Summary of Systems Principle

Donella Meadows was one of the authors of the Limits to Growth and Beyond the Limits studies of the world and its resources. She thought, wrote, and taught about natural systems deeply.  

I met her once at a conference on Cape Cod about The Natural Step.  I had been asked to read Wendell Berry's "Mad Farmer Liberation Front" at the opening dinner by the organizers and she was one of the presenters.  She nodded me over and showed me her notebook with a copy of the same poem.  We both smiled.

Here is the core of her thinking on systems dynamics from Thinking in Systems by Donella Meadows (White River Junction, VT:  Chelsea Green Publishing, 2008 
ISBN 978-1-60358-055-7)

Systems A system is more than the sum of its parts. Many of the interconnections in systems operate through the flow of information. The least obvious part of the system, its function or purpose, is often the most crucial determinant of the system's behavior. System structure is the source of system behavior.  System behavior reveals itself as a series of events over time.

Stocks, Flows, and Dynamic Equilibrium A stock is the memory of the history of changing flows within the system. If the sum of inflows exceeds the sum of outflows, the stock will rise. If the sum of outflows exceeds the sum of inflows, the stock level will fall. If the sum of outflows equals the sum of inflows, the stock level will not change - it will be held in dynamic equilibrium.
A stock can be increased by decreasing its outflow rate as well as by increasing its inflow rate. Stocks act as delays or buffers or shock absorbers in systems. Stocks allow inflows and outflows to be de-coupled and independent.
Feedback Loops A feedback loop is a closed chain of causal connections from a stock, through a set of decisions or rules or physical laws or actions that are dependent on the level of the stock, and back again through a flow to change the stock. Balancing feedback loops are equilibrating or goal-seeking structures in systems and are both sources of stability and sources of resistance to change. Reinforcing feedback loops are self-enhancing, leading to exponential growth or to runaway collapses over time. The information delivered by a feedback loop - even nonphysical feedback - can affect only future behavior;  it can't deliver a signal fast enough to correct behavior that drove the current feedback. A stock-maintaining balancing feedback loop must have its goal set appropriately to compensate for draining or inflowing processes that affect that stock.  Otherwise, the feedback process will fall short of or exceed the target for the stock. Systems with similar feedback structures produce similar dynamic behaviors.

Shifting Dominance, Delays, and Oscillations Complex behaviors of systems often arise as the relative strengths of feedback loops shift, causing first one loop and then another to dominate behavior. A delay in a balancing feedback loop makes a system likely to oscillate. Changing the length of a delay may make a large change in the behavior of a system.
Scenarios and Testing Models System dynamics models explore possible futures and ask "what if" questions. Model utility depends not on whether its driving scenarios are realistic (since no one can know that for sure), but on whether it responds with a realistic pattern of behavior.

Constraint on Systems In physical, exponentially growing systems, there must be at least one reinforcing loop driving the growth and at least one balancing loop constraining the growth, because no system can grow forever in a finite environment. Nonrenewable resources are stock-limited. Renewable resources are flow-limited.

Resilience, Self-Organization, and Hierarchy There are always limits to resilience. Systems need to be managed not only for productivity or stability, they also need to be managed for resilience. Systems often have the property of self-organization - the ability to structure themselves, to create new structure, to learn, diversity, and complexify. Hierarchical systems evolve from the bottom up.  The purpose of the upper layers of the hierarchy is to serve the purposes of the lower layers.
Source of System Surprises Many relationships in systems are nonlinear. There are no separate systems.  The world is a continuum.  Where to draw a boundary around a system depends on the purpose of the discussion. At any given time, the input that is most important to a system is the one that is most limiting. Any physical entity with multiple inputs and outputs is surrounded by layers of limits. There always will be limits to growth. A quantity growing exponentially toward a limit reaches that limit in a surprisingly short time. When there are long delays in feedback loops, some sort of foresight is essential. The bounded rationality of each actor in a system may not lead to decisions that further the welfare of the system as a whole.

It is here where systems dynamics questions the Invisible Hand as misunderstood by free market fundamentalists:
"As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of greatest value... he generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it...  He intends his own security;... he intends only his own gain and he is in this... led by an invisible hand to promote an end which was no part of his intention.  By pursuing his own interest he frequently promotes that of society more effectually than when he really intends to promote it." 
Adam Smith

Frequently does not mean always.  Smith knew that the Invisible Hand is fickle and sometimes intending only our own gain does not promote the security of society in general but degrades it.  Markets are human systems and can be changed and managed as the participants agree.  At least, that's how it works at the local farmers market.

