Thursday, February 17, 2011


Bureaucratic complexity leads to a death-spiral collapse; self-orhanizing complexity retains the assets of complexity and the adaptability of organic networks.

Three classic books address how increasing complexity leads to systemic collapse:

The Collapse of Complex Societies


Collapse: How Societies Choose to Fail or Succeed

The basic idea is that increasing complexity is advantageous up to a point, and then the costs of maintaining that complexity exceed the carrying capacity of the now bloated and resource-hungry system. Ad hoc solutions attempted by the Elites include war (conquer more resources to fill the gap), replacement of Elites by other Elites (Meet the new boss, same as the old boss) or exaggerated religious rituals (magical thinking).

A Physicist Models the City:


The danger, West says, is that the inevitable decline in profit per employee makes large companies increasingly vulnerable to market volatility. Since the company now has to support an expensive staff — overhead costs increase with size — even a minor disturbance can lead to significant losses. As West puts it, "Companies are killed by their need to keep on getting bigger."

I recently addressed the systemic tendency of bureaucracies and fiefdoms to expand via the ratchet effect and then implode in a stick-slip event as the underlying instability is masked until the system gives way. Dislocations Ahead: The Ratchet Effect, Stick-Slip and QE3 (February 14, 2011)

In Survival+, I describe the systemic drive within complex bureaucracies to maintain the status quo at all costs: full spectrum defense of the status quo and asymmetric stakes in the game.

In the first, the bureaucracy organizes all its resources to defend itself against encroachment by other fiefdoms (internecine conflict between protected fiefdoms) and outsiders; it does so with desperate vigor because the employees and managers have a keenly asymmetric stake in the game of allocating resources: if their fiefdom loses resources, their livelihoods and perks vanish.

Thus, outsiders rarely muster the political power needed to over-ride these highly motivated forces of bureaucratic over-reach. For examples, we need look no further than the sickcare system, in which an outrageously costly week stay in a hospital has jumped from $10,000 to $120,000, or the Pentagon, where every new weapons system costs twice as much as the weapons it replaces (the F-35 fighter aircraft cost $110 million each, and perhaps as much as $150 million, replacing the Super Hornet F-18 E/F that cost $57 million each), and cities, which responded to the boom of the 80s and 90s by embarking on hiring sprees and limitless "sweeteners" to public labor unions and employees.

San Francisco offers one example. Though the city's population expanded by a modest 7% and inflation added 17% to costs, the city's budget jumped 70% and its payroll rose 30%. Having extended its complex bureaucracy into the stratosphere, the city is responding by raising fees on all sorts of trivial citizen activities.

Cities Slap Fees on Everything: Flailing Desperation and Financial Hara-Kiri (June 24, 2010)

The San Francisco budget grew by 70 percent between 1996 and 2003—three times faster than inflation, from $2.9 billion in 1996 to $4.9 billion in 2003. The 2010 budget is $6.5 billion, a 33% increase in seven years that is almost double the 17% percent rise in total inflation of that time span.

The city has more than 32,000 employees. From 1996 to 2003, its workforce grew by 30% while population grew by only 7%. That is one city employee for every 25 residents. Police and fire protection costs per resident are double other major cities such as San Diego.

More than 30% of city employees make in excess of $100,000 in 2009 (not including benefits). According to the report, pay scales are roughly 20%-30% higher than comparable regional compensation.

The unprecedented rise in the stock market saved the city $100 million in pension payments in the late 1990s, a stellar performance which was then baked into future revenue expectations. The stock market has essentially treaded water from 2000 to 2010, and now the promises made in an era of lavish stock market returns in the city pension funds must be paid out of the dwindling general fund.

A recent report, Pensions: Beyond Our Ability to Pay revealed that the city will have to increase its contributions to its employees’ pensions by over 50 percent by 2011. Due to the demographics of an aging Baby Boom-heavy workforce, half of the city’s workforce will be eligible for retirement in the next five years.

Just as large, complex bureaucratic corporations have vanished without a trace once their overhead costs exceed their carrying capacity, so too will cities inevitably go bust as the immensity of their insolvency becomes inescapable.

The same can be said of the entire Federal government, which has added $1 trillion to its overhead in recent years even as revenues fell. Now the budget exceeds $3.8 trillion while revenues are at best $2.3 trillion, creating a structural deficit of $1.6 trillion-- the expected deficit in 2012.

