This article is an excerpt from the Shortform book guide to "Skin in the Game" by Nassim Nicholas Taleb. Shortform has the world's best summaries and analyses of books you should be reading.
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What are the downsides of a centralized government? Why is managing decentralized power structures (ironically) easier than centralized systems?
In his book Skin in the Game, Nassim Taleb criticizes centralized power structures in which a few people make decisions that affect everyone. He argues that centralized systems are far too complex for individuals to effectively manage from the top down. Instead, Taleb advocates for the decentralization of power—smaller territories are more likely to govern themselves effectively.
In this article, we’ll explore the benefits of decentralized government: greater accountability and more democratic representation.
Centralized Government Enables Corruption and Mismanagement
In his book Skin in the Game, Nassim Taleb argues that centralization of power is not just suboptimal, but damaging to human societies. Large governments manage such large, complex systems that their intervention and attempts at restructuring are far more likely to be harmful than beneficial.
Since they have no direct exposure to the consequences of their own decisions, government officials are never given the opportunity to learn from their mistakes. Additionally, public officials are able to transfer their risk unfairly onto others.
Whenever someone in government uses taxpayer money to compensate for their own mismanagement or enacts a policy that benefits their image more than their constituents, they’re creating an immoral asymmetry of risk. Since they’re operating within such a large, complex system, this kind of corruption is difficult to detect.
More specifically, Taleb criticizes corrupt civil servants who make decisions that benefit certain industries, then join those industries after leaving office. Taleb criticizes former Secretary of the Treasury Timothy Geithner for facilitating the bailout of big banks and then accepting a multi-million dollar salary at a private equity firm as a “reward for good behavior.”
Similarly, Taleb condemns instances in which government workers deliberately enact elaborate industry regulations, then get hired by those industries as experts with exclusive knowledge of the way those regulations work.
To solve this problem, Taleb proposes that, after they enter the office, civil servants should never be allowed to earn more than a set amount from the private sector, even after they leave office. This would help curb bribery and ensure that those running for office do so for honest, selfless reasons.
(Shortform note: The United Kingdom has instated a watchdog committee for this purpose. While the Independent Advisory Committee on Business Appointments (ACOBA) hasn’t capped civil servants’ income, it sets some limits and investigates post-service jobs for corruption. The committee, however, lacks the ability to enforce its rules and has long been a target of criticism.)
Decentralized governments of smaller states with more skin in the game are less tolerant of corruption and mismanagement because public officials are closer to the consequences of their decisions.
The effects of a city council’s policies on a small town (for example, changes to a public school’s budget) are much more tangibly noticeable than the effects of a federal policy across a nation (for example, restructured tax brackets). This adds pressure to serve effectively and ethically.
Additionally, with a more localized government, each decision-maker has less power and responsibility for potential abuse. In a worst-case scenario, their corruption or mismanagement will harm fewer people.
Decentralized Government Better Represents Its Citizens’ Preferences
Taleb also uses the previously discussed theory of the passionate few to reinforce his argument for a more decentralized political system. Given that a vocal minority can dictate policy for an entire population, smaller autonomous states allow for a more accurate reflection of their citizens’ true preferences.
Consider a hypothetical passionate few in the United States rallying in support of a specific policy. The activists, however, are largely concentrated in just three states. If the nation was not divided into states, the passionate few could impose their preferences on the entire country, leaving 47 states with a large population of citizens indifferent or modestly opposed to the policy. But since policies are allowed to go into effect on the state level, those three states are able to enact it for themselves without impacting the other 47. Now, each state has policies that more closely reflect its true preferences.
