Analysing externalities

In public finance, there are multiple approaches to determining how to use the public budget. There will always be the standard expenditures that will have to be costed in, the overheads to cover the public service.

Then there are past liabilities that will need to be paid for. But then, each time, the government can make a decision whether those liabilities are still worth their while to continue financing.

After which, we determine the infrastructure and other investments essential for development of the society. When it comes to investing into infrastructure, the government will definitely need to meet needs, but they might have to ask themselves what kind of social benefits are generated in order to work out whether the price tag for fulfilling those needs make sense.

This is the realm of externalities. And the reason we care about that is because the free market would not. If private benefits exceed private costs, then the free market will find its own means of fulfilling those needs. When there are externalities, the government has to step in. From a business point of view, where there are negative externalities, it is a revenue-opportunity for the government. And where there are positive externalities, the ruling political party can get some political mileage out of it.

Such is the interaction across politics and economics that is worth a bit more attention.

Grasping mistakes

We are embarrassed about our mistakes. We need to get over them, and often, we do so by avoiding them. Please don’t talk about it or revisit the experience. That can be psychologically comforting. But are we doing justice to the cost that we bear for the mistakes?

I’ve written quite a fair bit in the past about the social or culture attitude towards mistakes, and I think a lot of the ideas are still worth exploring:

All of this is so that we can build and develop wisdom, where we know how to work within and navigate a dynamic environment. The problem with theoretical approaches and specific methodologies to achieving outcomes is that they assume that there is an ordered, stable environment within which we conduct our activities. Sometimes, that is just not exactly the case.

Feature or bug

The only time you have to say something is a feature, not a bug, is when it appears to be a flaw. The notion behind this idea is that there was an intention. That aspect of a software, or product design, or service experience was not supposed to be a flaw but an intentional part of the design. It assumes there was an intention, some objective being served.

The reason people might think it was a bug could be because:

  • They had different objectives from that of the way the product designer had imagined the objectives of their users to be
  • They were not the target audience of the product/service
  • They were forcefully making a product fit their needs
  • They did not know how to use the product – which could reflect badly on the UI design or the UI of whatever instructions needed
  • The product had a poor product-market fit
  • The product designers were giving excuses for themselves

There isn’t supposed to be a debate whether something is a feature or a bug. It should always be resolved by the one who had designed the product/service. If it was a result of something being overlooked, it is a bug, and pointing out that it could be a feature is just an excuse.

Who foots the bill?

You bought an expensive foie gras meal and paid for it but can’t finish it. So who foots the bill?

If you finish it and get sick as a result? Is the doctor’s fee part of your foie gras bill?

If you don’t finish, and it goes into a food waste heap that requires public subsidy to manage and clean up, are the taxpayers footing your bill?

Would knowing all that change your decision to buy that foie gras meal?

What if you knew the future path of your choices? Who would you allow to foot the bill? How far ahead would you care about the consequences of your actions?

This is a story about externalities, cost and consequences. Who should care? Who should we care for? How much should we care? No one teaches us all these? We have to work them out and make decisions.

The corporation

The faceless corporate had been painted as the enemy of man in popular culture and broader artistic endeavour. The idea is haunting. Some kind of machinery driving its machinations through its cogs and gears to achieve some broad vague goal that sounds appealing in concept but nefarious in practice.

Of course, the reality is that it is not just the corporate that can behave and seem this way. There is the bureacracy that is a manifestation if a “government” or even a non-profit. There is also loose organisations centered on single-dimensional stuff (hobbies, interest groups, certain kind of political activism, etc).

The point is this idea of a “corporate” or some kind of machinery is anti-thetical to being human. Why would that be so? Here’s the tricky part.

We are all complex and multi-dimensional that in creating singular objectives or goals and trying to relentlessly pursue them reduces us to something less than human. And those “big entities” essentially embody this limited dimensionality compared to what life really is. Same goes with money, when we make everything in business about that. We reduce richness with riches. What a shame.

We don’t have to be anti-corporate. But we probably would do better to understand why its reach should not be all-extending.

Mandates vs voluntary action

We all want to make the world a better place. And in Singapore, we’ve somewhat cultivated the idea that we need to force people to take the right action or they won’t. Often it is because they will point to others who have not done it and say ‘why don’t you ask them?’

The people who failed to bring their trays back to the shelves at the hawker centres before NEA’s mandate had excuses – they were busy, the cleaners had to have something to do, they forgot, and so on. But it was never clear enough that they ‘had to’ do it. Once the mandate and the penalties came, it was clear. As clear as day. So, mandates make requirements clear to a large extent. It makes people sit up and recognise they had to take some action. More so than the consequences of dirty hawker centers, or when you have to take over a messy table.

What can we learn from this that we can apply to climate change?

If we don’t feel hit by the experience of a messy, unclean hawker centre, it is even harder to feel like we need to take any particular course of action just because we have a few more hot days. After all, one could turn up the air-conditioning (which worsens the problem at the system level). So mandates are needed to help with the coordination. The direct consequences alone are insufficient because of externalities, so the government should step in to ‘make them feel the pain’.

Significance of work

What does a job mean for you? What is work to you?

It used to be just tasks or collection of tasks that had to be done. The tasks were easily connected to the end goals.

Then things got complex and the tasks were clear but it felt more distant from the ultimate outcomes that the whole lot of people were trying to achieve.

Finally we did away with task-based identification of the work and changed parts of the work to be based on creating some kind of outcomes. In trying to connect the outcomes to the person, we lost the clarity on the specific tasks required. That can lead to undisciplined exhaustion of energies and burn out.

