Donald Keough, who was president of Coca‐Cola, has died at age 88. All the obituaries lead with his role in the New Coke debacle. On April 23, 1985, Coca‐Cola replaced its amazingly successful product with a new formula, called New Coke. Some people liked the new flavor, but many did not. On July 11 the company reversed its decision and reintroduced the original formula, called for a time Coca‐Cola Classic. Wikipedia reports, “ABC News’ Peter Jennings interrupted General Hospital to share the news with viewers.”
The experience was generally regarded as one of the biggest stumbles by a major corporation in memory. But what struck me at the time, and what I’m reminded of now, is how fast the company realized its error and reversed it — less than 11 weeks.
How well do governments do at realizing their errors and reversing them? The obvious comparison at the time was the Vietnam War. It took the U.S. government about 14 years, from 1961 to 1975, to realize and reverse that mistake.
Today we might think of the Iraq War. The United States invaded Iraq in March 2003, based on mistaken intelligence reports, a hazy sense that somehow Saddam Hussein was involved in al Qaeda’s 9/11 attacks, and deeply flawed assumptions about the ease of the undertaking. The war officially ended in December 2011, though of course we still have 3,000 troops there and are contemplating further involvement in response to the ISIS insurgency. Taking the official end of the war, the U.S. government continued that mistake for about 8 years and 9 months.
What about other government failures? How fast were they reversed? Let’s consider:
Alcohol prohibition — 13 years
Marijuana prohibition — approximately 84 years and counting
War on drugs — 44 years or 101 years and counting
The Pruitt‐Igoe housing project — 18 years
Airline price and entry regulation — 47 years
Soviet communism — 74 years
And that’s without even counting the mistaken programs that aren’t yet widely agreed to be failures, from the Federal Reserve to the welfare state.
Incentives are different in business and government. Some critics of capitalism suggest that democratic government is more responsive than corporations are. But voting is a flawed way to register dissatisfaction. When businesses make mistakes, they tend to lose customers. And they know that very quickly. Because business owners have their own money at stake, they have a strong incentive to correct mistakes promptly. Government officials run little risk of losing their jobs for failure. Indeed, government officials who fail to solve a problem — poverty, homelessness, dropout rates — may be rewarded with more money and staff. No wonder government failures last so long.
A diamond is forever? Government failure is forever.