huge number of different places, there is no credible chance that the people of Singapore will ever suffer from mass starvation. On the other hand, North Korea relies on an idiotic policy of “self-reliance” and food independence. By only sourcing food from within their own national boundaries, they are less vulnerable to the (relatively steady) international trade system, but they are hugely more vulnerable to the weather, pests and localised problems that might arise locally.
This lesson is important for the Isle of Man – we need a diversity of suppliers to have a strong and reliable service: for food, for air services, for sea connections, and so on. Monopolies are fragile, and as we face challenges in the future, we need to be resillient.
Image: NASA – The capsule of Apollo 15 descends under only two good parachutes. Because the parachutes had redundancy, a single failure was not enough to kill the passengers.