Incentives

To change the culture, we're going to have to change the embedded incentive structure.

I’m convinced that whole swathes of the population don’t understand trade-offs. Too many marketing campaigns appear to be based on this assumption for it not to be true.

Consumer brands tell us we can drink beer, smoke cigarettes, or inhale massive amounts of sugar and we’ll look like models. We’ll have sex appeal, not paunches. We’ll radiate health, not be infused with chemotherapy one day.  We’ll be happy and bouncy, not inflamed and sluggish.

Politicians, too, make promises that are, on their face, impossible to believe if you understand trade-offs. You get a tax cut., You get a tax cut. Everyone gets a tax cut and I’ll still be able to spend manically on these healthcare programs and these green investments. Nobody has to suffer except for people we don’t like who must pay the price for being people we don’t like. I’ll punish people from other countries who want to sell us things and there will be no downside to anyone on this side of the border.

Choice confronts us everywhere we turn. Budgets constrain us. I can afford X and maybe Y, but certainly not Z.

Perhaps everyone understands trade-offs. Maybe they just don’t care for them, so they ignore them. Even when we pretend trade-offs don’t exist, they bind. We still get fat. We select a path and the trade-offs lock us into a band of outcomes.

This is complicated because, in life, we make so many choices. Our path is multi-dimensional.

Some decisions are more important than others. A doughnut today will have an infinitesimal marginal effect. Having a doughnut every day is another story.

Who you marry is one of the single most consequential elections in anyone’s life. It will bound your happiness, both on the downside and on the upside. It will reinforce or destabilize the robustness of your responses to the vicissitudes of life. It will impact the quality of your genetic succession. It will influence your longevity.

Some people decide indirectly, sensitive to the different factors at play. They take advantage of the previous experience of others to determine some general principles. Character matters. Family matters. Personality fit matters. Values matter. There is no perfect package, but some are far superior to others. In a secular world, these factors have different weights than they might have carried traditionally.

Others decide without a conscious appraisal of tradeoffs. If they’re lucky, there is a machine doing some sort of calculation in the background of their mind. There is an indirect intelligence operating, bubbling up as instinct or gut feeling, to guide them through these large events. It’s not just marriage. We choose our identities in selecting whom to model, in the Girard sense of who we choose to imitate.

“Mimetic theory has two main parts - the desire itself, and the resulting scapegoating. Girard's idea proposes that all desire is merely an imitation of another's desire, and the desire only occurs because others have deemed said object as worthwhile. This means that a desirable object is only desired because of societal ideas, and is not based on personal preference like most believe. The mimetic desire is triangular, based on the subject, model, and object. The subject mimics the model, and both desire the object. Subject and model thus form a rivalry which eventually leads to the scapegoat mechanism.”

Why do people choose to be bureaucrats?

The first driving factor here is the identity the individual chooses. We’ll call him Bob. One reason Bob decides to be a bureaucrat is because it fits most closely with his identity.

What is it about being a bureaucrat that fits with his identity, though? Before becoming one, he cannot know accurately what it will be like. The thing that is consistent with how he sees himself, i.e., with the people he models, is his impression of what it means to be a bureaucrat. Perhaps he has family members or close friends whom he admires and respects. Bob wants to be like them personally and professionally. They may even encourage him to do so. When you look at large organizations like the professional military, it’s not uncommon to see multiple generations of service members, for example.

It is not just the fact that the people Bob models are bureaucrats. It is that the characteristics he seeks to emulate may lend themselves to such a role. Let’s say he sees himself as someone who protects the weak from the bullies of the world. A career in the military is consistent with that orientation. Or perhaps Bob is sympathetic to the indigent, many of whom are mentally ill or who suffer from substance addictions. A career as a social worker employed by a local government agency beckons.

Being a bureaucrat must be consistent with the individual’s identity, at least at a high level.

Tied into this notion are incentives. Our sense of identity will determine, in large part, what appeals to us and what does not, what we value and what we discount. The cost-benefit profile in toto of being a bureaucrat must align with the individual’s preferences. It’s not just pay and benefits, although those are important. It’s the non-pecuniary aspects, too.

