Political chaos echoes around Westminster. I can hear it from Nairobi.
Undoubtedly, the Omicron variant is responsible for some upheaval. It's a significant international oversight (following the previous variants) not to push boosters more widely and start vaccinating the rest of the world more aggressively.
However, Westminster's shoddy leadership undermines their own narrative and distracts from the 'war' that's ongoing against covid. Amid this war, politicians (especially in the UK) are disabled by infighting.
In this context, a question arises:
Who is incentivised to do what, and in which direction?
Incentives align but often do so in the wrong direction. We should consider designing incentives to work for everyone; people and politicians alike.
Number 10, and his Government, has a miserable track record of benefiting from 'incentives' that are not in the public interest. It doesn't just smell funny but stinks. From the Guardian on corruption, (the bolding is mine and the whole piece is worth a read):
The matter of who paid for Johnson's £840-a-roll designer wallpaper for his apartment in Downing Street, or for his holidays in Mustique or Marbella, may seem trivial, but it goes to an important question, the same one that proved Aitken's undoing. If any minister, including the prime minister, receives something of value, then won't they feel beholden to their benefactor? And if they do, then who, ultimately, will they be serving – the public interest or the person they owe? …
… Ministers created a VIP lane for their "contacts", granting friends or party donors a fast track into the procurement process and a place at the head of the queue for those juicy contracts. Around 50 companies have been named as having benefited from the VIP lane, with Michael Gove, Grant Shapps, Hancock and others among the politicians who lent a helping hand in the form of an all-important referral. No less than £1.6bn worth of contracts were awarded as a result of referrals from just 10 Tory politicians. Those referrals were golden: if you got one, and found yourself in the chums' club, you were more than 10 times more likely to bag a contract than those companies left outside. …
… Lord Agnew was an especially useful friend to have in high places. Two companies referred by him won contracts that were, between them, worth more than £500m.
It seems likely that a politician who secures a $100m+ contract will get rewarded somehow, whether by lunch or more. Any activity like this creates an incentive to act inappropriately, and not in the public interest.
The notion that referrals are acceptable is uncomfortable. Worse, an opportunity is missed when an institution sets up a direct award scheme to move fast (e.g. the VIP lane). Fixing the existing (slower, presumably more broken) system would be better than creating a new one with the wrong incentives. (For more, look at how Collison and Cowen have started Fast Grants, which drastically reduces the disbursement time of covid-related grant money.)
To repeat the Guardian: If any minister, including the prime minister, receives something of value, then won't they feel beholden to their benefactor?
Singapore has built a solution to this problem under LKY. All influence is banned, but politicians are paid really well according to the economic health of the nation.
In the UK House of Commons, the basic annual salary of a Member of Parliament is £81k, or $107k USD (we’ll use US dollars to compare). By contrast, a Singaporean minister starts with a monthly salary of $34k USD (!!). This works out to an annual salary of $683k, of which $443k is fixed, and the rest is variable. The basic figure is calculated from a benchmark of the median income of the top 1,000 Singapore citizens income earners, with a 40% discount to 'reflect the ethos of political service'.
Critically, there are fixed and variable pay components that are linked to individual performance and national outcomes:
Annual Salary = Fixed (13 months)
+ Annual Variable Component (typically 1 month)
+ Individual Performance Bonus (3 months for good performance)
+ National Bonus (3 months if targets are met)
= 20 months.
The prime minister in Singapore gets paid twice a minister's salary. The British prime minister receives 75% more, up to a maximum of $188k, so it breaks back to 10x less than his Singaporean counterpart. (So, not a massive amount for an essential job.)
While people say they don't go into politics for the money, they do often go for prestige. Prestige, of course, is linked to cash. A nice big prestigious house in SW1 is expensive. Paying well is essential in politics. If it weren't, the expenses scandal would not have happened, and, as we've seen above, it continues.
While we might think bigger problems are afoot than misaligned incentives, I suspect there aren't (in the political sphere, at least). We elect a team to make decisions on our behalf, and if their choices are not in our best interest (because they need to decorate their house and do a second job to pay for this), it undermines the work they do and the trust we have. It undermines the political system entirely.
One of the reasons I'm excited by crypto is that it's creating new ways to incentivise people to do things. Even if the bitcoin project fails as a store of value, it does demonstrate distributed and permissionless participation in a network. If you want to see how incentives can align people to work together, without knowing one another, on a common challenge, look at how many intelligent people have been trying to find ways to increase the value of bitcoin (if only to make themselves wealthier).
If I gave each of you $100,000 in HectorCoin and said this could get to $100 million per coin, your shared ownership would immediately align your incentives to make this happen. Suddenly a fully distributed team of strangers would be checking daily the equivalent of https://fiatmarketcap.com/ to see how their wealth in HectorCoin has increased. Furthermore, if you had time, you might do things to increase the price of that coin by either blogging about it, solving tech issues, building an app around it, or pumping the price.
That example is not to say everyone in crypto is only incentivised to increase the exchange rate of BTC. Yet many individuals are aligned in one direction, and amazing things are being achieved because of this alignment.
Singaporean politicians have a national bonus scheme based on national targets (like many companies do). The PM has twice the national bonus of other ministers. These targets reflect changes in the "real median income growth rate, real growth rate of lowest 20% percentile income, unemployment rate and real GDP growth rate". Typically, ministers get paid ~1-month bonus per year on this (link to 2018 article, with deeper discussion).
Having a metric against which people are collectively judged, and rewarded, aligns people, and choosing that metric is critical to the success of a system. Having shared ownership of a token that tracks these metrics can do the same.
There is no such metric in British politics, and politicians are misaligned and under-rewarded. This means a minister may focus on fiddling expenses, not increasing employment or planning for Omicron. Tokens, and crypto more generally, align incentives. I suspect we’ll be using this technology (as it's easy to implement, trusted, and transparent) to align governance very soon.
Live well,
-h