By Tony Samson
GOOD intentions, especially when backed up by political will, can have unexpected results, not all of them beneficial to those they intend to benefit. The “Law of Unintended Consequences” in economics states that a policy intended to promote the common good can have the opposite effect when implemented.
A favorite example for unintended consequences deals with British India. With the proliferation of deadly cobras in the rural areas, the government decided to stamp out the pestilence once and for all by announcing a bounty system, exchanging cobra skins for cash.
This good intention of offering a cash reward to eradicate a blight did not go as planned. The bounty system became an easy way for the snake hunters to make money. Instead of hunting down the cobras, why not raise them instead? When the government discovered that the snakes had become a cash crop, they discontinued the bounty system, forcing the erstwhile raisers to abandon their snake farms and letting loose the now worthless livestock. The effort to curb the snake population with cash rewards had the unintended effect of even increasing its numbers.
Populist measures meant to favor the poor end up unintentionally harming them. Legislated price controls for such necessities as rice end up in artificial shortages, the rise of a black market, hoarding, and all sorts of disruptions that upend the economic law of supply and demand. What unintended effects will the recent rice tarrification to increase the supply of rice bring about? Will imports replace rice production and heighten the risk of food security?
Legislated wage increases and the addition of workers’ benefits like a 14th month pay are intended to improve the lot of the working class. But the higher labor costs are sure to bring up the prices of goods. Also, as the cost per employee rises, headcount reductions or hiring freezes become more common, bringing unemployment rates even higher, eventually harming the working class.
Lowering the price of tuition for a school may not really increase enrollment. It may instead signal the erosion of the quality of education being offered.
Is it possible to anticipate the impact of a prospective policy using a real-life modeling approach?
Astronauts use simulation techniques to mimic zero gravity that results in floating and more restrained movement. This artificial experience allows the trainee to adjust to weightlessness and feel its effects on his body as well as his ability to cope with it.
In the corporate setting, this real-life modeling takes the form of a pilot project. Sometimes, companies upgrade the software for their customer delivery system, and in the first few days, there’s chaos from disrupted services such as lost ATM balances for banks and billings to e-commerce users. Rolling out a software upgrade in stages can anticipate problems and fix the bugs.
Sudden wealth too can also bring unintended social consequences, like the discovery of new relatives and the expansion of their needs to include tuition requests and vacations at the beach. This is why the names of big lotto winners are not disclosed. This, in turn, raises the unintended suspicion that there are in fact no real winners.
Norman Mailer in his book on astronauts, A Fire on the Moon (1970), muses that dreams are a form of simulation. They allow us to imagine possibilities we don’t routinely think about. When we dream of the deaths of still living loved ones, we feel the pain of the loss as we sleep, even leaving real tears on the pillow. Thus is the unexpected event somehow prepared for, even if the real pain when it comes will still be a shock.
The economic law of unintended consequences is more of an observation rather than a prescriptive tool. It cautions even the careful policy maker to appreciate that there may be factors he did not include in his laboratory model. The behavioral side of policy implementation can be quirky.
Is the bully better behaved when unchallenged and greeted with obsequious courtesy? Is he likely to reciprocate grace and kindness, or does passivity only embolden him to be even more abusive? Good intentions do not always invite good behavior.
It is good to remember the proverb: “the road to hell is paved with good intentions” …and well-meaning policies.
Tony Samson is Chairman and CEO, TOUCH xda.
