While it might seem that a business simulation website and government infrastructure spending in China might be worlds apart, the underlying strategy theories and challenges between the two are very much the same. Capsim is a web learning application that challenges users to attempt to duke it out with other real teams and computer opponents. The essential challenge that is presented is to attempt to out maneuver your opponents in an effort to gain additional market share and subsequent profits. The Chinese government’s efforts to invest in infrastructure to stay ahead of the curve of its growing middle class needs present the same problems my team faces but with significantly greater consequences. One need not look farther than Detroit or Las Vegas to see what happens when exuberance and poor forecasting meeting economic decision making.
What is the common challenge between these two situations? Well, in a word, uncertainty. Uncertainty is the lack of true knowledge of the future environment as well as the actions of other players in the global or virtual world. While in both situations, one could attempt to forecast probabilities of what would be required to support future business ventures or population transitions or growth, no one can know for sure. This uncertainty can doom a seemingly smart and well planned out investment today to become a nightmare tomorrow. The Chinese policy of building 20 cities a year for the next 20 years is a perfect example of poor planning to models that don’t properly predict changes in an economy. The absolute waste of resources that that is going into these ghost cities within China reminds me of the comparison between the cost of bombs and schools made by Eisenhower at the end of this term.
I was reading a Financial Times article today about perceived overinvestment by the Chinese government that really got me thinking about the strategy to be played in our virtual competition being fought on the web. While moves that my team makes are truly inconsequential to my existence, investments and the forecasts that fuel them are being made in one of the largest emerging economies in the world and they may be proving to be the wrong decisions. While there are opinions and models that show both sides of the argument, the fact remains that models can be wrong. To this end, the study mentioned in the article notes an effect of this investment on 4 percent of potential GDP as well as 10 percent of actual GDP. Considering the complete poverty that is experienced within many areas of Chinese society, one is forced to consider how this value can be better directed to ventures that would help those individuals improve their economic situations. Added on top of this, no one can completely account for the human cost of misallocated resources. Just imagine if Albert Einstein was not given the opportunity to receive any education in his lifetime…
While this may prove out to be utter hogwash criticism of long term planning and development by Beijing, one has to recognize the reality that all of these decisions and really all of life’s decisions in general, are based on uncertainty and essentially game theory. After reading this article, I sat back and thought of other examples of terrible investments made in ventures that at the time seemed to be the greatest thing since sliced bread. Of course, each decision varies significantly in financial value; the point that really can be driven home is the absolute uncertainty of operating in a dynamic world.
What sorts of decisions have you seen or made in your personal or work life that proved to be terrible even though everything pointed to a great outcome at the time you made the decision?
China’s over-investment problem