September 2015

Government Bureaucrats and Poverty: Upside-Down Incentives

by Don Racheter, PhD

Liberals want to help those in need in our society by raising taxes and creating a government bureaucracy to employ them and their friends to “solve the problem.” However, if they actually do solve the problem, then employment as government bureaucrats may cease, so they begin trying to “manage the problem” instead of solving it, which perpetuates dependency – and their jobs!

Even worse, liberal government bureaucrats have an upside-down incentive to depersonalize those they don’t want to look in the eye and say, “I really am not going to help you get out of poverty, because then I won’t have my job,” so they turn them into “cases” instead of individual people. And they treat them according to “standard operating procedures” rather than individualized care plans.

Worse still, they have a perverse, upside-down incentive to actually increase, rather than end the problem, as that is how they and their agency grow and prosper. If, for example, a welfare worker has 30 unemployed people on their caseload, and they work very hard and find each of the 30 a job and no new cases have come into the agency, what justification is there for keeping that caseworker on the payroll?

However, if the welfare worker encourages each of the 30 on their caseload to bring in their friends and relatives to sign up for welfare benefits, and so many do that an additional caseworker has to be hired to handle the load, and if each of the caseworkers does the same, there will be need for an additional supervisor to handle the increased number of caseworkers in the agency.

And who will have the inside track for filling that supervisor slot, but the caseworker who brought in the most new welfare cases? And isn’t that how a caseworker gets ahead in the bureaucracy, how they get a raise in pay by being promoted? And isn’t the growth of the agency protection against layoffs and an agency shutdown?

The incentive structure is such that even good people like you or me, if placed into that bureaucratic setting, would soon find ourselves acting in ways that further our interests instead of those who need our help. It is just human nature, so the answer is to minimize the use of bureaucratic systems and their incentive structures whenever possible in modern governments and substitute free-market systems with their competition incentive structures instead.

What are the incentives when volunteers with a church or other charitable organization seek to help those in need? If they are successful, they can then return to playing with their grandkids, going fishing, knitting, or whatever else they like to spend time doing. Their incentive is to really listen to the person in need, figure out what the actual problem is, and devise an individualized and tailored plan of what can be done to help that particular person in poverty escape from the situation they find themselves in. The private-sector volunteer’s incentives are to actually solve the problem as quickly as possible and move on, not perpetuate it so as to ensure job security and dependency.

Which approach to helping those in need is most likely to be successful? Which is most likely to maintain or increase the dignity and feelings of self-worth of those who are helped? People need a hand up, not a handout. As the old saying goes, “give a man a fish, you feed him for a day, but teach a man to fish and you feed him for a lifetime.” We need more volunteers and fewer bureaucrats to truly solve the problems of those in need in our communities. Let’s care for others in need, but let’s use our heads and not just our hearts when planning how to do it successfully.

Dr. Don Racheter is President of the Public Interest Institute (PII).

The views expressed herein are those of the author and not necessarily those of Public Interest Institute or Tax Education Foundation.  They are brought to you in the interest of a better-informed citizenry.