THE CARROT AND THE STICK

The London Economist recently spoke some simple, understandable words to the British people, who are beginning to worry about their competitive economic position in the postwar world:

It is difficult to deny that there is a sluggishness about British actions, public and private, that does not exist elsewhere. . . . There is no active discontent, but also no sparkle or enthusiasm for anything but the various ways of consuming leisure. . . . The causes of [the phenomenon] deserve some inquiry.

The human donkey requires either a carrot in front or a stick behind to goad it into activity. It is fashionable at the moment to argue that the carrot is the more important of the two: "incentive" is the watchword, and all classes of the community are busy arguing that if only they are given a little bit more in the way of incentive (at the expense of the rest of the community) they will respond with more activity. ... But it is probably more realistic (though it has that touch of brutal cynicism that is so much frowned upon these days) to hold that the stick is likely to be more effective than the carrot. It may be true that one reason why people will not work hard is that they can buy so little with their wages. But it is much more true that they will not work because the fear of the sack [of being fired] has vanished from the land, and because the Bankruptcy Court is a depressed area.

The Raspberry. The whole drift of British society for two generations past has been to whittle away both at the carrot and the stick, until now very little of either is left. . . . There is a conspiracy of labor, capital and the state to deny enterprise its reward.. . . The embattled trade association movement has [put] any attempt to reduce costs and prices by greater skill or enterprise under the ban of "destructive competition." The industrialist who discovers a way of making better things more cheaply (which is what he is sent on earth to do) is deprived by the state of all pecuniary return [through taxes] and by his own colleagues of any social reward. Instead of a carrot he gets a raspberry. . . .

The same process has been applied to the wage earner as well. . . . The whole effect of the growth in strength of the trade union movement--indeed, one can say its deliberate intention--has been to divorce the worker's income from any dependence on the efforts he makes.

The stick has been whittled away no less than the carrot. . . . The more comprehensive the protection and the higher the benefits [under social security], the less, quite inevitably, is the urge to stay in employment or to seek it when it is lost. . . . There are already signs that the admirable principle of full employment is likely to be translated in practice into fixed employment, the doctrine that nobody must ever be thrown out of work.

The British businessman has also . . . found ways and means of removing the stick from his back. The growth of trade associations, of price-fixing and market-sharing devices--the whole apparatus of protection, in fact--is inspired by nothing so much as by the desire to prevent the bankruptcy of the inefficient--even if, thereby, the progress of the efficient is also impeded. . . . In a competitive economy, such as the American, when one firm acquires a more efficient machine and cuts prices, all others are compelled to follow suit, whether they can "afford" to or not. . . .

Sugar Candy. Britain finds herself today between two great competitors, both of whom, in their different ways, keep a sharp edge on the motives that lead to action. In the United States, glittering prizes have always been offered to the ambitious, and they glitter no less today. . . . The difference in welfare between employment and unemployment, between success and failure, is still unmistakably sharp. . . . The Soviet economy made an original attempt to do without incentives or sanctions, but it has long ago reintroduced them. . . . Nowhere, certainly, are the penalties of incompetence or laziness more sharp. Both the Russian and the American economies are, avowedly and deliberately, carrot-and-stick economies; the British is rapidly becoming a sugar-candy economy.

Several ways to restore the carrot suggest themselves. Any form of payment by results works in the right direction. So does any attempt to preserve the margins of income that can be secured by greater skill or experience --and it is the real margin, after taxation, that counts. ... It will only lead to disaster to pretend that ordinary human beings are angels or philosophers (of either the Marxist or the Spencerian professions). . . . Even in the 20th Century, most of them are more like donkeys driven by desire for gain or fear of hunger.

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