Systems Thinking – Part 1
Jim Schibler
Product Management Leader & Career Consultant — Bringing Clarity to a Complex World
There’s never any shortage of problems in the world, and for many problems, we come up with solutions that seem straightforward and obvious, but turn out to be ineffective. We widen roads to ease traffic congestion, and find that traffic and congestion only increase. We implement programs to incentive farmers to grow certain crops and to ensure that they can make a profit, only to end up making those farmers totally dependent on subsidies—and in many cases, paid to NOT grow crops. We threaten to penalize companies for outsourcing jobs to countries with cheaper labor, while at the same time we incentivize businesses to maximize profit, and choose to buy low-priced imported goods instead of ones made in our own country.
Poor outcomes are often a result of focusing attention and effort on a particular symptom or component, without appropriate understanding of how the symptom or component is an element of an entire system, and how that system’s inter-related elements affect each other. Only when we view the system holistically can we make good predictions about how the system will respond to a change.
In this article (the first in a series), I’ll give a brief overview of Systems Thinking, and discuss some examples of how Systems Thinking can increase our awareness and understanding of cause and effect, of connections both obvious and subtle, and of potential unintended consequences. The examples in this article involve topics related to the U.S. at a national level; subsequent articles will consider topics that have a more global context.
Trigger Warning: Some of the topics in the rest of this article involve sensitive issues about which many people hold very strong views. I bring them up not to state any positions or incite reactions, but only to show how systems thinking can help improve understanding of some of the complexities that underlie issues that may seem simple on the surface. If you do not want to risk being triggered about sensitive issues, you should not read further.
The Discipline of Systems Thinking
Systems Thinking is a way to develop understanding of complex systems by considering them holistically and examining relationships between their components, rather than focusing on the individual components themselves. Leaders in Systems Thinking, such as Peter Senge (author of The Fifth Discipline) and Russ Ackoff (late professor emeritus in Management Science at the Wharton School), have challenged us to consider whatever thing we look at not in isolation, but in relation to other things with which it interacts. Systems Thinking has applications in all kinds of fields: product design, engineering, biology, economics, transportation, organizational design, politics, and many more.
Causal Loop Diagrams
A tool that can help us visualize the interactions between the components of a system is a Causal Loop Diagram. A loop within the diagram can be either Balancing (tending to balance or resist a change) or Reinforcing (tending to further a change). A spring provides an example of balancing behavior; the harder you push on it, the more it pushes back. A wildfire often follows reinforcing behavior; as the fire grows, it becomes hotter, and it grows at an ever-increasing rate until it exhausts its fuel source or gets contained by other factors.
The Causal Loop Diagram diagram below represents a simple model of population, such as the number of deer in a geographic area. The current population is affected by births (in a Reinforcing loop) and deaths (in a Balancing loop). Both the number of births and the number of deaths are affected by the size of the population, but there is a delay between a change in population and the effect on births or deaths; in contrast, a birth or death immediately changes the population.
The rate of births is determined by the mating behavior and (most significantly) by the size of the current population. The rate of deaths is determined by the limitations of the food supply, by prevalence of diseases, and by rates of predation. Removal of predators (for example, ranchers killing off wolves to protect domestic livestock) can lead to rapid overpopulation of deer. Overpopulation can strain food supplies, leading eventually to increased death rates through starvation, thus bringing the population back into balance with available resources.
By mapping the interactions of system components in a Causal Loop Diagram, we can get a better understanding of what is likely to happen when a change is made to a system. I won’t provide such diagrams for the situations discussed below, but you might want to try drawing some to gain a deeper understanding of the relevant systems.
The Market for Gasoline
2022’s record-high prices for gasoline have led many people to speculate about causes, and to blame politicians, oil cartels, refiners, or retailers. Though that’s natural human behavior, it fails to take into account the complexity of large system made up of many components, and rarely do people think much about their own impact on the system.
Gasoline prices are driven by laws of supply and demand in a global market for petroleum products, one in which the volume is huge and the balance between supply and demand is fairly delicate. A sudden surge in demand causes prices to spike, because supply cannot be increased rapidly; conversely, a big drop in demand leads to lowered prices and cutbacks in production. In the first year of the COVID-19 pandemic, demand for gasoline dropped dramatically as people sheltered at home, and refineries reduced their output; more recently, as people began commuting and traveling again, gasoline demand surged much faster than oil extractors and refiners could expand capacity.
