A Pragmatist's View of Change: Incentivizing Reform

Paul Glastris, Editor-in-Chief of the Washington Monthly, has written an important article in the current edition of the magazine. Here's the money quote:

But for the most part today’s left-leaning progressives are almost entirely focused on politics, economic justice, social issues, and the influence of money in politics. These are important subjects. But the vast complex of government is largely a black box to these folks. Other than defending the idea of government against anti-government conservatives, getting rid of the filibuster, reforming the primary system, and occasionally calling for more “accountability” and “transparency,” they would be hard pressed to articulate any coherent vision of how to reform the government we have, or any real understanding of how the damn thing works.

What I’m saying is this: there are energies being unleashed today that give the country a shot at reforming itself. But reform can’t and won’t happen until the left takes government—its structure and functioning—far more seriously, and until the right develops a stronger pro-government wing that can win over conservative supporters and compete with Democrats, challenging their blind spots while partnering on needed reforms.

This is exactly why I've been saying for years now that the best way to promote a liberal agenda is to demonstrate that government works. As Glastris suggests, the place to start is to understand "how the damn thing works." But the real challenge is to find a way to make large bureaucratic systems change. A systemic view tells us that there is always a natural tendency towards homeostasis. Systems fight change with every fiber of their being. So how does it happen?

Pondering that took me back to something Jim Stuart wrote almost a year ago about his observations on how Obamacare was impacting health care providers.

Healthcare providers are moving away from fee-for-service towards just emerging new service and payment forms that will reward quality, coordination of care, and new delivery methods that reduce system utilization. They are moving to EHR (electronic health records) aggressively, which will enable this productivity improving, cost-curve bending, system-wide change. In fact, I believe this highly complex system (medical care delivery) is beginning to self-organize around a new productivity improvement identity; that the cost curve bending is taking on a life of its own, and that the "half-life" of this system change will be long. This is the complete opposite of top-down, command-and-control org change. This is almost the only kind of big org change that works.

What he's talking about when he refers to "the only kind of big org change that works" is the process of providing incentives that make it in everyone's self interest to change. Rather than a top-down command-and-control process where the leader prescribes the changes that are necessary, a pragmatic leader identifies the outcomes that are desired and then incentivizes the system to change itself from the bottom up.

It should probably come as no surprise to us that our current Community Organizer-in-Chief has chosen methods of reform that incentivize change by appealing to people's self-interest.

Understanding that approach makes it clear how President Obama is attempting to reform our K-12 education system. Especially given the nature of local control when it comes to schools, any attempt to prescribe changes from the top would be ineffective. Instead, the President initiated something called Race to the Top, which laid out broad goals and incentivized schools to engage in the process of reform. For results, you can take a look at the Department of Education's most recent report on the program. I'll simply highlight these improvements:

At 80 percent, America’s high school graduation rate is the highest on record. Student test scores on the National Assessment of Educational Progress (NAEP) are the highest since the test was first given 20 years ago. There have been double- digit gains on state tests at some of the lowest-performing schools – many of which had not seen any improvement for decades. And some of the largest gains have come in the places that have done the most to embrace reform, such as Tennessee and the District of Columbia.

Providing incentives isn't always a matter offering rewards. We all know that the reason Iran came to the negotiating table over nuclear weapons was because they were incentivized to do so by crippling global economic sanctions. And incentives don't always work - as we saw with the Veteran's Administration where the goals were unrealistic and effective oversight was not provided.

But to ensure a government that works via reform, it's important to develop a theory of how change happens in bureaucratic systems. A pragmatic approach to that is to keep a focus on the outcomes you are seeking and then incentivize people in those systems to work towards change in ways that meet their own self interests.