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Earl R. Smith II. PhD

(Read More From My Blog)

When I was at the Sloan School of Management at MIT, I had the privilege of studying with Prof. Jay Forrester the father of systems dynamics. His focus was on the understanding of the behavior of complex systems. Two insights came out of his early research. The first one was that solutions in complex systems are almost always counterintuitive. As an example, when he modeled the real estate market in Boston in an effort to analyze the impacts of public policies and discovered that the way to make affordable and quality housing available to the poor was to facilitate the construction of luxury housing. With a new stock of luxury housing available, the wealthy would move up and, subsequently, every level of society would do the same. The result was that the poor moved into neighborhoods and housing stock that were a more desirable alternative to the massive housing projects which then passed for new construction of affordable housing.

The second insight, and the one I want to focus on, was that second and third level effects defined the experience of people inhabiting complex systems far more than a primary objective. In simple terms, what that means is that a policy designed to do something has, by its nature, a ripple effect in a complex system. This ripple effect generates second and third level effects. So, as an example, if the objective of a policy is to improve a particular area with in a complex system, a secondary effect might be to damage interests elsewhere in the system. In many cases the damage created is much larger than the benefits achieved.

As examples, I would suggest three. The first is the rather simpleminded approach that the Bush administration took when they decided to deal with Iraq. With the principal goal of toppling a dictator within the context of the son finishing what daddy started, all sorts of unintended consequences began to emerge. People within the administration began manufacturing rationalizations and propaganda to support the central intent of the policy. Commercial interests quickly realized that it was to their advantage to advance the notion that the dictator had to go. There were, after all billions of dollars now available for defense contractors. War and chaos open up such opportunities. Huge amounts of cash were shipped to Iraq and subsequently lost. Corruption spread both in terms of unethical business practices and the dispensing of favors to favorites. Young Americans died senselessly, treasure was wasted on a war that never should have been and could not be won, the American taxpayer were saddled with ever-increasing debt, there was no effective oversight or control of the process and the profiteers enjoyed wave after wave of revenue. All of these consequences were not central to the original policy but flowed directly from it.

My second example is an act during the Clinton administration which started out with high sounding objectives and ended up generating the greatest financial crisis since the Great Depression. For many years an act of Congress had separated the industries of investment banking and traditional banking. The latter took deposits, made loans, generated mortgages and generally had a relationship with their depositors. The former was in the business of dealing with the investment objectives of the very wealthy. They identified and/or generated investment opportunities and generally managed the wealth of their clients. In an attempt to increase homeownership and make mortgages more available, the Clinton administration tore down the partition between these parts of the banking community.

Michael Lewis and others have documented the results extensively so I don’t intend to rehash them here. The long and the short was that, directly because of the action during the Clinton administration, investment banking turned into a casino operation. Wall Street turned from a primary focus on equity to a focus on debt. It manufactured and marketed a bizarre range of debt instruments. One of the major drivers of the surge that created the financial meltdown was their ability to enter into arrangements with traditional banks and subsequently manufacture financial instruments which found a ready market with their clients.

As a direct result of the policy, not only did Wall Street start to look more like a gambling casino but the affiliated industries began to be corrupted. The rating companies whose job it was to pass judgment on the quality of a given investment began to apply AAA ratings to assemblages of junk mortgages. Regulators, whose principal job was the oversight of an industry critical to the health of the US economy, increasingly turned a blind eye to an obviously building crisis. Politicians, who were elected by the people to protect their interests, decided that campaign contributions were more important than their obligations to their constituencies - or to put it another way, they decided that the campaign contributors were actually their constituency. Finally the justice system decided that, although fraud had clearly been committed, few of the people involved should actually face charges and fewer still should actually go to jail.

My final example focuses on the evolution of what has loosely been called the “press”. For many years it was thought that commercial companies should not own news outlets. The guiding principle was that such companies would have interests which might impact the way the news was reported. The primary sources of news were newspapers, radio and the three major television networks. That fundamental policy was challenged when a commercial company expressed intent to buy a news organization. This was the first major second-order effect of the policy.

