According to our financial experts, the reason we couldn’t punish bankers, and curtail the bonus culture, or slap a tax on banking bonuses or transactions in the UK was because the “best people for the job, will leave the country“. We were told that the market system dictates that if you take away the incentive, no matter how unjustifiably large those incentives are, the best people will all flee the country to some fucked third World country, where oversight and regulation and taxes are low. It encompasses the entire scope of human nature, and sums it up by telling us that monetary incentives are what ultimately drive us, and anything else would be evil socialism and that government should be off our backs but big business should be allowed to stab as many backs as they wish, because it’s capitalism, so it’s okay. I think that pretty much sums up Friedmanite economic theory.
The utterly ridiculous Mayor of London, Boris Johnson claimed recently that a 50p top tax rate, and an extra levy on non-doms would force 9000 bankers in Britain to flee the country. Boris’ office said:
Boris is determined to highlight to everyone, including George Osborne, that this [bonus] tax is already having an adverse impact and should it become a more permanent feature of our tax system it would have an extremely devastating impact on London’s long-term prosperity.
What interests me, is that Boris, along with every other Conservative both here and America seem unable to admit that London’s long-term prosperity was not attacked by the idea of a bonus tax, but instead by the free ride that the Conservatives gave to bankers, allowing them to gamble horrendously, for twenty five years. Why are they unable to admit that their precious free market system failed miserably? Their logic no longer applies. Johnson should therefore be ignored on this one. Especially given that the Tories matra has been that we are “all in this together“.
The article goes on to say that Goldman Sachs would consider moving their offices abroad because of a super tax suggested by Alistair Darling, the then Chancellor, earlier this year. This is the same Goldman Sachs who were forced to settle $60million out of court to stop an investigation by the Massachusetts Attorney General into whether or not Goldman promoted drastically unfair and impossible home loans across the State. This is the same Goldman Sachs that stands accused of selling dodgy packaged mortgages that they knew were going to fail, to investors, and then betting against them, making a fortune through it, prompting an ex-Goldman worker involved in the scandal to write the book “How I caused the credit crunch“, the same scandal that lead to Goldman Sachs paying a record $550million settlement after being sued by the SEC for fraud. Why are we all allowing ourselves to be held to ransom, by a bunch of criminals? Incidentally, when the 50p top rate of tax finally came into force in April 2010, Goldman did not make good on their threat. They still do business in the UK. Goldman didn’t leave. The 9000 bankers didn’t leave. The Tories, as ever, were wrong.
Now, ignoring the logistics of moving to another country so quickly, upping your family out of the place they call home, simply because you now only make 1.2million instead of 1.5million in bonuses each year; the apparent science that offering higher rewards will improve performance, is actually flawed and realistically cannot be called a science. It is a manipulation more than anything. A threat. Keep paying us unjustifiably high amounts of money, or we’ll leave, and your country is screwed. It is why politicians are effectively useless, because they have very little say over economic matters. We all know these bankers will not leave the country in one huge banking emigration day.
A group of economists working out of M.I.T and the University of Chicago conducted an experiment using a number of students. They gave the students a number of assignments, including mathematical and scientific problems to solve. They offered the first group a very small amount of money as an incentive to complete the assignments. They offered a second group a higher amount, and they offered a third group a large amount of money. The theory put forward by the defenders of market principles, or those with free-market-failure-denial would argue that those offered the most amount of money, would perform the best. The reality was different. The students offered the highest incentive, failed miserably. The students offered the medium amount and the students offered the lowest amount both ended up with similar results. Both beating the students offered the most.
The economists then took the experiment to Madurai, in India, with higher incentives, fearing that maybe there wasn’t enough difference in incentive when the experiment was conducted on students in the US. In India, they offered the first group a weeks wages, they offered the second group; a months wages, and the third group; two months wages. The stakes in India for such rewards, would be far higher than at M.I.T. Again, those offered the smallest incentive performed pretty much identically to those offered the medium sized reward. Those offered the top incentive, did the worst again. So, the higher the incentive, the lower the performance. Why? Firstly, we now have to accept that free market theory is just that; a theory, and whilst some of it is relevant and works well, there is much of it that has failed recently, and analysing the entire process in this way, can only be a good thing.
It is true that if you don’t give people the money they clearly deserve for the work they have done, they will not perform highly, they will be unmotivated and annoyed. So yes, money as an incentive does work to an extent. The experiment showed that when you give someone a simple task and tell them they will be paid a certain amount for completing that task, the incentive works. But when you give people a difficult task, which requires long term thought, creativity and problem solving skills of the highest calibre, the incentive doesn’t work. I’d suggest the reason for this, isn’t simply ‘human nature’, it is mainly because our society and our universal culture rewards greed and excess and so that trait of greed which exists in all of us, becomes amplified. Human nature is so vastly complex, to sum it up in such a simple way and create an economic system around it, is a problem. And so a highly problematic task, is rewarded in three ways according to the research, and those three ways are personal from than simply the need for money. Those three things are Autonomy, Mastery and Purpose.
Autonomy states that if you want a difficult and complex task completed, self direction is better. Figuring it out for yourself is far more rewarding than having someone tell you how it’s done, it is far better than having a demanding manager micro-managing your every move. Leave your workers to do the job their way. Social commentator Dan Pink points out that the Australian software company Atlassian tell their employees that on one day of the second quarter, they can spend the next 24 hours working on whatever project they want, with whomever they way, and any way they want, they have to then show their results the following day at a staff meeting filled with drinks and cakes. That one day has lead to huge advances in software fixes and new ideas and creations. This did not involve a promise of a bonus or any extra money. They performed to the best of their ability, without the need for more money.
Mastery means improving and understanding what we are doing, far better than when we started. I read a lot of history books, not because it is economically valuable, but because I enjoy it, and I like to know that I can debate and talk about historical events with a degree of mastery. People add to opensource, in their spare time for no money reward, but because the work is autonomous, and they improve and learn as they go. What they create, then becomes free, they do not sell it. It is not economically valuable for the individual. Evil Communism at work again.
Purpose, is pretty self explanatory. A company without its eye on a purpose, becomes pretty dangerous. Now, right winged economics would have us believe that a primary motive for any company should be profit making. This isn’t true. Look again at Goldman Sachs. They took their eye off their purpose to provide sensible mortgages and a helpful responsible banking service, and instead kept their eye firmly on profit, which has been catastrophic. Profit and purpose should be interlinked. Purpose should serve the community, and not just shareholders. There must be a reason for people to want to improve.
Now, what this all means is that when you combine the three, it is interesting to note that our motives, are based almost firmly on concepts that don’t involve money. Money certainly plays its part, we all want to feel secure, but once we have a degree of security, we are not just consumers nor economic statistics, we have personal reasons for the work we do. If we leave people to it; dress in what makes you feel comfortable, talk in a way that isn’t imposed on you from those above, create, innovate and at the same time laugh and talk, instead of simply saying “look, if you do this, you get $2000, but do it my way. Oh and there’s a really important person coming through the office later, when you see him, make sure you bow and call him Sir, for he is above you.“, you will almost always see better results. Once the boss is off your back and the carrot made out of gold has been put away, and employees are treated like people rather than cogs in a money making machine, you will almost always see better results. The logic is now based on quite strong research. Free market obsessives can no longer claim their way is the only way, and this makes me happy.