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One criticism of the modern day regulatory state is that politicians and various senior government officials promulgating new policies have no "skin in the game"; that is, they have little to no personal liability in the results of their decisions. For example, a politician supporting a "bridge to nowhere" would not suffer any personal consequences if that bridge fails to have enough users - i.e. they wouldn't be forced to pay a fine. On the opposite side of the coin, a politician supporting the construction of a new spaceport would not see any direct financial benefits if the project is immensely successful - i.e. they won't see any dividends from commercial use of said spaceport.

Are there countries that attempt to tackle this problem by introducing some sort of "skin in the game" incentives? I'm aware that Singapore tried to encourage better governance by paying performance bonuses to top politicians but they're still guaranteed 70% of their salary every month no matter what.

Update as requested. Since it seems like "personal investment" is a vague concept, here's couple more examples:

  1. A king personally participating in a battle is the most extreme example, though strategically unwise and no longer common for hundreds of years. If they win, the king gets the spoils. If they lose, the king is killed or kidnapped.
  2. During the COVID lockdown politicians rarely suffered any consequences of their own actions. Financially they were better off thanks to selling stocks on time, they were exempted from stay-at-home orders and could continue living in luxurious houses. Politicians flouting the rules were likewise spared the worst thanks to having preferential access to the best treatments.
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    Could you give some examples of people making this critique? Because your first sentence reads to me like "one criticism of the modern day regulatory state is that politicians don't personally profit from it", and I feel like the opposite argument (that politicians are too focused on personal gain) is a more common one.
    – Giter
    Nov 28 '21 at 17:14
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    @Giter there's a lot of complaints over bad projects getting funding and bad regulations causing economic stagnation, with no repercussions for said politicians. Nov 28 '21 at 17:28
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    It seems to me you are only acknowledging the downside, and not the upside (to the politician). You want politicians to pay for mistakes. And then the politicians start backing laws, or worse, making laws which are guaranteed to profit them. Which is pretty much the definition of corruption.
    – CGCampbell
    Nov 30 '21 at 10:44
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Sure, it’s pretty common, though we usually refer to it as “corruption”.

A politician can invest in that spaceport, or land on the other side of the bridge befor approving the subsidies. If they don’t have the money to invest, the company or developer can even offer shares at a steep discount to help them get “skin in the game” before making the decision. Then, if the spaceport is successful, then the politician profits handsomely, whereas if the bridge doesn’t spur the economic development promised, then their investment there will lose value.

This is partially facetious, but I think it’s also accurate and a good explanation for the problems with such approach. In a democracy, we want politicians to act for the common good, not their own profit, and so far the best, if imperfect, system for this is voting and elections

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    I think the idea is they would be invested in whatever they were approving, not whatever was there before: instead of getting to own the land where the spaceport will go (and then selling it to the spaceport for a handsome profit) they'd have to buy part of the land and spend money on behalf of the spaceport, in exchange for some of the spaceport profits.
    – user253751
    Nov 29 '21 at 19:17
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    Generally, it is called feudalism. It becomes corruption when feudal relationships overcome the otherwise democratic setup.
    – fraxinus
    Nov 30 '21 at 6:44
  • I don't see how this answers the question asked, which is whether there are countries where politicians can be forced to be personally invested in their decisions.
    – Jafe
    Dec 1 '21 at 5:05
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    @Jafe a mature corruption culture pretty much forces all the participants into the status quo.
    – fraxinus
    Dec 1 '21 at 7:17
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It doesn't work.

This is because most spending by governments isn't intended to generate a profit. Sure a bridge might not have many users: but it links an isolated community and avoids the dangerous ferry crossing.

A hospital isn't more successful if lots of people get sick.

And criminals don't pay the police to arrest them.

Social care isn't more profitable if more people get old.

A government isn't a company. It has goals other than "make the most money". So this (frankly weird) idea of "skin in the game" is a non-starter.

