Who should you let decide your future and wellbeing? Clearly not someone who does not share the stakes in the outcome. Nassim Nicholas Taleeb, a contemporary author who himself spent 2 decades as a risk taker before becoming a full-time essayist, illustrates this concept for success in his book "Skin in the Game".
What is Skin in the Game? "One cannot take risks and decisions that might bring benefit from harm to others without being subjected to them oneself".
The logic behind this concept is that when decision makers have skin in the game, when they share in the costs and benefits of their decisions that might affect others, they are more likely to make prudent decisions than in cases where decision-makers can impose costs on others and escape any retribution. Whereas, Taleeb sees skin in the game as not just a useful policy concept but also a moral imperative.
Further, the phrase is often mistaken for one-sided incentives: the promise of a bonus will make someone work harder for you. No, this says that people should also be penalized if something for which they are responsible goes wrong and hurts others: he or she who wants a share of the benefits needs to also share some of the risks.
Looking at the dynamics of decision making in Pakistan, one will spot clear disregard to our policy makers having stakes in the outcome of their decisions. On the macroeconomic level the Pakistani nation has multiple times seen that politicians load the system with debt and finance the economy with loans to "improve growth and GDP numbers", and let the successor government deal with the delayed results of their skewed policies.
The current menace that our economy is going through can be easily attributed to a person seeking medical holidays in London, not ready to take any responsibility for taking historic loans, pegging dollar to Rs 100 to boost national ego, not increasing gas prices for last five years to keep their voters and themselves happy.
We now hear the new government venting about previous risks and the game that was played without any skin in it. This phenomenon can be seen moving on to the next level at bureaucracy. Bureaucrats are transferred between different departments and ministries in utter disregard to their professional experience or area of expertise leading to no accountability of their decision-making and without their career growth and promotion at stake.
Board of Directors of all important institutions like ex-Wapda power distribution companies Discos, Sui Northern Gas Pipelines Limited, Sui Southern Gas Company Limited, Pakistan Steel Mills and Pakistan International Airline, etc., are selected on the basis of kinship, PR and the more powerful pseudo-scholar that Taleeb calls IYI (Intellectuals Yet Idiots) you look. They are given lofty amounts for their meetings and they share no burden in the outcome of their decisions, the companies work on rate of return formula having no stake what so ever even if the institution goes bankrupt in the process.
However, the sense is that the captain who goes down with a ship no longer has a ship, reckless pilots end up in ocean beds and relentless risk traders if they trade with their own money are often seen becoming taxi drivers. Then why are these white collar scholars and fancy designated persons not made liable for the risks they take and penalized for the harm they cause to the millions of population of the country?
Back in 1754 BC in the code of Hammurabi, a well-preserved Babylonian code of law of ancient Mesopotamia. The ruler Hammurabi knew this simple logic of putting the skin in the game for people whose choices impact others. Code of Hammurabi had one law pertinent to discussion about the architects. If a house was built and it collapsed resulting in the death of the owner then the architect who designed the house also had to die. The law may sound harsh upfront but this made the architect careful in constructing the building, using the best possible material and building techniques to build the best possible house that would last for a long time. The builder literally has his own skin in the success & longevity of the building.
The above mentioned law is a ray of hope for the future, still people and institutions can be made liable for their omissions and commissions of tasks. This can be done by decentralizing the system and not centralize it as we have been doing. Bureaucracy is a construction by which a person is conveniently separated from the consequences of his or her actions. The career path and promotion of the bureaucrats has to be reflective of the outcome of their decisions. In this age of specialization the concept of the generalist bureaucracies has to be changed, so that decision makers stay responsible for their actions and inactions.
The principle of "Skin in the Game" is also reflected in the core Islamic Financing Ideology, i-e you get a return based on the profitability of the venture and share in the downside should the venture not succeed. Pakistan is in need of reforms that rewards and penalizes every cog in the wheel in accordance with the decisions and their outcomes.
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