Four Rules for Constructive Competition

It’s 2015. US health care reform sputtered out. The Obama Presidency turned out to be a corporate shakedown in permanent residency. So the average American had three health care options. First, pay for local “health care” that offered little authentic value. Second, remain uninsured. The third is what most people chose: the constructive option.

As it turned out, the biggest threat to the American health industry wasn’t legislation: it was radical innovation. Canada’s Open Health Plan — where anyone could buy access to Canadian health care — took 12% of US market share by 2012 alone. The UN’s Global Obesity Credits framework sharply strengthened the financial incentive for Americans to go international.

Yet those were just two events in a larger trend. A wave of startups — often public-private partnerships — from Canada, Germany, Mexico, and India, eviscerated the moribund American health care market. Why pay half of $130,000 for a bypass on an American “insurance” plan when you could pay just $10k to 20k elsewhere? For most people, the third way was the obvious, ethically correct, and most enjoyable choice. The ultimate result? A run on American health insurers.

The scenario I’ve outlined above is radical — but it’s also real. US medical tourism is growing by leaps and bounds. Yes, it has its problems — but its value proposition is deeply disruptive. And crystallized within it is a deeper lesson about 21st century competition.

John Maynard Keynes once famously said: “For at least another hundred years we must pretend to ourselves and to every one that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little longer still.”

Lord Keynes, your century’s up. 20th century competition hinged on the idea that unbridled greed, naked self-interest, and coercion were the essential drivers of growth. But last year’s market collapse demonstrated the fundamental incompatibility of those ideas with an interdependent world.

For the next hundred years, we must say to ourselves: “fair is fair, and foul is foul. Avarice and usury are yesterday’s fallen idols, and peace, equity, and meaning are our new gods. How much can we change the world radically for the better?”

That’s what constructive competition is — and here are its four rules:

Higher-order innovation, not unnovation. In the 21st century, even a mandate from the US government isn’t going to be enough to protect the profit margins of health care monopolists. The opportunity cost of protecting your local market is never learning how to create a globally relevant product, service, or solution: unnovation comes at the cost of authentic innovation. American health insurers have stopped innovating, in the name of operating efficiency — but the rest of the world hasn’t. In fact, medical tourism isn’t just a product or service innovation, it’s an institutional innovation; the most disruptive and highest-order form of innovation organizations can choose today.

Thick value, not thin value. The monopolists’ curse is thin value — just ask Microsoft, record labels, big media, Detroit or, in about three years, health insurers. But thin value cannot hold in an interdependent world. No one wants to get taken to the cleaners — and in a hyperconnected world, fewer and fewer will have to. Wherever there is thin value, people are always ready and waiting to flee to thicker value, leaving organizations that can only create thin value to collapse suddenly. Banks learned this lesson the hard way: they fled from one another until there was no one left to flee to except Helicopter Ben Bernanke. And Bernanke’s bailout is no panacea. What happens, for example, when Indian banks decide that its time to build capital markets that create thick value? Bye bye, Wall Street.

Awesomeness, not lameness. Yesterday, entire industries spent fortunes conceiving “business models”: cleverer and cleverer ways to profit from locking buyers and suppliers in, and locking competitors out. That’s just another word for economic tyranny. The days of “business model” fascism are over. In the 21st century, there are no iron curtains that can hold keep people or organizations caged for long. There are no sandbars that will hold back the tsunami of disruption that is attacking lame, brain-dead industrial era business from every angle. The question today isn’t about business models — but about awesomeness. How awesome is what you make?

Ethics, not extraction. Think lobbying’s awful — but smart? Think again. Lobbying’s not just ethically questionable; it’s also strategically self-destructive. For health insurers, banks, and energy producers alike, lobbying is a major strategic error. Consider, for a second, the wages of lobbying across industries. It has destroyed Detroit, rendered telcos impotent, sapped the vitality of agriculture, and caused insurance and real estate alike to implode.

But the most haunting example is pharma itself: by lobbying hard for subsidies and patent enforcement, what strategic outcome did pharma incumbents realize? A deluge of global low-cost hypercompetition, that has left incumbents shocked, stunned, and stumbling.

Why has lobbying backfired on all these moribund industries? Because asking to be insulated from competition saps incentives for innovation — and sharpens incentives for disruption. In health care, for example, lobbying will simply continue to intensify incentives for governments and radical innovators alike to see sluggish, lazy American insurers and producers as ripe for disruption. The tired, lame games of 1.0 strategy merely prevent organizations from learning the lost art of awesomeness. In the 21st century, ethics is the foundation of next-generation strategy.

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