On the other hand, for all the jobs where tasks can be clearly specified, technology has been used to displace human workers. Leaving humans to only supervise or check through the results. In fact, at some point even the quality checks can be automated.

Where does that leave us? What does that mean about the future of work?

The future of work can be meaningful if we resume our human role of caring for who the outcome of work is for, and the manner in which the work is done. We carve out that higher role for ourselves by being capable of continuous improvement that focuses on the final objective of the work itself – the satisfaction of the user.

Promoting into oblivion

One of the big struggles of corporate is that when you have clearly defined roles where there are job titles, managers, and the ‘managed’, there is this false sense that you get promoted because you’ve proven yourself. Now, you start being required to work with entirely new skills, and you no longer have to use that much of what you were good at.

The tricky bit often in management is that the corporates are not sufficiently focused on training and bringing you up to the level required because mass training is easier to justify than just training a handful of people. Moreover, in many organisations, being in management has a lot more to do with handling internal politics and jostling for resources than to do with getting the real work done. Politics is of course important because that enables the delivery team to be able to deliver but if you just got promoted from being the best performer in the delivery team, you’re almost completely oblivious to what this new management role really is about! Not to mention growing the skills overnight to be able to do the new job well.

Some organisations, like the military that operate based on the old British aristocratic style tries to overcome this problem by having two classes within the service. The commissioned officer and the non-comissioned officer tracks are ways in which you focus one group on the ‘leadership’ (really, it is more management) skills. In contrast, the other group are more focused on ‘operations’ (or what is deemed more as ‘follower’ type) tasks. Of course, reality is a lot more complex than that but this form of organisation, while crude, aligns expectations and allows the specialists to focus on the frontline nitty gritty and have the ‘leaders’ focus on the big picture elements. Over time, though the commissioned officers have ever been trained in the basics, they lose their ability to really keep up with the changes on the ground to be able to command at high level.

Yet that form of organisation is probably not ideal as it can be a bit elitist and does not incentivise people to perform in ways that allows them to utilise their potential well. It boxes people into neat categories that serves the organisation more than the individual, and at some point, a lot of people would give up on the system as they find themselves uninterested in being thumbed down as second-class citizens, or being forced only to do the big ‘leading’ kind of stuff.

The market presents a new way of organising people, and as our markets develop, I’d expect a lot more small tiny firms to exists and serve large swathe of people when technology enables them to.

Addicted to speed

I’ve taken to riding the bicycle more frequently and in the beginning, I’ve often sought to ride really quickly and reduce the time spent between points as far as possible. I basically wanted the bike to be almost my teleportation device. And the reason I preferred it over public transport was not just because it was cheaper, but that I could control where I wanted to go, and when – up to a certain extent at least.

But what is interesting is that I observed even if I was going at very high speeds, my commuting time hardly changed all that much. A couple of seconds, handful of minutes sometimes, but it requires you to maintain a high speed over long segments of the journey which may not be easy to achieve because of terrain changes, and need to navigate traffic.

And I thought about the formula that we learnt in Primary school:

Distance = Speed x Time

And if you rearrange it, then you get

Time = Distance/Speed

So, assuming the distance is fixed for every journey, the only way to reduce the time spent is to increase your speed. But because it is the denominator, if your speed is already relatively high, the amount of time you can reduce by increasing it by a little is really minuscule and perhaps often not worth it. And as a rider on a bike, you could probably calculate how much energy you need to exert to achieve a particular speed over flat ground, and work out the optimal trade-off between energy and speed that will provide a suitable time for your journey.

If you substitute distance for anything else; such as work to be accomplished, or widgets to be produced, and so forth, you recognise that the principle that applies to speed remains the same. There is only this much the rushing would help you reduce the time spent. The excess energy put into rushing will have diminishing marginal returns and it would probably be squandered, and you find yourself drained significantly just to reduce the time when perhaps that amount of speed is not necessary.

For a Singaporean like me who tends to be impatient and wants things to be fast or rushed, grasping this principle is quite precious because it forces you to recognise the limits of using your energies to rush things and compress time. There is a natural limit to it, and we probably ought not to try too hard to challenge that limit. Even if you encounter someone unreasonable who tries to compress it further, you would do well not too be too caught up with their attempts at squandering excess energy to pressure you. Allow this insight, this understanding to dissipate their pressure and negative energies on you.

Solving the right problems

One of the greatest challenges confronting our modern world is the sense that when there is a solution for something, the idea that we didn’t apply it indicates a lack of responsibility or some kind of mistake on the part of a human. The fact a surgeon could have healed someone but failed to puts the blame on the surgeon even when the chance of success is probabilistic. Of course, some things require a lot of resources to achieve even when they are feasible, so that doesn’t mean that the feasibility of a solution isn’t the only parameter to determine whether it should be applied or not.

Yet somehow at the back of our minds, if we didn’t apply it, that seem to imply we did not try hard enough or do our best. The issue is that with limited resources, you probably can’t ‘do your best’ in everything. There’s only this much you can give. This applies even to the government, whether it is taken from the budget perspective or the use of manpower.

And for a small country with a lean government like Singapore, solving for the ‘which problem’ to tackle is perhaps increasingly important as there will always be some fringe issues that you can deal with to make yourself look as though you’re doing your job when you’re not making any progress. The recent cigar dish case seems like one of those situation where it is probably not significant enough to escalate to higher (or more mature) decision-makers while seeming to have that easy solution of ‘order them to remove it’. We have a limited attention span available for our public servants, especially those handling frontline issues.