Guest Post: Incentives Matter – is there another Way?

A guest post by Owen Jennings:

There are number of vital truisms that every politician should have drilled into their brain from day one.  Many are simple facts.  Some are in the category of plain but profound.  Get them wrong and the nation suffers.

Take the “law of unintended consequence”.  Some politicians become quickly obsessed with a hobby horse notion.  It is often driven by ideology and ideology comes with blinkers.  The consequence of the idea and then the policy is clear in their mind.  For example, “we want to slow down landlords buying additional houses because it is driving up house prices”.  Simmering below the surface, unseen, is a burning hatred of people accruing assets and making profits.  That just increases the blinker effect.   Tax them, regulate them, penalise these capitalists.  That should have a major impact, slowing down buyers of second third and more houses competing and bidding up the market.

Impose the rules/taxes and then wonder why your office is getting flooded by people desperate to rent a house. Unintended consequences.

Another sister axiom to take aboard is “incentives matter”.  If you pay people to be idle don’t be surprised if they stay idle and encourage their friends to join them.  Pay subsidies to foresters and sit back and watch good, high producing sheep and beef, even dairy land go into trees.

There is a more subtle example.  Employ and pay people well to care for those on welfare.  Tell them you want to see them help the unemployed and the sick back into work.  Logical and sensible?  Not when you realise that if they were successful and, with the help of some miracle, got all those on benefits in their patch back in work, there would be no job for them. It is called “perverse incentives”.

We have thousands of people on the public’s payroll and heaps in the private sector working for the good of the welfare of the needy.  Individually they may well be genuine and mostly are.  Challenge them with the notion of perverse incentives, explaining they are subtly encouraging welfarism and they would be shocked and hurt.  But reality tells you that collectively the system is reliant on individual goodwill and not well constructed for positive outcomes.  Why would you work assiduously to do yourself out of a job?

Why not turn the incentive around?  Imagine paying someone who has the required credentials a substantial bonus for every beneficiary they get back into work. 

The idea could go further.  There are a number of families that are dysfunctional.  No one works, drugs and crime are involved, living conditions are miserable, no fathers around – just sires, kids rarely at school and the problems are third generational.  There are families like this costing the taxpayers over a lifetime well millions, literally.

What if we said, “let’s calculate the net present value of those millions and we invest that into a capable mentor who was highly incentivised to help that family get back to “normal?”  Would it work?  Rodney Hide and I know it would because we tried it when we were in Parliament.  We paid a person a pretty significant sum to turn around three very dysfunctional families and in less than a year she achieved it.

It began with a plan.  A list of goals that our mentor worked out with each of the three families.  Underneath all the degradation, chaos and dysfunction were human beings, often guilty, shamed and wanting to better themselves but there was no way out.  Just take the state’s money and keep smoking, drinking, stealing, eating KFC.  Have another baby – its more cash coming in.  Any of the guys calling will oblige on the kitchen table, on the floor.  You get hit less if you are readily willing.

Now someone has turned up saying, “I can fix your face where you were hit with that bottle”.  “I can get the kids some new clothes and get them to school”.  “I have the cash to get you into a better flat”.  “I will drive the ‘uncles’ out”.  “I will help you get onto a better diet, stop smoking, get a job”.

“You have to want to do this and be willing to cooperate.  I will drive you hard to reach the goals you and I and the kids are setting down today.  But there is a better future for you if you work with me and stick to the rules.  Get it wrong and I will kick arse.  And hard.  Get it right and we move to the next goal in the plan”.

Each goal achieved earns the mentor a substantial bonus.  Right incentives.  It wont work every time, of course.  Human nature is too fickle and independent for that to be true.  But it sure beats handing out more and more welfare benefits and expecting people to change and their carers to commit to elimination of dysfunction.  If having kids gets you a bigger cheque and better accommodation, you have more kids.  Wrong incentive. 

Where are the mentors?  If there was $100 K, $200K for a part time job steering a family into a better life there would be a heap of applicants.  Retirees would love it.  The taxpayers and the community would benefit but most of all people living in a hell on earth could be given a future and the critically important generational cycle broken.

It would be a better use of the millions doled out to community groups and individuals who got generous dollops of cash for getting their mates vaccinated.

It is a bottom up driven plan as opposed to top down, Wellington solutions.  It deals with people not problems.  It is kindness in action, not in rhetoric.  It is human.  The lefty liberals would hate it.  The unions would go ballistic.  The soppy media would go nuts.  It would take balls to deliver it. 

Bill English would like it. His Catholic upbringing gave him the conscience to want to help the needy.

Most of all it gets the incentives right.