No more giant carrots!

I went downtown for an early dose of Ted this morning, and got an wake-up call about the danger of incentives, those carrots and sticks that supposedly make the world go round but actually are an affront to nature.

I have been aware of this Ted thing for a while; people give “the talk of their lives” on all sorts of topics for 18 minutes or less, but just last week I got hooked in a little. Our first talk was a short bit on the brains and genes of psycho killers – a nice cheery start to my day.

Then we heard from Janine Benyus about the importance of biomimicry, or learning design from nature. She pointed out numerous examples of how plants and animals solve problems, and what we can learn from them, and pitched a great web site at Its search function asks the question “How would nature…?” I plugged in “organize an economy” and got quite a few leads on my pet topic. I look forward to a bunch of reading on bees and ants and altruistic white-fronted bee eaters.

Finally, Daniel Pink told of a cognitive experiment that measured the impact of incentives on problem solving; it is called the candle problem. It requires the subject to find an obscure solution, to use creativity, to think outside the box. And it turns out that providing incentives for people to solve the problem quickly actually slows them down.

I’ve occasionally commented on the injustice of giving bonuses to some of the same people who nearly destroyed our entire economy last year. But as Pink pointed out, our entire system of bonuses and perks is actually counterproductive. This has been scientifically proven beyond much doubt, most clearly and ironically through a study commissioned by the U.S. Federal Reserve Bank. This paper “observed that high reward levels can have detrimental effects on performance.”

Incentives work reasonably well for simple mechanical activities, but once even “rudimentary” cognition is required, rewards focus the mind at the expense of peripheral vision, which is where the flash of insight is born. It seems that the more complex the problem and the more incentive is offered, the greater the disruption to the creative abilities needed to solve the problem.

Bringing Benyus back into the picture, nature doesn’t have huge incentives. Leaders of a social group do sometimes get the best hunk of gnu, but they never get their own private herd (with lesser members doing the work of managing and harvesting from it). Some rewards certainly motivate animals to do specific complex actions in laboratory settings, but our unique nature (and tendency to live outside of laboratories) limits what we can learn from this.

Still, we’ve all been trained to respond to the little treats, so some evidence is in order that we can be trained otherwise. Pink provided several examples, the most striking of which is the battle of models that played out over the development of the world’s leading online encyclopedia: Microsoft assembled a well-managed team of well-paid professional writers to create Encarta, which I have never used nor been aware of anyone using (and which – get this – will be discontinued on Halloween!). Meanwhile, Wikipedia just sort of happened through a loose network of autonomous volunteers writers, and is utterly without competition.

The skewed system of rewards is not only rewarding the wrong things, but it is limiting our collective ability to solve complex problems. I recently noticed an alarming sign of this in the return of the collateralized debt obligation (CDO). Some overly-focused genius realized that the easiest way to get rid of all the toxic assets left over from bundling and slicing mortgages is to bundle and slice them all over again, magically yielding top-grade investments from crap.

We need to kill the bonus monster or it is going to eat us. We need NEW ideas, not bigger and yummier carrots.

Our survival depends on our ability to stop focusing our brightest minds (and our dimmest ones) on what’s in it for them. This is especially true in times when lack of previously expected compensation is not simply the absence of a good thing; it can also involve collection agencies, foreclosure notices, hunger, poor health, and general humiliation.

One of the best ways I know to do this is through employee ownership and control. Profit is allocated based mostly on hours worked, freeing workers from the need to be clever while giving them the space to be clever. Depending on management structure there may still be day-to-day hierarchy, but the managers at least know that they answer to a board made up of elected workers. The usual concept of boss breaks down, along with the need to please outside “investors” who often have no real investment in the company’s long-term survival.

In particular, the Mondragon cooperatives of Spain’s Basque country have placed relatively strict limits on executive compensation – no more than six times that of the lowest-paid new hire – and also created an elaborate system of profit sharing so that none of the 150+ cooperatives pay wages more than 110% or less than 90% of the overall average. They have never laid anyone off, and have had only a handful of business failures. Even during Spain’s grueling recession, the Mondragon cooperatives remained stable and avoided layoffs by reassigning workers as needed.

Meanwhile in the U.S., the severe overuse of incentives has badly warped our ability to work together, and created a problem that must be addressed quickly before it causes further damage to our wobbly economy and society. If we really want to practice biomimicry, we should look deeply at what animals do in groups. It sure doesn’t look like what we’ve been doing. I’m sure that whenever some group of critters started letting an elite eat all the best bits of wildebeest while others starved, natural selection nipped that in the bud. We’re smart enough to elude nature for a while, but it will eventually catch us too.

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