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Incentivism

by Win Wenger, Ph.D.

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Incentivism is an administrative principle and problem-solving method which derives in part from cybernetics, the science of governing systems. "A governing system should consume a minimum of the resources of the system that it is governing." That cybernetic principle is a common-sense valuing of efficiency. Applied to management and to government at all levels, Incentivism is the proposition that more can be accomplished for much less cost if incentives are used to align interests and steer policies and actions, in place of many or most more direct means of regulating, governing and directing.

A substantial part of the activities of the free market , over a limited range of economic activities provides natural incentives which align what's good for the individual with the "greater good."   When this alignment takes place, the freely-acting individual for his own reasons does that which benefits the greater whole.  The mass aggregate outcomes of the activities of freely acting individuals tends to serve the general benefit.

First discussed in any definitive way by Adam Smith in 1776, author of The Wealth of Nations, within that range the free market is a much more efficient and inexpensive way to get things done. Individual freedoms and initiative flourish under those specific conditions. The principles by which that range of conditions operates define quite neatly principles of self-government and self-governing systems. Alas, outside that specific range, those conditions no longer hold. Adam Smith himself spelled out the conditions under which the marketplace fails to impel toward, and indeed impels away from, the common or greater good: external economies; external diseconomies, and indivisibilities prominent among those conditions.

Incentivism is a proposal to extend the range wherein market efficiencies and freedoms can flourish, by careful adjustment of incentives to offset such externalities and render unnecessary some of the customary costly direct interventions through which government has sought, with mixed results at best, to repair conditions toward a greater good.

The recent economic crash, and both current and pending environmental concerns, have prompted a number of specific separate proposals and in some instances laws attempting to set incentives in an effort to steer aggregate behaviors in more positive and constructive directions, but neither the art nor science of incentive-setting has developed far as yet and it is clear that some fairly costly programs turned out not to provide the incentive intended. The body of proposed programs and policies which do take into somewhat more account the art and science of setting effective (and inexpensive) incentives, is also often referred to as "Incentivism."

In fiscal matters and political economy, "Incentivism" embraces a body of propositions which would in apparent fact realign individual interests with "the greater good," sharply reducing costs of government while better providing for public services and policies, especially in areas involving the above-mentioned external economies and diseconomies, indivisibilities, and other factors which detract from the normal congruence of free market efficiencies, initiatives and freedoms with the common or public good.  Win Wenger's book, Incentives As A Preferred Instrument of Corporate and Public Policy, free online, is an early attempt to begin developing the art and science for efficient application of incentive principles, and other researchers and independent thinkers have been invited to help develop such early attempts into a true science.

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Related Reading:

  • Five-Fold Path Toward a Robust Economy
  • Three Places To Look For Substantive Economic Recovery And Growth
  • Incentives as a preferred instrument of corporate and public policy
  • Mixed Economy


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