Saturday, August 20, 2005

Incentives matter

This article is an extended whine on why the US is not more like Finland, which is very socialist and yet not a typical European basket case. It seems very obvious to me. As the article notes:
Finland is as big as two Missouris, but with just 5.2 million residents -- fewer than metropolitan Washington. It is ethnically and religiously homogeneous. A strong Lutheran work ethic, combined with a powerful sense of probity, dominates the society
People respond to incentives. In a tiny, homogeneous country, group norms can take the place of monetary rewards. If you identify strongly with your neighbours then you care if they shun you. But the US is 50 times larger than Finland and very heterogeneous -- people here don't care much about what their neighbours think because 1) their neighbours are not neccessarily much like them and 2) they keep changing. In this kind of soceity group norms simply will not work. If my neighbours in Boston stopped talking to me, I honestly would not notice.


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