Bureaucracy offers stability compared to vocations in the private sector. Companies go bankrupt. Industries suffer disruption from technology and competition. It is a rare occurrence when a government agency is disbanded, or when an administrative function downsizes in a large, successful organization.

But what do we trade off for this relative stability? What do we give up? There is no free lunch.

The monetary compensation of a functionary position in an agency or large organization is almost certainly going to be less than for a position of equivalent responsibility or required skills in a private company or smaller, entrepreneurial entity. There is no reward without risk. Our man Bob accepts a lower compensation trajectory (at least in salary) in exchange for the certainty it brings. The stress of the job is less. They say that the stiffest traffic on the DC beltway is at three o’clock in the afternoon.

Someone in the military may have monetary stability, but, depending on their occupation, they can lead a life of adventure and purpose. A Special Operations soldier isn’t in it for the money. Being in a bureaucracy may be his only opportunity to get the chance to do the things these people do. The Oceanographer gets to work on the high seas. The diplomat leads a life of glamor and intrigue in foreign postings, helping to advance the interests of his country. This is sexy stuff. Their purpose is to act in a way that advances their personal conception of what is right. Perhaps it is patriotism, or maybe it is empathy. It is likely a combination of beliefs and characteristics. These are not the people who have posters of Lambos on their walls as teenagers.

There is the public status society confers upon the members of the bureaucracy, tied into their rank and position. During the Pandemic, we lauded the nobility of the leaders of the Center for Disease Control. Hollywood actors lionized the Director of the National Institute of Allergy and Infectious Diseases.

Of course, status is tied to impact. Nobody but academics and other practitioners in the field knew who Dr. Anthony Fauci was until we all did. His status jumped skyward when we all depended on his pronouncements and his advice. There is a sense and it is correct for some (but not all) of the people in the bureaucracy that they get to work on big problems, doing big things. In the Army, some people are part of the A-Team that gets inserted into Afghanistan to support an allied warlord on horseback before the commencement of major hostilities. Other people work in a warehouse (which is also important, by the way).

All of these factors (identity, stability, monetary compensation, adventure, status, purpose, and impact) are tied to incentives. Organizations offer incentives in differing quantum and combination to appeal to the kinds of people they think they want to hire, the ones who they believe will succeed.

As we have noted in previous notes, culture is what we mean when we say, “people like us do things like this,” to quote Seth Godin.

Therefore, if we are going to change the culture, then we must attract a different sort of person. To do that, we need to change the incentive structure. Otherwise, bureaucratic reform is doomed.

The first, most important question is, what is the identity of the people we want to attract? As the marketers say, what is the persona or ideal profile of the person we are looking to transform our agencies? We want someone who is a risk-taker, comfortable with uncertainty and change, unafraid of disruption, and willing to fail fast and learn things. We desire this kind of person because we seek to transform radically the function or to discard it if there is little value remaining in having it.

They should have a low need for stability, accepting the need to change jobs or organizations (or to shut them down, as necessary). They may not have a high sense of adventure. Perhaps we should dial down the adventure because many of the jobs we will ask them to do will be tough jobs more akin to political and bureaucratic trench warfare in remaking decades of rules in quiet obscurity, while respecting the statutes on the books. We would hope that they are not as motivated by status as they are by impact. They should want to make things happen. They are people who need to leave their signature on a significant piece of work that improves the lives of many, even if they don’t get the credit.

When it comes to compensation, we should know that we are competing with the most dynamic parts of the private sector for this kind of talent. We should have private sector type compensation in which we offer a relatively low base salary combined with generous, escalating financial bonuses for hitting pre-specified milestones. Given the challenges of recruiting and retaining go-getters, we should acknowledge and encourage a revolving door with industry. People should be able to move seamlessly between the public sector and the private sector.

Make no mistake. These go-getters have a sense of purpose, too. Purpose and strength of character are the binding agents. They will make the difference between success and failure.

Of course, this is not going to be easy to implement. We may need some sort of hybrid model, at least for the first few years, one in which our young (and possibly not-so-young) Turks sit next to bureaucrats of the traditional mold.

This is how we make bureaucracy dynamic, responsive, and relevant.