Unintended Consequences (And Possibly Making Things Worse)ByRaymond D. Matkowsky
A law of Physics says that for every action there is an equal and opposite reaction. In business every decision that we make has both good and bad consequences. Before making any type of decision, you must try to anticipate the consequences of your decision. This includes previous decisions and customers’ reactions to those decisions.
Thankfully, the bad consequences are usually minor. However, every once in a while the bad consequences are not what we expected and quite serious. As an owner or manager of a business, as I said, you must be prepared to deal with these or risk even more bad consequences down the line. You must do so and quickly even if you did not anticipate such a possibility. Let me also say that no matter what country you live in or what you do for a living, the effects of unintended consequences in one location or in one industry will spread to you.
Your Father’s Status Symbol
When I think of unintended consequences, I immediately think of Cadillac®. The story of Cadillac® sales in the United States is a classic example, in my mind, of how unintended consequences can make things worse. In 1920, Alfred Sloan reorganized General Motors’ car divisions into what he dubbed as a “car for every purse and purpose.” His vision had customers buy a lower priced Chevrolet®, move to a slightly higher priced Pontiac®, then an Oldsmobile®, then a Buick® and finally reward themselves with the purchase and status of a Cadillac®. The Cadillac® was their reward for a lifetime of successful work.
This all changed in 1985. The powers that be at General Motors now wanted to sell the Cadillac® to younger customers. This was partially due to wanting to compete against imports like the BMW®. However, one of the unintended consequences was that Cadillac® sales started to deteriorate.
Early on Cadillac® sold every car the division manufactured. In 1985, the Cadillac® Division of General Motors sold 298,762 cars for a 1.95% share of the new car market. Fast forward to 2016, the division sold only 170,006 Cadillacs® for a 0.97 share of the new car market. So far, it appears that 2017 sales will be worse than 2016. The ATS and CTS models built to compete for a younger crowd were never as successful as hoped for. The younger generations did not want their father’s car and older buyers were not impressed with the loss of status.
Ethanol
In the rush to reduce fossil fuel consumption, the idea of ethanol blended fuels was conceived without any thought to the possible unintended consequences. The first consequent of ethanol production was a shortage of feed corn. Also, farmers stopped planting other crops and began planting corn instead. This raised prices throughout the food chain.
The problem was not restricted to American farmers. In México, farmers also began to plant corn and sold it to American ethanol producers. This caused a consumption problem there. There has been on and off talk about using sugar cane instead. One can now see that this would cause even greater disruptions than corn usage since sugar is used to some extent in every food product.
If you operated a fleet of vehicles, ethanol blended gasoline only offered about 70% of the power of pure gasoline. Depending on how many vehicles you operated, this raised your operating costs significantly.
There were some businesses that began to blend ethanol with diesel fuel. I do not know how these fared. But, knowing how dependent the shipping industry is on fuel economy, I imagine investors took a bath.
There were some non-automobile engine manufacturers that warned customers that their warrantees would not cover ethanol damage. Ethanol damage occurs at all blending percentages. It is just that at levels below 15%, the damage is so slow that a vehicle is junked or sold off before such damage affects performance noticeably.
Finally, the total energy usage of ethanol production, blending, and transportation exceeded that of refining gasoline. All of these unintended consequences should have been anticipated if questions were asked in the first place. They were not!
Solar Panels
As with ethanol, the quest for cheaper energy has led both homeowners and businesses to invest in solar panel installations without much questioning. Very few people are aware of the serious negative consequences of such an installation. The solar industry will not tell you what these consequences are unless you ask.
In September 2013, a meat warehouse here in New Jersey (USA) burned to the ground. Fire Fighters were on the scene in minutes. However, they allowed the building and all its contents to burn for twenty-nine hours. Why? The building was equipped with rooftop solar panels.
The fire chief would not allow his men to go up on the roof or enter the building. The fire chief, himself, said the outcome would have been different had the panels not been there. But, with them there the risks to his men were just too great.
First of all, power from the solar panels cannot be turned off. Even the light from the fire or equipment will keep the wires live. Power can be shut off from the panel to the warehouse but not from the panel to the shut off switch. Since the panels emit DC current, the hazard of touching a wire or a compromised panel is much greater.
Fire Fighters normally will try to cut strategic holes in the roof of a structure in order to vent super-heated gasses out of the building. A solar farm on the roof blocks this common technique to quell a fire.
Another problem for Fire Fighters is the weight of the setup itself. On a roof weakened by fire, a collapse is imminent. You wouldn’t want anyone standing on it or be beneath it.
Insurance companies consider solar panels themselves an increased fire risk. They also consider other liabilities such as theft of rooftop panels, environmental damage to the panels and surrounding areas, and the potential increase of a fire spreading to neighboring properties. If it is included in the policy, a rider covering the cost of lost business after a fire.
You do not want to leave your insurance company in the dark. Failure to disclose any relevant information can invalidate your policy.
If you decide to opt for solar energy, you may negate some of the unintended consequences by building your solar farm on the ground away from major buildings rather than a rooftop location. This, however, may not be a viable solution for many businesses and homeowners since it would require a great deal of surrounding acreage.
Trade Wars
Bad decisions and their unintended consequences are not limited to business alone, but can also start with government. Unfortunately, bad government decisions many times affect business performance.
In many peoples’ minds the Smoot-Hawley Tariff of 1930 was not the sole cause of the Great Depression of the 1930s but its consequences deepened and prolonged the worst financial meltdown The United States ever had.
The first mistake was the belief that the tariff would not cause any retaliation among trading partners. This was wrong and a foolish thought right from the beginning. Even heavily involved partners, such as Canada, retaliated. This retaliation caused a 50% decrease in United States exports.
The United States stock markets have always reacted to perceptions. The stock markets gave an early clue to what will happen in the future. The New York Stock Exchange crashed twice during the legislative debate on the tariffs. Stocks lost $1 billion in value the day Herbert Hoover signed the bill. The depression started seven months into Hoover’s term.
At the time a large portion of U.S. exports were agricultural products. These products took the brunt of the retaliation. Farmers could not pay back their loans to local banks, so banks in the Midwest and south failed by the thousands. Retaliation was also taken against iron, steel and other minerals with the same result. Trade policy can affect monetary conditions. The U.S. crises spread across Europe and a host of nations in South America. The trade war led to international chaos which led to foreign debt repayment suspensions. All unintended consequences!
The supporters of the tariff clearly had no idea of the kind of damage they would cause and the kind of suffering they foisted on the population. Some of the worse unintended consequences have been begun with government actions.
Decisions Always Have Unintended Consequences
I have given you four examples of unintended consequences. However, this is by no means a complete list or the most serious. The list is long. The examples occurred throughout history. Some are destined to repeat themselves.
Unintended consequences can torpedo a good plan. Consider the impact of your decisions on your customers. Consider why they buy your product. Will the changes proposed result in a situation similar to Cadillac® sales? Will they raise your operating costs or stall your business? Will these proposals force your competitors to retaliate in order to maintain their competitive advantage and cost you some business? Are there steps you can take beforehand to mitigate some of these?
It is my belief that a little time spent considering all the possible ramifications can save you quite a bit of time and money in the long run.
If you have any further suggestions, do not keep it to yourself. Help your fellow readers!
If you have any questions, comments or suggestions drop me a line at rdm@datastats.com.
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