The Carrot and the Stick
[The Economist, June 29, 1946. Reprinted in American Affairs, Vol. 8, No. 4 (1946), p. 282.]
The human donkey requires either a carrot in front or a stick behind to goad it into activity. It is fashionable at the moment to argue that the carrot is the more important of the two: ‘incentive’ is the watchword, and all classes of the community are busy arguing that if only they are given a little bit more in the way of incentive (at the expense of the rest of the community) they will respond with more activity.
From miners to company promoters, the basic argument is the same. And no doubt, within limits, it is quite correct: a bigger carrot would make the donkey move a bit faster. But it is probably more realistic (though it has that touch of brutal cynicism that is so much frowned upon these days) to hold that the stick is likely to be more effective than the carrot.
It may be true that one reason why people will not work hard is that they can buy so little with their wages. But it is much more true that they will not work because the fear of the sack has vanished from the land and because the bankruptcy court is a depressed area.
However, it is not necessary for the present purpose to argue the respective potencies of the carrot and the stick; it is enough to agree that, if an active and progressive economy is to be founded on the frailties of human nature, both are needed.
But the whole drift of British society for two generations past has been to whittle away both at the carrot and the stick, until now very little of either is left. It is the passion for equality — excellent in itself — that has removed the carrot. The rewards of success have not merely been shriveled; they have been poisoned, since commercial success itself has been turned, in the eyes of wide circles of society, into a positive disgrace.
There is a conspiracy of labor, capital and the state to deny enterprise its reward. The state takes it away in high taxation. All economic progress is, by definition, labor saving; yet the attitude of the trade unions, successfully maintained, is that they will permit labor-saving devices only provided that they do not in fact save labor.
Nor is the attitude of organized capital any better. The embattled trade association movement has had great success in building up a code of industrial good manners which puts any attempt to reduce costs and prices by greater skill or enterprise under the ban of ‘destructive competition.’ The industrialist who discovers a way of making better things more cheaply (which is what he is sent on earth to do) is deprived by the state of all pecuniary return and by his own colleagues of any social reward. Instead of a carrot he gets a raspberry.