To get a realistic picture of the gasoline market, it’s important to consider prices not just in absolute terms, but also in relative terms. For example, Europeans have long paid about twice as much for gasoline as Americans, due to local supply and demand conditions. And looking over the last century, gasoline prices have trended upward when measured in current dollars, but prices adjusted for inflation actually followed a downward trend, reaching a minimum around 1998. (Deviations in the trend are explained by the oil embargo of the 1970s, and the wild swings in supply and demand associated with the COVID-19 pandemic.)
Consumers who urge politicians to reduce gasoline prices fail to understand how little power the politicians have to affect prices. Because U.S. contributes only about 15% to the world oil supply, even dramatic increases in U.S. production would have very little effect on total supply, and thus very little impact on prices. New oil wells and refinery capacity can’t be added in a few days; there’s a lag of many months between the onset of projects and the time the products get to market. Some people think we should tap the U.S. Strategic Petroleum Reserve, but dumping all of it onto the market would add less oil to the market than the U.S. consumes in a month, so such a tactic won’t bring down prices much.
It’s appropriate to consider another part of the overall system related to demand. Following the shocks of the oil embargo of the 1970s, consumers began preferring smaller, more efficient cars, and the U.S. EPA implemented stringent fuel efficiency standards for passenger cars, but less stringent standards for trucks. The auto industry responded by modifying trucks to make them more similar to cars, lengthening cabs while keeping a truck chassis that allowed them to skirt the EPA’s passenger car rules. Thus was born the highly profitable Sport-Utility Vehicle (SUV) category, which the auto industry successfully marketed from the 1990s onward, when consumers had stopped worrying about gas prices. Pursuing higher profits, automakers kept offering ever-bigger SUVs, such as the Ford Excursion and GM’s Hummer H2. Sales of SUVs overtook sales of sedans; in 2019, the ratio was 2:1. The recent hikes in gasoline prices is hitting SUV owners especially hard; at $6/gallon, the 10.5 mpg Hummer H2 costs $192 to fill up, and can only go 336 miles on that 32-gallon tankful.
Consumers who consider the entire system affecting gasoline prices should realize that most of its factors are outside of their control. The one thing they can do is reduce their own demand by changing their own behavior: driving their current car less, using a more efficient vehicle, switching over to an electric vehicle, using public transportation, cycling, etc.
U.S. Federal Income Taxes
For good reasons, U.S. taxpayers complain that figuring their federal income taxes has become a convoluted, painful process, and gets worse every year. Systems thinking can help us understand why this is the case. The complexity of the tax system isn’t just a happenstance—it's a consequence of powerful forces acting on the system.
One such force is the difficulty legislators have in getting funds appropriated for new programs. Though the proposed programs themselves may be popular, anything that affects current budgets or calls for new taxes typically faces stiff resistance. To get around those obstacles, politicians often propose tax credits as a way of incentivizing individuals and businesses to take specific actions (such as installing renewable energy systems). However, every one of these tax credits adds complexity to the tax code, and also to the forms that people need to complete in order to file their taxes. Keep this in mind whenever you hear a politician suggesting new tax credits as part of some new program proposal.
Now that innumerable special interests get preferential tax treatment, they will strongly resist changes that could cause them to lose that advantage. And another special interest group that has developed over the past 50 years benefits not so much from a specific tax provision, but from the increasing complexity of the tax code overall: businesses involved in tax calculation assistance. Companies like Intuit and H&R Block earn are highly dependent on revenues from individuals and businesses that do not have the time or expertise to navigate all the complexities of the tax code. They lobby heavily against any initiatives that could simplify the tax code and reduce the need to hire tax preparation specialists.
Clearly, the system will not get better unless a large number of people who suffer under the status quo can amass enough political power to overcome the resistance created by people who benefit from the status quo.
The U.S. Political System
Increasing polarization in U.S. politics is not just a perception; it’s backed up by survey data from Pew Research. This polarization threatens to weaken the country, as divisions become sharper and more bitter, and opposing factions become less willing and able to to reach compromises that can satisfy the majority of citizens.
It’s very easy to assign blame for the situation to voters and politicians who hold opposing views, and blaming behavior is often reinforced by a sense of righteousness, by tribalism, and by increased voter dedication, but blaming only increases polarization. To understand the roots of the problem, it’s important to look at the overall system.
One factor leading to polarization is the dominance of just two political parties, which has been the situation since Civil War times. Though other parties exist, the two-party system is a duopoly that shuts out competition by preventing small parties from gaining enough voters to secure any seats. A key reason for this is the structure of U.S. elections, in which each voter gets only a single choice, and in which a candidate can win a seat with just a plurality of the votes (rather than a majority of them). Because political parties can win with less than half of the total vote count, they do not need to appeal to the broad base of voters; they only need to ensure that their candidate gets more votes than any other candidate. In a close race, a “spoiler” (consider H. Ross Perot or Ralph Nader) can draw away enough votes from a leading major-party candidate to tip the election to the opposing major party.
