Sharing the benefits
The incredible power of win-win
Mark Koyama’s and Jared Rubin’s outstanding new book summarizes all we know today about how and why economic growth happened where it did, raising billions out of poverty. One story it tells is Japan’s rapid program of industrialization after the Meiji Restoration deposed the Shogun in 1868. That modernization was one of the most remarkable in history. It led to an enormous increase in living standards for the Japanese people.
A key part was the abolition of the powerful samurai class. Japan mainly achieved that abolition without resistance, by granting bonds to the samurai in exchange for their previous legal privileges. That illustrates a key technique for would-be policy entrepreneurs.
Successful regular entrepreneurs already understand the power of working with people to find solutions where everyone wins.They know what their profit margin is going to be, and how much of their potential profits they can afford to share to get their deal over the line while still making money for themselves.
Policy entrepreneurs, on the other hand, often have very different motivations. They may start out with only a hazy idea of the size of the social benefits from the reform they want. Their instincts often shout that diverting any of the potential benefits away from the people they are trying to help would be a loss, to be avoided at all costs.
Often they think that way because their head has a zero-sum model of the part of the world they are working on. If you win, I lose: and so I must fight tooth and nail to make sure that doesn’t happen.
But in fact most of the world is not zero sum. Very often, solutions are possible where nearly everyone wins. You may want to be further north, and I may want to move towards the setting sun. In fact we could move northwest, and both be happier.
There is some evidence that people with higher cognitive and negotiation skills do better in negotiation games not necessarily because they extract every last jot of surplus out of the other side, but because they are better at searching the space of possible solutions for an option that makes everyone better off.
I would have called this post ‘Getting to Yes’, but the title was already taken. That book may be worth reading if you haven’t. Much of this post is a standard part of basic courses on how to negotiate well.
Of course, this all comes back to the coalition building that is a key backbone of this series. Building coalitions is much easier if you can show your potential coalition partners that they will share some of the benefits of what you are promoting.
And that leads to another tip for budding policy entrepreneurs: pick positive-sum games where you can. That means finding areas to fix where there are huge economic deadweight costs because the world currently works much worse than it should. There are many such sectors: from housing to education and childcare, healthcare, transport and energy. In theory, we could rearrange things to work so that everyone is better off – what economists call a ‘Pareto improvement’.
Finding that sort of big area of missed opportunity makes it easier to pick reform proposals that, by themselves, can do much of the work of building a winning coalition for change. Fixing large deadweight losses can create so much overall benefit that you can afford to pick a reform that will share around enough of those potential benefits to recruit and motivate a strong and broad coalition to win.
A friend described this approach as ‘the secret power of “Here’s 50K, now f*** off.”’ But that doesn't capture it. Good economists understand everything above. But they normally just suggest paying people cash to shut them up. That may have worked with the samurai, but for many reasons it often fails in other cases.
For a start, economists often describe such payments not in friendly terms like ‘sharing the benefits’, ‘mitigation’ or ‘compensation’ but as ‘buying them out’, ‘paying them off’ or even ‘bribing them’. That doesn’t help endear your typical wamb to such ideas. Framing matters.
But it’s more than that. In what may be an overhang of our evolutionary history, many people do not like to reduce human relations to cash terms. They dislike trying to ascribe a monetary value to interpersonal interaction or things they find precious. They prefer to think in terms of friendship, of family and society, of relationships and reciprocity. If you try to override those instincts, they will often turn against your proposal.
And cash may also be a more visible form of compensation that will be more upsetting to those who aren’t getting it. Benefits in kind may be less controversial. To try to explain this to economists, you can tell them that cash may raise the cost of compensation compared to more emotion-friendly options.
And another reason is that people like to feel they are in control. They often don’t trust payment for some involuntary change, set at what they see as an arbitrary level by someone else. If you let them choose the option themselves, that will often make it less expensive for you too.
That in turn is for two reasons. First, if they feel in control, they can relax – less worried about the risks of being tricked or losing out. And second, and possibly more importantly, there are so many different options: the solution space has many dimensions. A concession that isn’t very costly to you may be very valuable to them. Finding those tweaks are a key way to build win-win reforms.
One of the most successful developers in recent English history, the late Tony Pidgley, was a genius at this. He knew that cash compensation to grumpy residents would be expensive. But he managed to charm literally dozens of angry residents’ associations into supporting his schemes by listening to their priorities, finding what they wanted that would cost him the least, and giving it to them. Sometimes that just involved moving the place to store the refuse.
Even if our budding policy entrepreneurs understand that they are not playing a zero sum game, they sometimes don’t realize quite the scale of the positive benefits that they can afford to share out in order to win.
As Michael Story and Richard Williamson have observed, ‘Scale Cluelessness Rules Everything Around Me’.Most people are not very good at thinking quantitatively. In fact, mainly they don’t. A tiny loss is often thought comparable to a huge benefit. Some argue that such ‘scope neglect’ has far more real-world impact than every other behavioral bias. You might call it the triumph of the ‘wamb’.
And if people don’t understand the scale of the benefits that reform could bring, they won’t be able to work out how much of those benefits they can share to bring around potential opposition, while still helping the people that they want to help.
A standard result in political science implies that you can almost always build a winning coalition to move in the direction you want, if you are flexible enough about the tweaks that you are willing to make to your original idea. Even if you can’t find a proposal that lets everyone win – after all, some people are simply BANANAs – you can nearly always find something that will let you build a big enough coalition to get your change through.
Let’s pick a concrete example. If we really can raise overall social welfare by 10 or 20% by fixing housing, we can afford to share some of those benefits with the people who would otherwise lose out from better and more affordable housing, while still solving the problem we set out to fix: ensuring plentiful, affordable, high quality housing for everyone.
Whenever I hear a would-be policy entrepreneur dreaming about crushing the opposition, I wonder ‘why haven’t you crushed them already?’ And then I wonder if they might help the people they are trying to help a little faster, if they were a little more willing to look at tweaking their ideas to ensure that more people could win by joining them.
In fact, of course, they generally focus on the people who have any say in the matter; third parties don’t come into it.
Not to be confused with CREAM, ‘Cope Rules Everything Around Me’.