Cuts of a modest $100 billion are met with howls of pain, and the Federal fiefdoms are increasingly devoting their resources to self-protection rather than pursuing their mission.

Even if cuts of $100 billion are made, expenses in the Central State complex will rise by $200 billion annually without any special effort being made: that's the nature of bureaucratic complexity.

There is another type of complexity, one based on the organic model of self-organization and self-regulation. An interesting example of a large-scale self-organizing enterprise is Bombay's (India) unique system of lunchbox deliveries: Dabbawalas, 5,000 delivery people working seamlessly to delivery tens of thousands of lunches to office workers for a very low cost per lunch.

The system has no bureaucracy; it operates a network that is moving from word-of-mouth communication to SMS (texting). Regardless, the underlying network is self-organizing and self-regulating: no bureaucracy is needed to instruct the delivery people, organize their routes or enforce countless regulations on their conduct.

As a result, the cost remains very low.

Furthermore, if the system encounters problems, it draws upon the network for solutions, rather than a high-cost, complex central authority bureaucracy.

Bombay Dabbawalas go high-tech (from 2006)

Indeed the Dabbawala's method of lunch delivery is unique. Their origin dates back to the 1890s, a period when Bombay saw an influx of people from various communities and regions of India migrating to the city to seek livelihood. According to the Association, there were no canteens or fast-food centers then, and those who could not take a packed lunch from home since they had to leave early invariably had to go hungry.

For over 115 years these lunch deliverymen who were subsequently started to be called Dabbawalas have been collecting lunch packed in three or two-tier metal boxes (called dabbas) from subscribers' homes and delivering them to their workplaces.

Today the 5,000 Dabbawalas make about 200,000 lunch deliveries in the city and have become famous for their clockwork precision and efficiency. Reportedly their mistake rate is just 1 in 16 million deliveries, which caused the Forbes Global magazine to award its Six Sigma certification in 2001. According to Forbes the Dabbawalas work with 99.999999 percent accuracy.

But besides the accuracy rating, the Dabbawala supply-chain system has also attracted interests from global educational institutions and think tanks for its complexity.

In fact, some even say that the Dabbawalas work like the Internet. Just like the Internet, where voice or data files are sliced into tiny packets with their own coded addresses that are then ferried in bursts, independent of other packets and possibly taking different routes, across the world, the Dabbawalas too work with packets in a similar manner.

They collect lunch boxes from homes in the morning and take them to the nearest railway station. From there each of the boxes that is coded according to the station of origin, the Dabbawala team at the collection and delivery point, and the destination, are sorted out and taken to the next intermediary stations, where they are sorted out again for area-wise distribution and delivery. So a single lunch pack could change hands three to four times in the course of its daily journey, "yet they get delivered without a mistake since they are so well coded," says Manish Tripathy, the chief information officer who looks after the Association's technology functions.

Small wonder then, that the world in general too finds the Dabbawalas fascinating. For instance the Berkeley University in California teaches the logistic system of Dabbawalas as a case study in one of their business management programs and many Indian business schools and industry associations have the Dabbawala logistics system in their case-study agenda.

In 1998 two Dutch filmmakers, Jascha De Wilde and Chris Relleke, made a documentary called "Dabbawalas, Mumbai's unique lunch service" and in 2001, the Christian Science Monitor, the Boston-based newspaper, covered the Dabbawalas in an article called "Fastest Food: It's Big Mac vs. Bombay's Dabbawallahs."

Unfortunately, I have been unable to locate a copy of this documentary.

Thus complexity can remain an asset, as long as it is self-organizing, self-correcting and self-regulating. A bureaucracy's systemic response to any challenge or threat is always the same: devote precious resources to self-preservation above all else. Thus the responses needed to save the system never receive the resources they need to be successful, and the bureaucracy's complexity and drive for self-preservation dooms it to collapse.

Complex self-organizing networks like the Dabbawalas, on the other hand, operate more like an ecosystem, evolving rapidly to systemic change without a Central State or management imposing "solutions."

As former Sun Microsystems honcho Scott McNealy said circa 2000: the network is the computer. For the Dabbawalas, their network is the innovator, the management and the adaptive ecology in which they operate and live.

The Dabbawalas are adapting social media and modern communication technologies to serve and extend their network. Those technologies are highly leveragable in such a self-organizing network.

Thank you, CNF, for the information on the Dabbawalas.

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