As is normal in such situations, sufficient campaign contributions and lobbying efforts were arranged so that the necessary votes approving the change in policy were to be had. With the first variation from the core policy achieved, the floodgates opened and news outlets increasingly came under the control of commercial companies. This happened with broadcast television, cable, newspapers and radio stations. Within a very short period of time virtually all of the news outlets were owned by commercial interests. That’s when the first major third order effect began to kick in.

The primary objective of the original news organizations was to find and report the news. It was a point of pride that these organizations were independent of commercial considerations. But, once they were owned by commercial interests, the primary objective of finding and reporting the news became subservient to the primary objective of the commercial owner, which was to maximize profits. One of the most expensive parts of a traditional news operation is the extensive network of reporters required to collect the news. Commercial interests quickly realized that they could substitute the “talking head” model for this network and significantly improve profits. They also found that they could improve profits by substituting opinion for news. Finally, and this was the most potent way to improve profits, they found that they could report packaged materials supplied by interested parties as the news.

All of this turned the idea of the Free Press enshrined in the First Amendment to the Constitution into a sadistic joke. Now it’s acceptable for what passes as a “news outlet” to be openly biased. Now it is acceptable for these “news outlets” to provide something now referred to as native advertising (which is advertising that has been produced so as to appear to be news) without violating any ethical standards. Now it is acceptable for every standard, including ethical standards, to be reduced to a question of profitability.

The cumulative impact of the almost total corruption of the press has been that citizens are no longer informed but propagandized. News outlets are divided into ideological centers which provide predigested red meat for their ideologically narrow consumers. A movement which began with the request by a commercial company to buy a news outlet has ended up being a major contributor to the divisiveness and division which presently characterizes American society.

If there is a lesson to be drawn from these examples it is that simple minded solutions are dangerous within complex systems. It is easy to believe that by doing this we will end up achieving that but the truth is considerably different. By doing this we achieve that (maybe) and that and that and that and that and that and that and that. This means that we have to evolve a more sophisticated understanding of complex systems. It also means that, if we don’t evolve such an understanding, those complex systems which we are increasingly vulnerable to will generate more and more second and third level of facts that will almost certainly seriously imperil the future of the human race. Personally, I am not optimistic. Human beings have never demonstrated a particular competency for such an understanding. But one can always hope.


I look back on the first three months of my work with Dr. Smith with wonder. My journal reflects a journey of self-discovery so vast that I hardly recognize the person who wrote the first entries. It's been a year now and I am happier now than I have ever been.

PJ, Mentoring Client

"It's the most amazing experience I have ever had. I needed to find a new path. A friend recommended Dr. Smith. What was most amazing was the wisdom and perception that he brought. New vistas have opened up and, as a result, a new chapter in my life. There's no way that I could put a value on what he has contributed to my life."

Mentoring Client, CEO and Serial Entrepreneur

"Chief - that's how Dr.Smith was introduced to me and, based on our work together, I have come to understand why - helped me focus on the possibilities that I had been missing in my life. He guided through developing a new vision for my life. My life is richer because of working with him."

Mentoring Client

"Earl is a wise mentor with lots of experience. He has a great way of explaining things and getting you to look at them from another perspective. Dr. Smith is a tough mentor, but, if you can learn just some of what he knows, your life will change forever."

Mentoring Client, Deloitte

“Dr. Smith is a very different kind of mentor. If you’re looking for a warm and fuzzy adviser, this is the wrong guy for you. But if you are dedicated to change and want to be challenged by a very experienced mentor Earl may be just what you are looking for.”

CEO of Croix Connect and Host of ABC Radio’s ‘Taking Care of Business’

“Dr. Smith's mentorship has been of great value and inspiration to my personal and professional development. I felt the need to take a new direction. He helped me sort out the possibilities and showed me ones that I never considered. Working with him has been a truly life-changing experience.”

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