Understanding Society
The Effects of Economic Incentives
EDITORIAL INTRODUCTION
A Soviet furniture factory paid by weight began making chairs too heavy to move. In Rutger Bregman’s Humankind: A Hopeful History, Doug uses Samuel Bowles and Sandra Polanía Reyes’s review of 51 experiments to show how targets can crowd out judgment, motivation, and creativity. Dan Ariely supplies the exception: bonuses can help with simple, routine tasks — the kind modern economies increasingly assign to robots.
A Note on the Original Text
Doug’s writings are presented as originally written. Spelling, punctuation, and grammatical irregularities have been retained to preserve his words and the integrity of the original record.
ORIGINAL WRITING
The content in this post is based on the book Humankind: A Hopeful History by Rutger Bregman.
“ Researchers at the University of Massachusetts analyzed fifty-one studies on the effects of economic incentives in the workplace. The found ‘overwhelming evidence’ that bonuses can blunt the intrinsic motivation and moral compass of employees. And as if that wasn’t bad enough, they also discovered that bonuses and targets can erode creativity. Extrinsic incentives will generally play out in kind. Pay by the hour and you get more hours. Pay by the publication and you get more publications. Pay by the surgical procedure and you will get more surgical procedures.
Here again, the parallels between the western capitalistic economy and that of the former Soviet Union are striking. Soviet-era managers worked with targets. When targets went up—say, at a furniture factory—the quality of the furniture plummeted. Next, when it was decided tables and chairs would be priced by weight, suddenly the factory would produces pieces too heavy to move.
This may sound amusing, but the sad truth is that it’s still happening in many organizations today. Surgeons paid on a per treatment basis are more inclined to sharpen their scalpels than to deliver better care. At a big law firm that requires it staff to bill a minimum number of hours (say 1500 per year) isn’t stimulating its lawyers to work better, only longer. Communist or Capitalist, in both systems the tyranny of numbers drowns out our intrinsic motivation.
So, are bonuses a complete waste of money? Not entirely. Research by behavioral economist by Dan Ariely has shown that they can be effective when the tasks are simple and routine, like those Frederick Taylor took on his stopwatch on production lines. Precisely, the kind of tasks, in other words, that modern economies get robots to do, and robots have no need for intrinsic motivation.
But we humans do.