President Donald Trump’s pledge to re-examine trade agreements and re-negotiate them to be more fair and more favorable to the U.S. should serve to remind us that business is more complex than we typically assume.
Despite the best intentions and expectations that we have when we first negotiate a deal, outcomes often turn out different than we anticipated. Why? Two reasons. First, the very best ideas and arrangements that we come up with are likely to have unanticipated consequences. Second, there surely will be items that we did not consider at the outset or innovations that change the playing field altogether.
Trade, of course, is something that ought to create mutually beneficial outcomes for those countries participating in an agreement. Ideally, the benefits would not only be positive for both (or more) parties, but reasonably balanced.
In reality, that is rarely the case because we may not need as much of what other countries can provide as they need from us, or vice versa. The result is some asymmetry in the balance of trade between two countries and the best that we can hope for is that the net balance of trade among all of our trading partners is equal or positive for us.
Thus, it is not surprising that President Trump is exploring whether various trade agreements, existing and proposed, are living up to the expectations we have for them or whether they need to be reconsidered.
And that is a lesson we should all explore in our daily business dealings. I think there are two principal takeaways from what we are seeing in Washington.
First, every business should constantly re-examine all of its contracts and arrangements. Be prepared for the unanticipated consequences and alert to how innovations may be disrupting the business models and assumptions we started with. In other words, business contracts should always be provisional and subject to ongoing review and renegotiation.
Second, business outcomes are influenced by many more variables than we can ever fully consider. The fact is, as Andrew Reamer and his colleagues in their report, Technology Transfer and Commercialization: Their Role in Economic Development, stated, “Industry structures are in constant churning — firms are merging, acquiring, leaving, dying, entering, growing, downsizing, outsourcing and spinning off. At a faster and faster pace, the U.S. economy is experiencing the phenomenon the economist Joseph Schumpeter called ‘creative destruction.’”
Indeed, a series of recent articles in The Economist (January 14-20, 2017, lifelong learning special report exploring how to survive in the age of automation) makes clear that not only is business changing, but that as a result, workers must as well. And that is because the processes of “creative destruction” and of “disruptive innovation” are ongoing and we can only hope to succeed and prosper if we are watchful, mindful and fully “on our toes” to the dynamism and complexity of the 21st century economy.
Luis M. Proenza serves as a Distinguished Fellow at the U.S. Council on Competitiveness and co-chairs the Innovation Policy Forum as a member of the Science, Technology and Economic Policy Board (STEP) of the National Academies of Science, Engineering and Medicine.