Economic theory as derived from Adam Smith assumes first that homo economicus acts with perfect optimality on complete information, and second that when many of the species homo economicus do that, their actions add up to the best possible outcome for everybody.

Neither of these assumptions stands up long against the evidence.
"Best possible outcome" in the "best of all possible worlds," Dr Pangloss?

Bounded rationality means that people make quite reasonable decisions based on the information they have.  But they don't have perfect information, especially about more distant parts of the system.  Fishermen don't know how many fish there are, much less how many fish will be caught by other fishermen that same day....

Herman Daly calls this the "Invisible foot" while Herbert Simon uses "bounded rationality":

We are not omniscient, rational optimizers, says Simon.  Rather, we are blundering "satisficers," attempting to meet (satisfy) our need well enough (sufficiently) before moving on to the next decision.  We do our best to further our own nearby interests in a rational way, but we can take into account only what we know.  We don't know what others are planning to do, until they do it.  We rarely see the full range of possibilities before us.  We often don't foresee (or choose to ignore) the impacts of our actions on the whole system.  So instead of finding a long-term optimum, we discover within our limited purview a choice we can live with for now, and we stick to it, changing our behavior only when forced to.

Bounded rationality can lead to seeking the wrong goals or confusing effort with result.  Meadows believed, "Maybe the worst mistake of this kind has been the adoption of the GNP as the measure of national economic success."

We should keep the boundaries of our rationality in mind when we consider our mental maps of the world.

Mindsets and Models Everything we think we know about the world is a model. Our models do have a strong congruence with the world. Our models fall far short of representing the real world fully.Here are some common system traps:
Policy Resistance Trap:  When various actors try to pull a system state toward various goals, the result can be policy resistance.  Any new policy, especially if it's effective, just pulls the system state farther from the goals of other actors and produces additional resistance, with a result that no one likes, but that everyone expends considerable effort in maintaining. The Way Out:  Let go.  Bring in all the actors and use the energy formerly expended on resistance to seek out mutually satisfactory ways for all goals to be realized - or redefinitions of larger and more important goals that everyone can pull toward together.

Letting go can be of profound significance and a devastating tool, especially when considered from a judo/aikido/tai chi context.

The Tragedy of the Commons Trap:  When there is a commonly shared resource, every user benefits directly from its use, but shares the costs of its abuse with everyone else.  Therefore, there is very weak feedback from the condition of the resource to the decisions of the resource users.  The consequence is overuse of the resource, eroding it until it becomes unavailable to anyone. The Way Out:  Educate and exhort the users, so they understand the consequences of abusing the resource.  And also restore or strengthen the missing feedback link, either by privatizing the resource so each user feels the direct consequences of it abuse or (since many resources cannot be privatized) by regulating the access of all users to the resource.

Elinor Ostrom's work is all about managing the commons [pdf alert].  She has documented some common pool resources that have been managed sustainably by people for hundreds of years.

Drift to Low Performance  

Trap:  Allowing performance standards to be influenced by past performance, especially if there is a negative bias in perceiving past performance, sets up a reinforcing feedback loop of eroding goals that sets a system drifting toward low performance. 

The Way Out:  Keep performance standards absolute.  Even better, let standards be enhanced by the best actual performances instead of being discouraged by the worst.  Set up a drift toward high performance!

This may be the trap that newspapers have fallen into

Escalation Trap:  When the state of one stock is determined by trying to surpass the state of another stock  - and vice versa - then there is a reinforcing feedback loop carrying the system into an arms race, a wealth race, a smear campaign, escalating loudness, escalating violence.  The escalation is exponential and can lead to extremes surprisingly quickly.  If nothing is done the spiral will be stopped by someone's collapse - because exponential growth cannot go on forever. The Way Out:  The best way out of this trap is to avoid getting in it.  If caught in an escalating system, one can refuse to compete (unilaterally disarm), thereby interrupting the reinforcing loop.  Or one can negotiate a new system with balancing loops to control the escalation.
Success to the Successful Trap:  If the winners of a competition are systematically rewarded with the means to win again, a reinforcing feedback loop is created by which, if it is allowed to proceed uninhibited, the winners eventually take all, while the losers are eliminated. The Way Out:  Diversification, which allows those who are losing the competition to get out of that game and start another one;  strict limitation on the fraction of the pie any one winner may win (antitrust laws);  policies that level the playing field, removing some of the advantage of the strongest players or increasing the advantage of the weakest;  policies that devise rewards for success that do not bias the next round of competition.