If a piece of capital investment is intended to be profitable, then there is likely to be a private investor who will pay, for a share of the profits. If it is not, but valuable for wider social reasons, then the government may step in to pay. The involvement of politicians is precisely because the spending is not expected to be profitable.

Politicians do have an personal interest in the success of capital spending - but through reputation and the ballot box.

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    This is correct — a proposals such as proposed in the question would be foolish. However, the question was whether it's implemented anywhere, and it would be far from the first time that a foolish policy is implemented.
    – gerrit
    Nov 29 '21 at 12:31
  • If the bridge is projected to cost 10 millions and therefore is approved but ends up costing 20 millions (and wouldn't have been approved at that cost if it was known beforehand), that is clearly a welfare loss. Politicians don't need a formalized incentive for successful projects, their profit is to be re-elected.
    – d-b
    Nov 30 '21 at 22:59
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The main problem with this idea is defining the behaviour we want to reward.

Imagine we had a really good algorithm for telling us what are good decisions/policies that politicians should be rewarded for, and what are bad decisions they should be penalised for. We can use this algorithm to tell us when you fine politicians or give them bonuses. But we can probably also just use this algorithm to make the decisions in the first place (the politicians certainly will in many cases, to maximise their bonuses) in which case why do we need the politicians?

In reality, you can't make anything approaching such an algorithm, because many (most?) political decisions are highly subjective and debated. Different people do not agree on what is the best decision on a given issue; they don't even agree on the principles that could be used to evaluate the benefits of different decisions.

Algorithms you can use are simple things, like giving politicians a bonus for the profitability of the projects they support. That immediately gives politicians a strong motivation to game the system and support projects/decisions that give them the most personal benefit, instead of ones that benefit the constituency they were elected by. And you can guarantee that companies seeking government support will game the system by structuring themselves so as to maximise the performance pay of politicians who arrange for the government to support the company; effectively this sets up a system of sanctioned bribes.

Another tricky problem is how are the rules of these algorithms to be determined? Are they in ordinary legislation? That means politicians themselves decide the rules by which they will be rewarded for their decisions. Or are they enshrined at a constitutional level? The immediate problem that comes to mind with that is, for example, yet another obstacle in legislating to address climate change (if that is what the people want) because the politicians personal incentives are defined by rules a century old and do not take it into account.

One form of "skin in the game" that elected politicians do have is that if they consistently make decisions that their electorate don't like they will be voted out, losing their politician's salary. Elections can in fact be viewed as an indirect algorithm for judging politicians' performance. If I were to try to redesign systems to increase the incentives for politicians to make good decisions, I would concentrate on strengthening the connection between the politician's decisions and their electoral success (e.g. reducing the necessity for and therefore influence of donors and lobbyists, maybe weakening the power of parties, things like that).

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  • "That means politicians themselves decide the rules by which they will be rewarded" Sadly this is true in many countries. Unsurprisingly, there are more senators attending their duties on the day where the senators' salaries are voted, than on other days.
    – Stef
    Nov 29 '21 at 13:54
  • From the 1st and 2nd paras I'm confused why the OP checked this as correct. In their example the bridge will have a clearly measurable amount of traffic after being built, likewise jobs and taxes. Before that we only have guesses -- no useful algorithm. Nov 29 '21 at 14:02
  • "Sadly this is true in many countries." What would be the alternative? How would you decide if a politician got a good performance bonus? Nov 29 '21 at 15:30
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    @OwenReynolds to keep up the bridge example, yes a bridge with no traffic probably wasn't a good investment, but that doesn't mean one with lots of traffic was a good investment. Even if the bridge was worth it in terms of traffic vs cost, what about negative externalities? That traffic used to take other routes, the businesses along those old routes probably don't appreciate the reduced traffic. Or maybe the bridge's pylons disrupt riverine commerce and fishing.
    – Ryan_L
    Nov 29 '21 at 19:24
  • @OwenReynolds Yes, you can imagine a perfect algorithm for evaluating decisions after the fact that couldn't easily be used to make decisions in advance. "If a perfect algorithm could exist it could make the decisions" is not really the main point of the answer, so I didn't elaborate on that line of thinking too much. Although in the real world we use modelling to project all kinds of things to help us evaluate the kinds of decisions, so we'd just do that; even if the modelling is imperfect, it would still be a huge improvement objectively good decision making!
    – Ben
    Nov 29 '21 at 20:40
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You've just rediscovered the argument in favor of monarchy. In "Forms of Government and the Duties of Rulers", Frederick II (the Great) says the following in defense of enlightened absolutism:

