The big concern of those that bemoan the fact that we have massive “too big to fail” organizations is that they pose systemic financial risks in the event that they fail and therefore should not exist. Indeed this is an issue and I hope that we can regulate ourselves in such a way that this can be avoided. However, the big systemic risk as I see it is in terms of innovation. If an organization is too big to fail, then they are too big to innovate as innovation necessarily entails a series of failures to reach the next stage.
In a hyper-competitive world America is risking much more than a financial crisis, we’ve already handled that, what we can’t handle is the destruction of our economic system at the hands of global innovation. We remain world leaders because of an incredibly flexible system that rewards the iterations that teach us from failure. What concerns me is that as government monitored, too big to fail institutions expand market share, a la Fannie and Freddie, we will stop innovating in favor of stabilization.
Now that may seem a proper way forward, but it is absolutely not, we need vicious competition in order to stay on top. In fact, innovation and constant reinvention are the only way to maintain edge in a world that uses global networks and optimized human, capital and production infrastructures to eliminate competitive advantage as fast as possible. While some politicians would love to just bring these rapid cycles of creative destruction to an end through trade policy or regulation, they cannot. The macro trend, presaged by Kevin Kelly and others, is that we are moving away from the Industrial Society to the Network Society as the dominant socio-cultural paradigm. The network will not be denied by roadblocks, as it is built to route around these roadblocks and rapidly maximize the efficiency of these new routes.
Failure is a necessity at the business level if we are to succeed in this 21st century. As we deleverage our institutions to allow for these rapid cycles of failure and innovation let’s keep that in mind. Regulation that does not manage the real systemic risk of slowed innovation cycles represents my true fear of the too big to fail institution.
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John Gerzema is Chief Insights Officer for Young & Rubicam Group. One of the early founders of account planning in American advertising, John has guided brand strategies to global business and creative acclaim. 
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