180 lines
8.0 KiB
Markdown
180 lines
8.0 KiB
Markdown
---
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created_at: '2017-07-31T12:13:55.000Z'
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title: Why the Best Doesn't Always Win (1996)
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url: http://www.nytimes.com/1996/05/05/magazine/why-the-best-doesn-t-always-win.html
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author: plainOldText
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points: 66
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story_text:
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comment_text:
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num_comments: 34
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story_id:
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story_title:
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story_url:
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parent_id:
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created_at_i: 1501503235
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- story
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- author_plainOldText
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- story_14891191
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objectID: '14891191'
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---
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The most familiar example of path dependence is the triumph of
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Matsushita's VHS standard for videocassette recorders over Sony's
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Betamax. Betamax was first and, by most accounts, better. But Sony made
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two strategic marketing errors. To get the product out the door faster,
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it initially sold Betamax machines that played one-hour tapes -- too
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short for an entire movie. And to sell more Sony machines, the company
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chose not to license Betamax to competitors.
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VHS, introduced a year later, in 1976, played two-hour tapes. And since
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Matsushita freely licensed the technology, half a dozen other brand-name
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VHS players hit the stores in a matter of months. Sony soon countered
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with a two-hour machine, but it was too late.
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While VHS versus Betamax makes great fodder for business school
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seminars, the outcome hardly made the earth move. The stakes have been
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much higher in technologies that are now so entrenched it's hard to
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imagine the world without them. Take the automobile engine. At the turn
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of the century, gasoline was locked in a three-way race with steam and
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electric power. The Stanley Steamer was a technological marvel, setting
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a world speed record of 122 miles an hour in 1909. But the manufacturer
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priced the car as a luxury, never trying to achieve the economies of
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mass production and of "learning by doing" that might have made it the
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people's car.
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Moreover, steam's economic problems were compounded by an outbreak of
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hoof-and-mouth disease in 1914 that briefly closed public horse troughs
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and denied steam cars a convenient source of water for their perpetually
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thirsty boilers. With better technology or simply many more steam cars
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on the road, this liability would have evaporated. But car buyers had
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little incentive to make a leap of faith when plausible alternatives
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were available. One of those alternatives was the electric car, whose
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weakness was a driving range limited by the storage capacity of its
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batteries. That problem seemed well on its way to solution around 1915.
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But innovators in the battery industry were distracted by the more
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immediate need to perfect a high-amperage battery to crank the new
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electric starters in cars with gasoline engines.
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Apparently all the gasoline engine needed to triumph was a brief period
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in which its technological and price edge led to rapidly expanding
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sales. This cut production costs, which expanded sales even more -- and
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made it more convenient to fuel and service gasoline vehicles.
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Today, of course, dependence on gasoline engines is a fact of life.
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While electric or steam vehicles would reduce air pollution and
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dependence on imported oil, it would take an investment of tens or even
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hundreds of billions of dollars to leap the technological chasm. Indeed,
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California, which has mandated the use of electric cars, is just now
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facing the reality that the existing technology is wretchedly inadequate
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to the task.
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Robin Cowan of the University of Western Ontario offers a second
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cautionary tale of path dependence. The world is stuck with another
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functional, but environmentally problematic, technology: the "light
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water" nuclear reactor, whose momentary superiority over reactors that
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use inert gases led to the virtual abandonment of alternatives.
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## Newsletter Sign Up
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[Continue reading the main story](#continues-post-newsletter)
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In the mid-1950's there was no particular reason to believe that
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light-water reactors were the cheapest to build and operate. But the
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Navy invested heavily in light water, which was seen as the most compact
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and reliable design for submarines and aircraft carriers. When
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Washington pressed for a quick scale-up to commercial nuclear power
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after the Soviet Union exploded a nuclear weapon, American manufacturers
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took the route of least technological resistance.
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Advertisement
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[Continue reading the main story](#story-continues-4)
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Later, Washington used subsidies for design and manufacturing to
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persuade the Europeans to switch to a light-water standard. And once
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light-water reactors were produced in quantity, the manufacturers
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learned-by-doing, cutting costs well below those of competing designs.
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Perhaps light-water reactors would have prevailed in any event. But
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there is little doubt that a competing gas-graphite system was safer
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because it offered greater protection against catastrophic loss of
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coolant. With global warming now looming, the "lock-in" to
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atmospherically benign -- but widely feared -- light-water nuclear
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technology must count as an opportunity lost.
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If path dependence is such a big deal, why are college freshmen unlikely
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to encounter the idea in Econ. 101? Brian Arthur, a pioneer in the field
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at Stanford in the early 1980's who now does research at the Santa Fe
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Institute, blames tradition-bound economists. Put it another way: the
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"technology" of modern economics is itself path dependent, because
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economists have so much invested elsewhere.
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More important, free marketeers fear that path dependence will become a
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rationale for bigger government -- and is thus the Devil's work. If
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competitive markets do not guarantee that the best technologies survive,
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the thinking goes, surely sometime-liberals like Bill Clinton will be
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more tempted to try to pick winners.
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The twist here is that the perspective of path dependence offers no
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succor to industrial-policy enthusiasts. It was Washington, after all,
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that locked in light-water nuclear reactor technology. And it was Tokyo
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that cursed its manufacturers with a high-definition television that was
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obsolete before the first receiver was sold.
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But a world haunted by path dependence does cry out for a different sort
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of intervention. Government as the referee who makes everyone play by
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the same impartial rules is not quite enough.
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The first goal is to get government to slow down and think twice before
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setting hard-to-reverse technological standards. The Federal
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Communications Commission was criticized for dragging its feet on
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setting standards for the new high-definition television. Because it
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dawdled, however, digital technology had a chance to prove itself before
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the F.C.C. got around to writing the final rules. But the lesson also
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applies to cases that everyone would rather forget, like Washington's
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premature decision to back recyclable space shuttles over throwaway
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rocket launchers.
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The more controversial issue is antitrust -- think Microsoft. It often
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pays an individual company to set a standard by flexing its own
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marketing muscle long before a clear winner has emerged. And the risks
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of path dependence suggest that Washington would do well to slow such
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private standard-setting until competitors had a chance to strut their
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stuff.
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The Government will no doubt be called on to take a stand on some
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looming path-dependence battles: all-purpose personal computers versus
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cheaper, appliance-like "network computers" that do one thing well;
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wireless personal communications versus high-capacity cable; Internet
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software built around Netscape's browser versus software that
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piggy-backs on the Microsoft Network.
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Advertisement
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[Continue reading the main story](#story-continues-5)
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Would Adam Smith approve of venturing where the invisible hand doesn't
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have a clue? Perhaps not. But then the old guy never had to worry about
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Microsoft's clumsy software chewing up a chapter of "The Wealth of
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Nations."
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[Continue reading the main story](#whats-next)
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