Some pretty amazing technological advancements have been made in the US. Just look at the last decade: the rise of mobile technology, virtual reality, gene-editing, etc. If we look even further back a lot of the prosperity gains that the US reaped was from building certain infrastructure pieces that didn’t exist prior (such as highways) and opened new forms of information access, transportation abilities, and lots more.

However, I argue that many of these past system developments could potentially hamper innovation going forward. Because of how entrenched many of these innovations have become in our society, a few things have happened:

• There have been few incentives to innovate further on this infrastructure since relatively little competition exists here and it’s generally prohibitively capital intensive to compete (creating risk-averse oligopolies). Innovation tends to happen forcibly (massive event puts the lack of progress in the spotlight, government regulation changes the industry, etc.).
• In many, there’s been a productivity paradox where outputs are actually LOWER when an attempt is made to add technology or shift the infrastructure since all the relevant applications and processes now have to operate on two different infrastructures simultaneously as the transition is made.
• Other countries which may have lacked the original infrastructure that the US invested in decades ago have instead “leapfrogged” in many cases and have their systems fully devoted to the new paradigms born out of the new infrastructure.

Moving society forward requires innovation in these legacy sectors, but old infrastructure that once was used to push these industries to the forefront are now proving to be obstacles themselves. If we were to ask ourselves “how would this system be built today from scratch?”, we can pinpoint the pain points.

I always think examples help make a case stronger, so here are a few:

Healthcare: I could talk about this one for days, many of which I’ll be discussing more in detail in my “Things I’m Thinking About In Healthcare” series. But in short form:

• Electronic Medical Records have an effective oligopoly of companies that control market share and become more deeply entrenched as hospital processes are built on top of them. The small group of record systems that service this need are unable to be displaced and have dashboards that haven’t been changed since biblical times
• Health insurance tied to employers which misaligns incentives since enrolled customers are assessed by their health as long as they’re with the employer as opposed to long term outlooks.
• Pharmaceutical Benefit Managers (PBMs) which create additional nodes in the pharma supply chain and receive money from two sides that are supposed to negotiate with each other.

In general most businesses were built in the “fee-for-service” era of medicine, so transitioning to the new era of “fee-for-value” is a massive undertaking which is antithetical to the businesses models they were built on top of.

Finance: The financial crisis and subsequent government bailout made it clear how dependent society is on the existing financial infrastructure. Even today almost every financial transaction has to pass through a bank at some point. Massive consolidation has only centralized this further, and regulatory + compliance required in this space pushes more potentially system changing companies to eventually partner with the incumbent banks. The promises of blockchain implementation and fully digital banking seem more likely in places where they create entirely new ways of doing business unsupported by an existing financial system.

Transport: Shifting from horse and carriage to cars was a massive undertaking that required an extensive network of roads to be built (and clearly demonstrated the productivity paradox as carriages and automobiles frequently got into accidents as they attempted to co-exist). As we move to new modes of transportation, one of the difficulties is that they have to be built around our existing infrastructure (can you imagine shutting down portions of the highway completely to overhaul it?). Most of the companies working in self-driving cars have complained about crumbling infrastructure and aberrations that are the toughest parts of getting cars to learn how to drive. Simultaneously, despite self-driving car technology making major advances, the big question is how are they going to be rolled out while also dealing with human drivers and edge cases? Autonomous cars and normal drivers on the same roads could also see a case of the productivity paradox.

 

Hyperloop is another example of transportation shifts that we could miss in the US because there just aren’t that many straight lines near major cities where the project could be built without the government claiming eminent domain. Most Hyperloop projects seem to have contracts outside of the US.

Education: While there are lots of problems with education (which could probably be it’s own post), the main issues I have relate to how entrenched and required the current forms of education have become, which have prevented any change in the area. Specifically:

• We insist that college is required and jobs look down on people without this degree, further necessitating it
• People are very risk averse when it comes to experimenting in education, and generally parents don’t want to subject their children to new types of teaching or unproven models.
• The tautology is reinforced because successful people tend to have college degrees (since they were told it yields success). All the statistics about how much higher an income you’ll make with a college degree reinforces this idea.

 

The problem is that more and more debt is being used to finance this, and students find there’s disconnect between skills and jobs when they enter the working world. We’re starting to see the rise of bootcamps to address this issue, yet the reality is the education system probably needs an whole overhaul but our entire culture is based around going to college + secondary schools as milestones of success which doesn’t seem to be changing any time soon.

Government: The government is on everyone’s mind thanks to this election. While I’m no political analyst, a few key issues. A two-party system makes passing legislation a long, drawn-out process where the end results are frankenstein bills of tacked on amendments and concessions. While regulations can provide create opportunities, they generally lag behind developments in technology and artificially creating friction and longer timelines. Talented people get frustrated with public service jobs and bleed to the private sector. While other government systems obviously have their own flaws, it’s impressive to see how quickly places like China and Singapore are able to rollout decisions and respond to developments technology as a byproduct of more concentrated political power. Nick Grossman has written several great pieces on how we can better regulate ourselves using data and software.

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These are just some examples where infrastructure is holding us back, and I believe a key issue here is the fact that we don’t have a good financing mechanism to give the chance for new companies to raise large amounts of capital and compete or create new systems. These are young, risky, capital intensive businesses with long return horizons, which puts it out of the range of any asset class that exists now. Perhaps this is an area where the government can get involved, or work with investors in the private sector to create a new type of funding mechanism.

If you have any thoughts or comments about this post, reach out to me on twitter @nikillinit.