Book review - Skin in the Game by Nassim Taleb
Skin in the game is a book published by Nassim Nicholas Taleb in 2018 which I managed to read over the holiday period. The central premise of the book is that humans function best when we have "skin in the game". That is when we are liable to face the negative consequences of our own actions in addition to the positive consequences.
A builder who is liable for a house falling down shortly after he builds it has skin in the game. Similarly a Roman Emperor who led his own troops into battle also had skin in the game, as he was prepared to accept the consequences of being wrong about the battle (through death if necessary). Examples of individuals with little skin in the game would be the CEO of a large corporation, who owns little or no shares in it and receives compensation despite it becoming bankrupt. Another example would be the architects of the Iraq war in 2003, who were not responsible for performing any of the fighting in the war, despite initiating it.
The ideas in the book made me think about my daily interactions with the planning system. To what extent does the NSW planning system promote "skin in the game" and hence the best examples of human behaviour? Here are a few ideas of my own based on further application of the principles of the book:
- Despite many ideas and statements to the contrary, local government is actually the level of government with the highest level of skin the game. Local Councillors and Mayors are far more accountable for their own decisions than members of parliament at any other level of government. It is often possible for a local resident to contact their local representatives instantly via mobile telephone, although it would be almost impossible for one to do so with a state or federal premier, given the size of the jurisdiction.
- The above would also apply to the size of Councils. Small Councils have more skin in the game than amalgamated mega-Councils. Amalgamation of Councils is unlikely to lead to better outcomes for ratepayers over the long term. This is due to larger organisations being less efficient and having less skin in the game. The closer decision makers are to the consequences of their decisions, the more skin in the game applies.
- Mayors and Councillors have more skin in the game than local government employees or panels of experts. Mayors and Councillors are required to stand for election and are therefore required to interact with local residents on a regular basis to maintain support. I am not saying that local government employees or panels do not have skin in the game, but rather that it is less than for elected representatives.
- A state government minister (eg. planning minister) certainly has skin the game, although probably less so than a Council collectively (perhaps more than a Mayor or single Councillor individually, however). The Minister has far more skin in the game than a state government employee or appointed panel.
- Government employees have more skin in the game than external consultants or contractors.
- State government and its Ministers have more skin in the game than federal government.
While the are certainly many aspects of the planning system in 2019 that facilitate "skin in the game" it is notable that this is far less the case than 20 or 30 year ago. Historically, almost all power was rested in a state government minister (accountable to parliament) and in elected Councils. These parties subsequently delegated most day to day decisions to employees, while still being accountable for them.
More power is now centralised at state government level, although much of this has been taken over by appointed panels rather than the Minister. Similarly, it has been increasingly mandated that appointed panels take the place of elected Mayors and Councillors in making decisions. I am not saying that the work of panels or government employees is bad, but looking at things from the perspective of skin in the game, an appointed panel or employee will likely always have less skin in the game. This is why it was historically a principle that these groups were subservient to elected representatives.
Warren Buffett said that to be successful in business or as an investor, we need to have skin in the game.
My question is that in moving away from historical principles of encouraging skin in the game in planning and local government, are we heading in the right direction?