Ants are fascinating little creatures. You drop one little piece of food on the floor and in no time, a swarm of ants will be all over it. Follow their path and somewhere along the line, you will be treated to one of nature’s most interesting formations – an ant colony. This huge pile of earth is like the mirror image of the world that we humans inhabit.
The human society is an organization, much like an ant colony. It is a system that allows us to achieve certain things we otherwise couldn’t have achieved individually. Humans have lived in some sort of society for a long time now. A society serves many purposes. It has helped in hunting-gathering, protection from predators and as human culture evolved societies became more complex.
The main aim of any society is to create a better life for it’s inhabitants. Now better is a qualitative term, every individual’s definition differs. How then can society work towards making lives of its citizens better?
Nature’s great truth – Inequality
Civilization has evolved and throughout history, the structure of the society has existed on a spectrum from closed societies which are authoritative and stress on the “collective” on one extreme to open societies which believe in providing “individual freedom” to citizens or maximizing the utility of an individual on the other. We believe that open societies lead to more productive economies thus benefiting the whole world.
One of the major concerns in a society is the notion of inequality. Inequality is inherent in nature. We can be strong, we can be weak, we can be born rich or poor, we can ace the IQ tests or fail them. Inequality in abilities naturally leads to inequality in returns. But that is not the problem. For a society to exist, it is essential that performance and ability are rewarded. But what a society should aim for is not equality in returns, but equality in opportunities.
Be the creator, be the created
The acclaimed investor, Warren Buffet has a very interesting viewpoint on this issue. Lets see what he thinks:
Let’s say you are given the freedom to design a society structure for the whole world – yeah something like how Morgan Freeman gave the reins of the world into Jim Carrey’s hands in Bruce Almighty (note: you should watch the movie if you haven’t. It’s quite funny).
But there is a catch. You yourself lose your identity and have to pick a slip randomly from a bowl which has 7 billion slips each having the characteristic of a human from the current population. There it is. You could get any slip – A male or a female, A rich guy in America or maybe a poverty stricken person in Congo.
Now this changes things, doesn’t it ? How would you frame the rules of society knowing that you could end up being anyone ? You wanna excessively reward the highly skilled ? What if you turn out to be one of those who isn’t so good ?
So you want to design a society that gives everyone the opportunity to be able to succeed, not knowing what slip an individual gets. As you can guess, it is gonna be a very delicate balancing act. The boundaries of incentives for performance and security for the less-abled are blurred.
A society striving to move towards the open end of the spectrum, therefore must provide a safety net for the people at bottom, let the top take risk in such a manner that the result of their failure does not affect the general public. Look at the hedge fund industry for example. No player is too big to fail. The industry gains from failure as only the top performers stay in business and are allowed to take risk. The failure of several others does not affect the whole industry like the failure of big investment banks on wall street affected the whole global financial system leading to anger in general public about inequality between the rich and the poor. The middle should be left as it is because they more or less have the same opportunities as anyone in America.
Now the American system may have its faults but it has worked fairly well for many people for centuries.The current political scenario may not be the most efficient in years, but that is where team-work and reconsidering incentives becomes essential.
To create a system that works for everyone, policymakers must put aside their divisive party issues although such games increase their popularity with certain factions of society. Everybody wants different things. Therefore you can lump people in groups, in terms of demographics, race, religion, geography, etc. and appeal to their common issue. But one group’s issue of interest may be radically opposed to another group’s opinions. How does a politician then resolve this conflict of interest so that the policies he puts in place that benefit one group do not harm other conflicting groups? A political campaign can be based and won by focusing on a certain issue that appeals to people’s emotions. But when the politician takes office his policies cannot be divisive, in the sense that they benefit one group at the expense of others. That is being short sighted because in the long run things will normalize and other issues he didn’t tackle carefully will also present themselves decreasing the politician’s popularity.
Only when a politician is capable of thinking of all of these qualities that the“true” population of citizens may be distributed across will he understand the disadvantages of being so short sighted by putting in place policies that put a certain group at an unfair advantage.
Now the unfortunate part is that the politician might get away with being short-sighted, depending on the level of transparency and bureaucracy in the system, the appeal of his political campaign may mask his shortcomings. Therefore incentives are important. So that everyone is accountable. For example, if unchecked deregulation in the markets is believed to be the cause of excesses leading to a bubble and then panic eventually popping the bubble and causing enormous damage to the economic system like the most recent recession did, then policies must be put in place that regulate these excesses no matter how much a particular interest group lobbies to have policies set up their way. This is because judging from history, its the taxpayers that eventually end up paying for the repercussions of greed in society.
The system is too complicated and there are lots of variables to get it right the first time, but we must strive to work on incentives that influence people’s behavior. Because only governments can set the rules which lead to excesses and only government can set the rules that minimize the ill effects of excesses.