Sounds like too big to fail, don't it? 

Shifting the Burden to the Intervenor Trap:  Shifting the burden, dependence, and addiction arise when a solution to a systemic problem reduces (or disguises) the symptoms, but does nothing to solve the underlying problem,  Whether it is a substance that dulls one's perception or a policy that hides the underlying trouble, the drug of choice interferes with the actions that could solve the real problem.
If the intervention designed to correct the problem causes the self-maintaining capacity of the original system to atrophy or erode, then a destructive reinforcing feedback loop is set in motion.  The system deteriorates;  more and more of the solution is them required.  The system will become more and more dependent on the intervention and less and less able to maintain its own desired state.
The Way Out:  Again, the best way out of this trap is to avoid getting in.  Beware of symptom-relieving or signal-denying policies or practices that don't really address the problem.  Take the focus off short-term relief and put it on long-term restructuring.
If you are the intervenor, work in such a way as to restore or enhance the system's own ability to solve its problems, then remove yourself.  If you are the one with an unsupportable dependency, build your system's own capabilities bak up before removing the intervention.  Do it right away.  The longer you wait, the harder the withdrawal process will be.

I also like Anne Wilson Schaef's work on addiction and addictive systems, When Society Becomes an Addict and The Addictive Organizaton.

Rule Beating Trap:  Rules to govern a system can lead to rule-beating - perverse behavior that gives the appearance of obeying the rules or achieving the goals but that actually distorts the system.
The Way Out:  Design, or redesign, rules to release creativity not in the direction of beating the rules,  but in the direction of achieving the purpose of the rules.
Seeking the Wrong Goal Trap:  System behavior is particularly sensitive to the goals of feedback loops.  If the goals - the indicators of satisfaction of the rules - are defined inaccurately or incompletely, the system may obediently work to produce a result that is not really intended or wanted.
The Way Out:  Specify indicators and goals that reflect the real welfare of the system.  Be especially careful not to confuse effort with result or you will end up with a system that is producing effort, not result.

What should be the goal of late stage capitalism in a peak oil world?

Places to Intervene in a System (in increasing order of effectiveness)Numbers:  Constants and parameters such as subsidies, taxes, and standards
Buffers:  The sizes of stabilizing stocks relative to their flows
Stock-and-Flow Structures:  Physical systems and their nodes of intersection
Delays:  The lengths of time relative to the rates of system changes
Balancing Feedback Loops:  The strength of the feedbacks relative to the impacts they are trying to correct
Reinforcing Feedback Loops:  The strength of the gain of driving loops
Information Flows:  The structure of who does and does not have access to information
Rules:  Incentives, punishments, constraints
Self-Organization:  The power to add, change, or evolve system structure
Goals:  The purpose of the system
Paradigms:  The mind-set out of which the system - its goals, structure, rules, delays, parameters - arises
Transcending Paradigms...
"...to stay flexible, to realize that no paradigm is "true," that every one, including the one that sweetly shapes your own worldview, is a tremendously limited understanding of an immense and amazing universe that is far beyond human comprehension... is to "get" at a gut level the paradigm that there are paradigms, and to see that that itself is a paradigm, and to regard that whole realization as devastatingly funny.  It is to let go into not-knowing, into what the Buddhists call enlightenment."
Guidelines for Living in a World of SystemsGet the beat of the system.
Expose your mental models to the light of day.
Honor, respect, and distribute information.
Use language with care and enrich it with systems concepts.
Pay attention to what is important, not just what is quantifiable.
Make feedback policies for feedback systems.
Go for the good of the whole. [Sarvodaya]
Listen to the wisdom of the system.
Locate responsibility within the system.
Stay humble - stay a learner.
Celebrate complexity.
Expand time horizons.
Defy the disciplines.
Expand the boundary of caring.
Don't erode the goal of goodness.