Voters with moderate views or with mixed views (such as preferring conservative fiscal policies together with liberal social policies) often find that their ballots have no viable candidates who align with their preferences. Because these voters are reluctant to risk squandering their one vote on a minor-party candidate who is very unlikely to win, they end up voting for whichever of the two major parties is less distasteful to them.
(The two-party system does have some positive attributes; it produces a clear winner, and the elections are relatively simple to run. In contrast, countries with multi-party systems, and those using parliamentary systems with proportional representation, often have difficulty building coalitions needed to form a government.)
Another cause of increasing polarization in the U.S. is the system of single-party primary elections, whose outcomes tend to be driven by the most dedicated (and relatively extreme) party voters. Since moderate candidates tend to lose to more extreme candidates in the primaries, only the latter advance to general elections.
Yet another factor skewing U.S. politics is the practice of having legislatures draw congressional districts. The resulting gerrymandering enables elected officials to give themselves electoral advantages over potential challengers—in effect, the politicians are choosing voters, instead of the voters choosing politicians.
And yet another issue with the U.S. political system is the way campaigns are funded. Campaigning is expensive, and little or no public financing is available, so only candidates who are wealthy or who can raise large amounts of money can run effective campaigns. Candidates become beholden to the interests of wealthy donors, who become much more able to wield much more influence over policy than other voters.
You may be wondering what might be done to reverse the trend toward polarization and produce better outcomes. Some deep thinkers have analyzed the system, and come up with some concrete recommendations for changes that could help. These include:
Details of these proposals are discussed in an enlightening episode of Freakonomics.
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Given the complexities of the system, and the powerful interests who benefit from the way it is now, changing the system will not be easy. However, if a growing number of voters become aware of the current problems and potential changes that could reduce them, it may become possible to overcome resistance and effect change.
Illicit Drug Policy
The War on Drugs in the U.S. has been widely considered a failure. Illicit drug use and related violence are still high, and overdose deaths have reached new peaks in recent years. Mass incarceration of non-violent drug users — which has demonstrably been skewed toward racial minorities —has severely disrupted communities and caused problems that affect generations.
A fundamental assumption underlying the War on Drugs is that the prospect of punishment will deter people from using or trafficking drugs. The reality is that few drug users and traffickers believe that they will ever get caught, so potential consequences are not an effective deterrent. Furthermore, completely banning addictive substances does not reduce demand. It does, however, drive up prices, create a highly profitable black market, and increase crime rates. Theft and violence increase, as desperate addicts resort to criminal behavior to raise money to obtain drugs, and drug dealers battle for dominance in the illicit market. (The HBO series The Wire provides a gritty, unvarnished look at the illicit drug trade and how it relates to other systems that keep it entrenched.)
Of course, issues have been made far worse by the over-prescribing of pain killers (notably OxyContin), which got many people who thought they would never use illicit drugs hopelessly addicted to opiates. Unable to suppress withdrawal symptoms when they could no longer obtain opiates by prescription, thousands turned to street markets to feed their addiction. And more recently, opioid overdoses have skyrocketed because of the proliferation of the cheap but extremely dangerous synthetic opioid fentanyl, whose therapeutic index and duration of effect are very low. In many cases, drug users are unaware that street drugs they are buying have been laced with fentanyl, leading to deadly results.
Some countries, such as the UK and Portugal, have achieved better outcomes by treating drug addiction as a health problem rather than a crime problem. By removing some of the stigma from drug addiction, reducing harm through needle-exchange programs, and providing easily accessible support services to help addicts manage their disease, the countries have reduced addiction rates and crimes associated with supply. Portugal managed to drive down its heroin addiction rate by 2/3 over 20 years; in 2017, its drug-induced death rate was 5.5 times lower than the European average, and over 50 times lower than the U.S. rate.
Understanding the overall system and how people will behave within it is crucial for coming up with effective solutions to societal problems related to illicit drug use.
Abortion Law
In recent years, U.S. state legislatures have been passing laws that challenge the long-standing precedent of Roe v. Wade, a landmark law that guaranteed women legal access to abortion. Regardless of your views on abortion, it’s important to understand the probable outcomes of rescinding Roe v. Wade, and systems thinking can help us predict those outcomes.
As with attempts to prevent people from using illicit drugs, making abortion illegal is unlikely to stop women from seeking abortions. The total number of abortions that are performed may be reduced somewhat, but is unlikely to be driven down dramatically; instead, abortions will be done in clandestine (and often unsafe) ways, and counting the number actually performed will become much more difficult.
