On Incentives

"Never penalize those who work for us for mistakes or reward them for being right about markets. It will go to their heads, is counterproductive and, in any event, material compensation will not correlate with their ability to predict the future next time."

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Galileo and Donald Trump

Galileo, Darwin and Freud were pilloried for exposing societies’ and individuals’ lack of centrality and control.  Galileo for supporting the view that the earth was not the center of the universe; Darwin for arguing that we were not all that special, but were merely descended from “lower” forms of animals; Freud for teaching that we were not in control or even aware of our motivations and driven by a mostly unrecognized “unconscious.”  Their societies were threatened by their loss of uniqueness implicit in these teachings.  Each paid dearly for rejecting man’s lack of centrality and control, for our vulnerability.

Donald Trump has tapped into that sense of diminishment.  “We will win again.” “We lose all the time.” “We are not respected.”  “We will make America great again.”  And his rhetoric is particularly resonant in this country where even children, from an early age, are taught they are unique, that everything is in their grasp.  We are encouraged to look to the accomplishments of ancestors only a few generations removed: the harnessing of electricity, the telephone, the telegraph, the availability of piped water, the use of natural gas for heating, the lightbulb, the bridges, the railroad, the combustion engine, the radio and, more recently, the Internet, space exploration, nuclear energy – all proof our unique capacity to tame the universe and exercise power.

If all this could be accomplished, Trump’s followers wonder why they are vulnerable.  Like Job they ask why they are punished and struggling?  And perhaps subliminally, why they are no longer the center of the universe.  Who is responsible for the diminished capacity to control, to change things back to the “old days?”  We are told it is China, Mexico, the “trade deals,” the immigrants.  And The Donald says he can fix it.  He will make us the center of the universe again.  He will make us special and unique, immune and all powerful.

Who will tell his audience the world has changed?  In 1940 there were 67 independent countries; today there are 195.  Raw materials like bauxite, tin and oil are in “other” countries and no longer controlled by imperial powers.  Huge populations, once never in the international labor market, now compete for jobs at $1 an hour.  There is no cold war that allows this country to control and leverage its power to “protect” other countries.  The controls over cross-border flows of money, goods and people have been breached by market forces.  New markets have been opened as investors and companies seek buyers of their goods and services throughout the world.  Countries, once colonies, are now independent, with huge, human and natural resources, prepared to delay gratification, exploit their citizens and their environment.  Ricardo’s “law” of comparative advantage has swept away virtually all artificial limits on trade.  Patents and inventions and technology are no longer controlled by any one nation.  Nuclear weapons have proliferated. Education and longevity have soared.  Information is available in milliseconds.  New political alliances have been formed. The result: a loss of control and certainty, increased vulnerability of nations once secure in their dominance and links that transfer adverse events from one country to another in an unpredictable fashion.

Yet The Donald argues that he uniquely, because of his skills at negotiating garage rentals, can put all those genies back in the bottle.

Who will tell his believers that these genies cannot be put back in the bottle, that we are not immune.  Who will tell them that the tremendous advances brought about in the late 1800s were one-shot events.  As Robert Morgan has so brilliantly argued in “The Rise and Fall of American Growth,” these breakthroughs and their attendant advantages are not repeatable.

Unhappily, messengers questioning uniqueness or centrality are punished severely (ask Galileo, Darwin, Freud – and Jimmy Carter), but those who claim that unalloyed power can be restored – “we will win”– are received with grateful arms as saviors of egos and pride.  The dilemma:  If the truth were told, the punishment on the messenger will be severe; if it is not told, the man on the white horse will be idolized, at least until the first serious shock of his arrogance is felt.

Gene Rotberg was former Treasurer of the World Bank