Reasoning along these lines, Taleb defends Great Britain’s decision to leave the European Union. He implies that as an independent state, Britain’s policies will be more closely aligned to its citizens’ preferences, instead of being unduly influenced by a minority that resides elsewhere in Europe.
| Taleb and the European Union Taleb is a severe critic of the European Union, calling it a “horrible, stupid project” that’s “doomed to fail.” In his eyes, it allows a passionate few of politicians and their supporters to drag down citizens across Europe with misguided top-down decision-making. One commonly criticized example of the EU’s mismanagement is the Common Agricultural Policy (CAP), which The Guardian in 2013 called “the most blatant transfer of money from the poor to the rich that has occurred in the era of universal suffrage.” The idea behind the CAP is simple: subsidize farming in order to protect farmers’ jobs and increase food supply throughout Europe. In practice, a significant amount of the EU’s $65 billion a year farming payout has gone to the farms on political families’ estates and corrupt government leaders—companies owned by the Prime Minister of the Czech Republic collected $42 million in farming subsidies from European taxpayers in 2018. On top of this, food prices in 2013 were 17% higher in Europe than comparable countries like Australia and New Zealand. Taleb calls the EU’s unified currency a “terrible idea,” as it “encouraged everyone to borrow to the hilt.” This idea has support from economists. |
Refuting the Argument for Centralized Government
If decentralized government provides accountability and greater representation, why do people push for more centralization?
Taleb asserts that if you trust in the potential of human design, the skin in the game of a decentralized government can seem unnecessary. Skinless Intellectuals who “hate skin in the game,” as Taleb puts it, hate it because they believe rational, intelligent humans, if given enough power, would be able to create a better society than individuals with skin in the game acting in their own self-interest.
Taleb takes the opposing view: human design is fundamentally limited. Large governments manage such large, complex systems that their intervention and attempts at restructuring are far more likely to be harmful than beneficial. Ensuring that decision-makers have as much skin in the game as possible protects us from leaders with too much faith in their own intellect and morals.
Large nations are far too complex for even the most intelligent, insightful leaders to fully understand and predict. Any given decision could have multiple unforeseen consequences, and without skin in the game, mistakes go undetected, causing permanent, compounding problems that no one knows how to solve.
| Scaling Is the Heart of Taleb’s Politics The cornerstone of Taleb’s political perspective is that groups of different sizes behave in extremely different ways—as stated in Skin in the Game, it’s possible to be “at the Fed level, libertarian; at the state level, Republican; at the local level, Democrat; and at the family and friends level, a socialist.” Since the rules change as groups grow bigger, you need to allow groups of different sizes to set their own rules. In the Scala Politica, Taleb’s book-length political manifesto published as an academic paper, Taleb argues that borderless globalism is impossible—people naturally care about their own families and sometimes their own nations, but they wouldn’t find the same sense of meaning if they could only relate to humanity as a whole. Additionally, there is no one way of life that will satisfy everyone on earth. This requires a system that allows “tribes” of different sizes to coexist. Taleb cites Yoram Hazony, an Israeli-born political theorist whose ideas have been gaining recent traction in American conservative circles, although Taleb puts his own caveats on Hazony’s ideas. Hazony’s main idea is that cultural cohesion within a large nation is the ideal political structure, even when it means excluding outsiders and treating them less favorably. In fact, he argues that nations can only thrive when they’re excluding others—in his eyes, if a nation embraces global ideals and identity, including everyone, it will inevitably seek to assimilate the entire world, becoming a hegemonic “empire.” A nation defined by its differences from surrounding peoples, on the other hand, provides the strength and stability necessary to coexist with them. Taleb agrees with Hazony on this point but applies his logic to groups of any size. In Taleb’s eyes, “fractal layering” is necessary—in-groups of different sizes (nations, families, religious communities) must be allowed to develop and coexist. Whereas Hazony would argue that a single religious tradition is necessary for a prosperous, unified nation, Taleb holds that Hazony’s “monolithic, absorbing nationalism” that seeks to eliminate factions within itself—one that requires all citizens to adhere to one religion, for instance—is just as ineffective as globalism (and fosters xenophobia). |
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Here's what you'll find in our full Skin in the Game summary :
- Why having a vested interest is the single most important contributor to human progress
- How some institutions and industries were completely ruined by not being invested
- Why it's unethical for you to not have skin in the game