Banning abortion without reducing the number of unwanted pregnancies will likely lead to a whole range of undesirable outcomes:
Thus, people who are morally opposed to abortion might be more successful at reducing the incidence of abortion — and get better overall societal outcomes — by focusing on activities that reduce unwanted pregnancies (sex education, promotion of contraception, family planning services, anti-rape measures, etc.) than by attempting to prevent abortion through legislation.
The U.S. Medical System
Compared to 10 other high-income countries, the U.S. spends far more on healthcare, yet has the lowest life expectancy, highest chronic disease burden, and highest suicide rate.
The high expenditures have real consequences; medical bills are the #1 cause of personal bankruptcies in the U.S., even though 75% of people involved in such bankruptcies had at least some medical insurance.
Most countries provide at least basic health care through a national system, but in the U.S., a system evolved in which most people depend on medical coverage provided by employers. This has led to a market that is complex, opaque, and inefficient.
Here are some of many factors that drive up medical care costs in the U.S.:
1. The Profit Motive
Most medical-related products and services are delivered by for-profit entities (including medical providers, hospitals, pharmaceutical companies, and insurers). Many such entities are public corporations that are obligated to maximize shareholder value, and are thus under pressure to continually achieve higher profits.
2. Fee-for-Service Structure
In the U.S., doctors and hospitals are paid for each service and product provided; the payment is connected to inputs, not outcomes. Combined with the profit motive, this creates a strong incentive to increase use of products and services.
3.?Opaqueness of Market
Most U.S. citizens receive healthcare coverage through their employer, and are not billed directly for use of healthcare services. Few healthcare consumers have any visibility of the costs of individual procedures, nor any sense of how costs compare between different providers. The lack of transparency limits price competition.
4.?Malpractice Lawsuits
Doctors are at risk of being sued for malpractice, and must carry expensive insurance to defend themselves against claims. Fear of malpractice accusations leads doctors to perform more tests than they would without that concern.
5.?Use of Expensive Technologies
The U.S. has some of the best medical technology in the world, but much of it is expensive to use.
6.?Inefficiencies in Authorization and Payment Processes
The fragmented nature of the U.S. medical insurance system means that medical providers must deal with a large number of insurers and plans. Insurance companies have built-in incentives to deny claims and delay payments, and no real incentive to process claims efficiently.
In terms of outcomes, there are several reasons they aren’t better:
Clearly, major changes will be needed to improve the U.S. medical system, and interests that currently benefit from the status quo will tend to resist changes that threaten profits. Nevertheless, medical care costs cannot spiral upward forever; at some point, the pressure from individuals and employers will get high enough to force change.
One initiative that is starting to take hold in some parts of the U.S. is a move from a Fee-for-Service model to a Population Healthcare model. In the latter, a medical provider is paid a pre-determined amount to keep a population of patients healthy. If the provider can do so effectively and efficiently, the provider gets to keep any money saved from the pre-paid amount. If the provider is ineffective or inefficient, the provider is responsible for covering any incremental cost of services needed to keep the population healthy.
By tying rewards to outcomes, the Population Healthcare model promises to provide better results for patients, while still providing a way for providers to make good profits.
Systems Thinking: A Tool for Better Understanding
I hope this article has helped you think more deeply about some big topics that are often talked about in simple sound bites, and given you some appreciation for the complexity of systems that may appear simpler than they actually are. Only by understanding the complexity can we make good predictions about how the components will respond to changes, and what kinds of changes we should try to make to produce better outcomes.
Part 2 of this series discusses how systems thinking can help us gain greater awareness of some of broader impacts of choices we make as individuals.?
Jim Schibler leads product management teams that deliver software experiences customers love, and he coaches professionals on job search and career management. He writes on a broad range of topics; see more of his articles at his website.
Copyright ? 2022 ?Jim Schibler — All rights reserved
Image credits: Untitled Mobile by Alexander Calder courtesy Widewalls.ch; Traffic Jame courtesy B137 at WikimediaCommons; Gasoline Price Chart courtesy InflationData.com; Hummer H2 courtesy Alexandre Prevot at Flickr.com; 3D elephant & donkey courtesy DonkeyHotey.com; Gerrymandered Ohio Map courtesy Ibagli at WikimediaCommons; Heroin preparation courtesy The Blackberry Center; Abortion Protest signs courtesy Manuel Balce Cenetay (AP); Coronavirus Swab courtesy StockSnap.io; MRI courtesy NIH at flickr.com.