Want to Understand Politics? Follow the Incentives

By Jon KrausharCommunications Consultant

If you sometimes feel that the news makes you crazy with rage or confusion and you're still at least willing to try to make some sense of what's going on, follow the incentives (mainly money but also power).

The Refusal by Senate Democrats to seat Roland Burris Based on a Technicality: The whole political mess we've seen this week began with Illinois Governor Rod Blagojevich who is charged with trying to sell Obama's vacant Senate seat. That money fiasco and power struggle has turned into a battle over "honor"--Blagojevich's, Burris's, Senate Majority Leader Harry Reid's, and the Democrats'.

[caption id="attachment_4938" align="aligncenter" width="300" caption="Illinois Gov. Rod Blagojevich stands by as his choice to fill President-elect Barack Obama's U.S. Senate seat, former Ill. Attorney General Roland Burris addresses the media on Dec. 30, 2008 (AP)"][/caption]

The incentive to "save face" and appear to be "ethical" has blown up in the faces of the main players in this political tempest. Burris will eventually be seated, when the Democrats in the Senate realize that they are paying a higher price in flouting the law and alienating their African-American base than they are gaining with their ridiculous effort to suddenly show fastidiousness over the political appointment process.

The Economic Crisis: We got into our current dire straits because of short-term, myopic money grubbing--not just by politicians and Wall Street, but also by those of us who fall for quick-buck speculation schemes.

If we want to fix the problem we've got to adjust the incentives

Because of the demand for quarter-by-quarter (if not month-by-month) unrealistic increases in sales and profits and because of misguided efforts to let everyone "share the wealth" whether or not they could afford to, we have created an environment where prudence is unrewarded (if not condemned) and recklessness encouraged. Albert Einstein defined insanity as "doing the same thing over and over again and expecting different results."

If we want to fix the problem we've got to adjust the incentives--rewarding decisions made with long-term, sound outcomes in mind rather than short-term artificial (and often destructive) manipulations to produce illusory money gains and "prosperity sharing." Get rich slow (maybe--no guarantees) needs to replace get rich fast (unlikely).

The Stimulus and Bailout Plans. The road to hell here is being paved with good intentions (supposedly) and bad incentives. Everybody wants to save our financial system and jolt the economy upward and forward. But we are throwing money at failure (certain banks, financial institutions, automakers, insurers and a growing line of other supplicants) and we are punishing success. Healthy businesses or investors aren't being given any incentives to buy up and deal with the failed enterprises.

Overall, businesses and people need to be allowed to failas well as succeed. It is not compassionate to prolong dysfunction; it is dysfunctional.

The incentives have degenerated into perversions of power and mismanagement of money. The goal seems to be to make the politicians look like "saviors" who are "doing something" when the truth is most of them are fumblers who believe they can turn dross into gold with the right policy "alchemy." But the only transformations going on in the stimulus and bailout schemes involve transfers of taxpayer money to special interests that will reward politicians with contributions and votes. The fix for this problem is to put transparent conditions on all the money being spread around. Any monetary distributions to distressed businesses must be loans(not unrestricted grants) with stringent performance, execution and oversight requirements on them. And a much higher proportion of the money disbursed needs to go back to taxpayers who know better than politicians how to spend it. Overall, businesses and people need to be allowed to failas well as succeed. It is not compassionate to prolong dysfunction; it is dysfunctional. Again, the incentives have to be for "long fixes" that in some cases may cause temporary pain but which are far superior to "quick fixes" that cause temporary relief that turns into chronic pain.

Winning the War on Terror. In Gaza, Israel is giving the world a lesson in following the incentives. After years of bending on the truce violations of terrorists and after seeing the terrorists continually reward monetary support and political cover from much of the world with unrelenting bad behavior, the Israelis are finally saying "Enough!"

Interestingly, the incentives for the Israelis include not just security for their own people but also the incentives of three elections. The first is their own national elections in a little over a month (politicians seem to wake up to threats and scramble to "do something" to look good just before elections). The second election is the one that's recently taken place in the U.S. (the Israelis acted now because they don't know how much they can count on support from President-elect Barack Obama). The third election is the Palestinians' presidential election, scheduled for this month, which would pit Fatah against Hamas--a perverse contest of incentives: to choose the "lesser evil." The fix for winning the war on terrorists--whether in Gaza or anywhere--is similar to the fix for the Burris brouhaha, the economic crisis and the bailout and stimulus plans. Long-term behaviors need to be either rewarded or punished and the incentives need to be clear, consistent and continually re-evaluated for their effectiveness. Power should reside where it will be used most responsibly. That's the closest we'll get to "trust" "confidence" and "accountability" in these or any other major problem areas.

If we just complain rather than using our voices and votes to change the incentives we will suffer the consequences. How much more incentive do we need than that?

Communications consultant Jon Kraushar is at www.jonkraushar.net.

Communications consultant Jon Kraushar is at www.jonkraushar.net. He is a consultant to corporate and political leaders including Steve Forbes.