If a ruler abandons the helm of the ship of State and places it into the hands of paid men, of the Ministers appointed by him, one will steer to the right and another to the left. A general plan is no longer followed. Every Minister disapproves of the actions of his predecessor, and makes changes even if they are quite unnecessary, wishing to originate a new policy which often is harmful.

Men are attached to their own. As the State does not belong to the Ministers in power they have no real interest in its welfare. Hence the government is carried on with careless indifference, and the result is that the administration, the public finances, and the army deteriorate. Thus the monarchy becomes an oligarchy. Ministers and generals direct affairs in accordance with their fancy. Systematic administration disappears. Everyone follows his own notions. No link is left which connects the directing factors.

The sovereign is the representative of his State. He and his people form a single body. Ruler and ruled can be happy only if they are firmly united. The sovereign stands to his people in the same relation in which the head stands to the body. He must use his eyes and his brain for the whole community, and act on its behalf to the common advantage. If we wish to elevate monarchical above republican government, the duty of sovereigns is clear. They must be active, hard-working, upright and honest, and concentrate all their strength upon filling their office worthily. That is my idea of the duties of sovereigns.

According to Frederick, politicians and bureaucrats have no incentive in the welfare of the country, but monarchs have this incentive because being "active, hard-working, upright, and honest" is the only way for them to maintain power.

In the 20th century, economist Mançur Olson also studied the incentives of rulers. He claimed that the transition from "roving bandits" (i.e. anarchy) to "stationary bandits" (i.e. tyrants) was actually the beginning of civilization.

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    I came here to post this answer. A sovereign who, essentially, owns their entire country is by definition invested in every policy outcome. But naturally this kind of investment is probably not what OP is looking for.
    – tbrookside
    Nov 29 '21 at 16:33
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    Unfortunately the last monarchs to have true skin in the game were kings who joined their troops in battle - a tradition that faded away by the Middle Ages. Usually monarchs could get away with hundreds of bad decisions without losing their head. Nov 29 '21 at 16:52
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    @JonathanReez The leader of the most populous country on earth, Xi Jinping, is arguably an absolute monarch. It is also (surprise!) the last country on earth to pursue a Zero COVID policy, and the only country that's seriously trying to eliminate youth videogaming addiction. Nov 29 '21 at 18:23
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    @BetterthanKwora: Your comment seems to assume that "pursue a Zero COVID policy" and "seriously trying to eliminate youth videogaming addiction" are examples of good decisions rather than bad ones? If so, then -- you're certainly entitled to hold those opinions, but I don't think they're good assumptions, since they are debatable at best. (For video-game addiction, for example, see unherd.com/2021/11/whats-china-got-against-gaming .) And it's not clear to me whether the CCP is pursuing them out of a belief that they're good decisions as opposed to good politics.
    – ruakh
    Nov 29 '21 at 23:02
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    @ruakh I'm not using them as examples of good decisions, but of decisions that could only conceivably occur under absolutism. An absolute monarch might conclude that these policies are good or that they are bad, then act accordingly. A politician or bureaucrat will never plausibly have the political capital or incentives to make such radical choices. Nov 30 '21 at 1:12
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The only thing that comes close to this (that I can think of) is performance-based pay for tax collectors. This is done in some developing countries. (One has to keep in mind that these are usually not elected officials, so it's not exactly what the Q asks.) But even then/there:

Historically, governments have addressed tax collector corruption by employing “tax farmers,” who are paid a fraction of the revenue they collect. However, the level of empowerment and authority that was given to these tax officials frequently led to taxpayer dissatisfaction and over-taxation. [...]

