Back to the Future

There’s been a lot of talk about the current state of the economy and how it effects the wine industry. On this blog alone there’s at least three recent posts dealing with the subject, so I figured I’d talk about something completely different - let’s leave the current situation for now and think about the future and the past. We’re in the business of trying to shape the future and make it better for wine producers and consumers. But will we ever be able to escape the kinds of constraints that the wine industry operates within today?

The Past Isn’t Dead. It Isn’t Even Past.

In January The New Yorker published a great article by Atul Gawande, where he describes health care systems around the world in terms of Path Dependence. Simply put, path dependence is the phenomenon by which a situation in the past continues to constrain the evolution of a system well after the original situation ceases to exist. I see this all the time when working with software. Why is Microsoft Internet Explorer by far the most popular web browser? IE achieved dominance in the late 90s thanks to (among other reasons) a competitor with scant resources (Netscape), a licensing deal with AOL, and greater support for emerging standards. Today none of these reasons is relevant but the “path” that led us here has helped maintain Microsoft’s huge advantage in market share.

The parallels in the wine industry are clear. The three tier system is a perfect example of path dependency. It came into being in a time when government wanted a limited distribution network in order to make taxation easier and keep organized crime out of the business. Today technology has made taxation of goods much easier and organized crime is not a concern when it comes to trafficking wine and liquor. But the three tier system remains because economic and political entities have grown up around it and have an interest in maintaining the status quo.

Talking ’bout a Revolution?

So are we forever trapped in the past? Why not throw off the shackles of path dependence and create a new system? While that sounds exciting it’s not likely to happen. Massive institutional change is often messy, time consuming and expensive. Revolutions are rarely bloodless. But the news is not all bad. It is possible to change a situation without escaping the constraints of path dependence. To extend my web browser analogy, although Microsoft maintains browser dominance Firefox and Safari have chipped away at its market share and also innovated in ways that Microsoft has been forced to adopt in IE, making the browser market better for consumers overall.

The Same but Different

If change is going to happen it’s probably going to be within the current system. Inertia and other companies have spent a lot of time making the three tier system work as well as possible for wineries and consumers. Even though this is difficult, it’s probably still easier than investing in trying to completely change the system. Institutional change does happen – if Iowa can allow same sex marriage then anything is possble – but its progress is often slow and unpredictable. We’ve had a lot of success building programs on top of the current regulatory structure. I believe the future of the wine industry, even when dependent on history, is going to look much brighter than its past.