Rookie Business Blunders: How to Catch the Unintended Consequences of Innovation

With every great advance, there are unintended consequences. Entrepreneurship is celebrated in our society — generally for good reason — and often the unintended consequences of technological innovation or business proceedings are overlooked. What kinds of consequences are there for innovation, and what can you do to avoid participating in that cycle?

Economist Horst Siebert refers to the phenomenon of unintended consequences as the ‘cobra effect.’ As colonial rulers of India, the British grew concerned about the abundance of cobras in Delhi. Governors therefore proposed a simple economic remedy: a bounty for cobra hides. The policy was a hit; so much so, that enterprising Indians started breeding cobras just for the bounty. Seeing a suspicious uptick in bounties paid, the British eventually cancelled the scheme. Rather than keep the now worthless snakes, breeders chose to let loose the surplus serpents, causing the wild cobra population to surge past its original levels, defeating the point of the program.

Unintended Consequences and Externalities

Even the most benign, well-intended acts can have unexpected impacts. The ‘cobra effect’ would be no surprise to the French cultural theorist Paul Virilio.

“When you invent the ship, you also invent the shipwreck; when you invent the plane, you also invent the plane crash; and when you invent electricity, you invent electrocution… Every technology carries its own negativity, which is invented at the same time as technical progress.”

For Virilio, technology’s every yin has a corresponding yang, a range of unintended consequences birthed when the technology fails, succeeds beyond expectations, or is simply used in unexpected ways.

Philosopher Don Ihde argues that technologies have no fixed identities or meanings, and instead are multistable: people put tech to all sorts of uses beyond those the designer intended. GPS was originally devised for the military, but since being released to civilians, GPS has spawned thousands of products and services, each with their own consequences. Satellite navigation has killed the road atlas and clogged village roads unwisely offered as shortcuts. Person-tracking software has both enhanced and eroded personal trust, saving lost children but ruining marriages and surprise parties alike.

According to the law of unintended consequences, there will always be outcomes we overlook, but unintended does not mean unforeseeable. We can, and must, try to anticipate and mitigate the worst potential consequences.

A cousin of the unintended consequence is the externality. An externality is the economist’s label for Someone Else’s Problem, an effect that falls on someone outside the system. Passive smokers don’t choose to smoke, they are victims of a negative externality, harmed by someone else’s habit. Externalities can also be positive: one upside of public transport is that fewer pedestrians are killed by drunk drivers.

Unintended consequences affect familiar people in unknown ways, while externalities happen to people we’ve ignored. In other words, we overlook unintended consequences by not looking deeply enough, but we miss externalities because we were looking in the wrong places.

Externalities have been a sticky problem throughout the history of industry. A selfish, short-term focus has tempted many companies to harm their ecologies and futures. There’s evidence, for example, that Exxon knew of CO2’s potential climate threat in 1977, but kept it quiet, preferring that society pay the cost. Externalities also arise as a side effect of user-centered design. Focusing on fulfilling the goals and dreams of an individual user has caused tech companies to overlook impacts on non-users and wider society. Airbnb is a dream for hosts and renters, but piles negative externalities onto the neighborhood:

“At least in the short term, [Airbnb] reduces stock available for longterm [sic] renting or purchase […] Even then, though, a second externality remains: the impact on neighbors. Living next door to a permanent resident is very different than living next door to a constantly changing set of visitors that have no reason to invest in relationships, the neighborhood, or even a good night’s sleep. To put it another way, small wonder hosts and guests love Airbnb: all of the costs are passed off to the folks who aren’t earning a dime.”

Ben Thompson

The best way to quash externalities is, of course, to internalize them. Economists, as is their habit, typically suggest we do this with taxes or penalties. Many governments respond to environmental externalities with a polluter-pays principle, loading the cost onto the responsible party and nullifying the externality. Alternatively, they may choose to subsidize positive externalities, such as funding cycle-to- work schemes that also increase public fitness. If Airbnb chose to prioritize the neighborhood’s wellbeing — whether under consumer pressure, threat of fines, or as a result of some pang of social conscience — the externality would vanish. The community would become Airbnb’s problem and neighborhood-friendly policies would quickly follow.

Resolving externalities means we first have to recognize them, but often they lie in the shadows, falling on ignored minorities or existing only in a hazy future. It is by minimizing externalities that we evade some of the unintended consequences of innovation, thus allowing us to do business as ethically as we can and serving the widest possible audience.

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