Common Good vs. Self-interest

Why do some business leaders not preempt some obvious problems coming their way?

Could a surprising answer be: because such behavior is incentivized.

To answer this, let’s take a brief detour to politics.

---

The following political questions troubled me for long:

1. Why does the Indian electorate vote against their own long-term interests?
2. Why do bureaucrats uphold the law in letter, even in situations that call for applying them in spirit?
3. Why don’t politicians make roads that endure, roads which are not ruined in a few years?
4. Why is the Indian middle class indifferent to the elections?

Until I came across the “Public Choice Theory”, that “simply asks us to make the same assumptions about human behavior in the political sphere as we make when we analyze markets“.

The public stakeholders are supposed to be motivated by common good alone. But, significantly, they are bound to approach common good in a way that aligns with their self-interest too.

Seen this way, the above questions do yield some answers, even if they’re incomplete.

1. Because the delivery of public goods are situated in a remote future and may not even reach them. While the provision of private, non-merit welfare goods happens right now.
2. Because it’s safer when a decision goes wrong. Rigid compliance limits allegations of corruption or quid pro quo.
3. Because their most pressing concern is the next election. Nothing incentivizes them to think beyond the current 5-year term.
4. Because they rightly assess their vote won’t make any difference in the outcomes. They’re outnumbered by the various vote banks.

The upside of acting in the above ways is far greater than risks associated with the altruistic path.

Let’s apply this thinking to organizations.

Consider:

• A newly-joined employee is let go only for the position to be advertised in a few months.
• An empowered department is poaching an entire team from a competitor.
• A business is exploring transformation initiative rather than looking at incremental growth.

If you look at the organization as a monolith entity, these developments elude grasp.

However, seeing these from the lens of people making those decisions makes things intelligible.

• Perhaps the new employee’s manager was required to comply with an organization-wide resource optimization drive. She may have had to decide between a long-standing employee (with a proven value to the team) vs. someone whose contribution the team hasn’t gotten used to yet. Later on, in view of persisting demand for the same role, approvals were probably given to hire a new person.
• It may not be an organizational policy. A newly hired leader is probably onboarding his previous team to the newly joined organization. Typically, a newly hired leader is under pressure to deliver, and he wishes to speed up the process with people he has already worked with.
• From a newly-joined leader’s perspective, a transformation initiative typically provides him a safe tenure of at least 2 years. This is also why as people climb up the corporate ladder, a 2-year tenure is seen with concern.

Now, in light of what we just discussed, shall we get back to where we started.

Why do some leaders not preempt some obvious problems coming their way?

Let’s flip this.

What happens when a leader anticipates a problem ahead of time, and preemptively nips it in the bud.

Far from appreciation, the leader’s effort may not even be recognized. It’s thought that, by the natural way of things, there never was a problem in the first place.

What if a problem is allowed to escalate to an extent that the heat is felt around?

And, then, the leader makes a heroic entry and resolves the problem at the nick of time. Knowing what we do know, isn’t it reasonable to assume such a person will be recognized and duly compensated.

Incentives matter!

People cannot be expected to sacrifice their self-interest at the altar of common good. A good policy is not one designed for ideal conditions. It’s one that reconciles self-interest with common good.

PS: Highly recommend this podcast by Ajay Shah and Amit Varma where they PUBLIC CHOICE THEORY at great length.