Tax officials [in Pakistan] also maintain almost complete control of the property database, for which submissions are handwritten, allowing them to manipulate records easily. Misclassifying a property in the database also can have a significant effect on revenue levels—for example, a commercial property is taxed three to six times higher than a residential property and rented property is taxed ten times higher than an owned property.

[...] the increase in revenue levels was primarily from reassessment of a small number of properties that were reclassified as commercial or rental property and thus taxed at a higher rate. Additionally, despite the revenue merits of performance-based pay, bribe payments increased by an unsettling 30 percent and were paid more frequently.

While performance pay may help address some major revenue collection issues, it cannot necessarily eliminate or even reduce the corruption and collusion between tax authorities and taxpayers.

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There is one major example: A dictator. A dictator has all their skin in the game. Every decision they make affects their personal life, and could result in them being overthrown and killed. It's just that their ideal outcome isn't necessarily (or even usually) aligned with the population's.

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The problem here is that the behaviour you want to reward, or the policies they may support or oppose, aren't always clearly linked to money value.

For example,something topical. The UK prime minister locks down the country due to Covid. This was done on the advice of the Minister for health, with a cautionary note about economic impact and deaths due to reduced services (believed unavoidable)by the minister for trade and minister for social welfare. Fictional posts all.

Now,we can never factually know if this was a good or bad decision and which of those cautionary notes was under or over stated. People will due and be harmed, but every other course of action would have resulted in deaths and harm too. We can never rerun history to know whether the alternative would have turned out better or worse, not least because we cant know what other "course correction" choices would have followed in any other timeline except this one.

Here's another. The UK prime minister pushes through Brexit. But does so by fudging Northern Ireland, believing that can be patched later. The country wanted brexit, but perhaps not all that happened was wanted. But how do you decide if it was success or not? And what on earth would count as "skin in the game"?

And last, politics isn't about financial results, its about finding a way to get most people to overall agree (happily or reluctantly) to work as a society. That means that sometimes an ideal theoretical outcome is actually a poor choice,because it won't have broad enough support, and sometimes the right choice is "not yet" or "small step and framework first'. So a good politician might be one who gets consensus to lay the groundwork for a change but leaves it to the future what happens as a result of that. Or accepts some will hate what's done,but its needed long term. How do you get skin in the game, for a decision like that?

If you can't find a way go make some skin in the game on big deals, or what counts as a success to reward, or failure to punish, its a losing cause to try and do this.

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  • In the case of the UK lockdown, government ministers could be forced to live in an extreme version of it - wearing masks for most of the day (even if alone), living in a tiny cramped apartment without their family not being allowed to travel abroad for much longer than the general populace, etc. Nov 30 '21 at 18:37
  • In the case of Brexit it could've been tied to options that would've made them multi-millionaires in case core trade data was positive or negative money if they were negative. Nov 30 '21 at 18:38
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    Doesn't work. Suppose all options kill people, but some have lower risk or probable fewer deaths. You want to.reward choosing the least worst option, even if people died. Similarly brexit - suppose all options lose money, you want to reward the least worst choice. And if you decide that all brexit options should cause loss because brexit causes loss..... Should it wipe them out into.penury, or just a small loss? And what happens if it loses money for the country, but despite that, surveys show the country as a whole still likes it and the feel-good about independence mattered more, how woul
    – Stilez
    Nov 30 '21 at 19:34
  • then they would tend to not take useful (in the longer term) decisions simply out of sheer selfishness. In general, democracies tend to try to provide governments with means to take rational decisions without specific considerations about themselves (with more or less success, of course)
    – njzk2
    Nov 30 '21 at 22:36

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