Going beyond money: Part 1 (The Problem) [Strange Solutions]
NOTE: This is a 3-part article:
Part 1: The problem
The war between Capitalism vs Communism is long over. And it is fair to say that communism lost.
At its core, it’s easy to see the emotional appeal of a communist society. But real-life shows that humans aren’t as altruistic as we’d like to believe.
In short: we need incentives to do anything.
Capitalism works because incentives work. And capitalism has found a lever that seems to truly incentivize everyone — money. This is a good thing, money-led incentivization has certainly led to a faster pace of progress & an allocation of effort into areas that have improved living conditions for a large swathe of human population.
But there’s a catch, we’ve gotten so used to a specific version of capitalism that many have started to believe incentives = money. And there’s some problems with that line of thinking.
First there are some structural inconsistencies with that thinking.
Structural Issue #1: Incentives are not a uniquely human phenomenon. Animals can be incentivized to do things as well (ask an animal trainer). This hints at a deeper evolutionary mechanism (and corresponding needs) that are the basis for incentives.
Money on the other hand is an artificial human construct. While it has been convenient, it would be quite far reaching to think that it is a perfect mechanism to satisfy all our evolutionary needs.
For example, there is a reason that professors and academics care more about their perception in the academic world, versus how much money they are making — even though often they could make a lot more money in industry. Or why doctors are considered a prestigious profession even in countries where pay is poor. It is because often money cannot satisfy the evolutionary need of being perceived useful by peers.
Are there other needs that money is not great at meeting? We’ll explore evolution & the rise of proto-incentives in Part 2.
Structural Issue #2: Equating all money with incentives often leads to misallocation of human capital, and results in sub-optimal outcomes for the common man or woman.
Economists like to believe that the prices of any consumable unit (product or service) is a fair value determined by large market forces. The “invisible hand” guides money towards those domains that are useful to society (reflected through their price).
With this money flow, societal resources (incl. human labour & materials) too start to gravitate towards these “productive” areas. The end-result is that society is better off as a whole due to good money allocation!
What a great story! Alas, it is not always so simple. The monetary value of many consumable units is determined by the values/whims of a few powerful people (not an egalitarian majority).
These prices then reflect the desires of the elite vs what society “desires”. This is why hundreds of millions can be spent on underground cables to make stock trades 5.2 milliseconds faster across the Atlantic — something no “common man/woman” had a burning desire for.
In general, it is hard to argue against the fact that money works better for people who already have money, i.e., the elites (“it takes money to make money”). And the elites are not the same as society.
Therefore, without exploring any other incentivization system, I believe that governments & regulators are doing a disservice to the masses. There may be ways to get things done that are beneficial to the masses without relying on the elites to dictate flow of money.
Finally there are practical considerations to thinking incentives = money as well.
Practical consideration #1: Firstly, when the only incentive is money, everything that is not incentivized will be subject to the side-effects of money-making. To give two examples that are topical: climate change & rising inequality. These are not random events that emerged inexplicably or magically. Humans will do things they are incentivized to do, and if money is the primary incentive then all else will simply follow the path of money.
Practical consideration #2: There are plenty of examples wherein governments don’t have enough money to provide services to their citizens. Even though money is simply paper, it is not without its own rules and whims. A government cannot simply print money & throw it at problems (there’s a thing called inflation). In fact, many developing countries face a situation where major initiatives are stalled due to unavailability to get money to those who need it.
Money is great & will always be around; but isn’t it also time to ask whether we can complement money with other incentivization systems?
Especially now that technology is on an ever accelerating trajectory & solutions that weren’t available to human till 50 years ago are now a reality.
However, to explore this topic further, I propose we first develop a deeper understanding of human incentives. Specially, by viewing them through an evolutionary lens.
To really understand what makes us tick, and to use that knowledge to propose alternative non-monetary ways to incentivize at scale.
The goal is not to come up with a perfect solution but to spark a conversation. With the hope that enough of these conversations will lead to a better system down the line.
