Incentives are perhaps the single most important element of interpretation in understanding statist and anarchist dynamics. It would be hard to underestimate their importance, especially since so few people understand said importance.
Basically, an incentive is a preferred path of behaviour induced by the feature or group of features of a system.
This may not be an obvious definition, so let me give you an example. Suppose that we have two schools: one where teachers can be fired and replaced whenever needed, and one where they cannot. What incentives will follow from that? In the first school, teachers will try to do a good enough job to not be fired. In the second school, teachers will tend to be more lax and negligent in their work. We properly say that they lack incentive to do a good job, given the feature we have used as an example.
You can say that an incentive is a “reason” to do something, but an incentive is a particular kind of reason. One may desire to buy a bag of chips because he is feeling peckish, but that is not an incentive. One may desire to buy a particular bag of chips, as opposed to another, because of government regulations making a price higher than another. That is an incentive.
The concept of incentives is crucial because it explains the high degree of similarity between state actions around the world. It also explains how the form of social organization affects society at large, such as the strong correlation between prosperity, happiness and freedom. No study of politics can make any sense without it.
On the other side of the debate, we have the common belief that “we just need the right people”. While statists believe that people are inherently evil and need to be controlled, they also sometimes hold that there has to be some people out there that aren’t, and that we need to put these people in power.
Now of course the pragmatic problem with that is that no political system can possibly do such an operation, and certainly not a democratic system, which favours the most manipulative demagogues.
But beyond that, we must question the fundamental premise that good people can somehow transcend an evil system. Everyone acts in his self-interest, good or evil, and if incentives develop people’s self-interest in a certain direction, then people will tend to act that way. Few people want to be violent, but if the system is set up such that violence returns more benefits than non-violence, then people will promote violence.
The belief that “we just need the right people” seems intuitively obvious because, after all, any political system is the result of human action. This may very well be so: but on the other hand, individuals do not sustain that system any more than someone who builds a house to live in it controls the arrangement of its walls after he built it. That is to say, the hypothetical builder is now constrained greatly by the past, and can only work with what he has.
The same is wholly true of political activity. Having “the right people” in power, whatever “the right people” means, does not change the system of incentives under which they operate. And this does not even include radical belief systems like communism, which not only fail because of incentive failure but because they demand the mathematically impossible (see the calculation problem).
To explore all the incentives of any given system, let alone all of them, would require whole books and thus is wholly outside of the scope of this blog. Nevertheless, we can note some important kinds of incentives, including: how truth is decided, how error is dealt with, how dissent is dealt with, and the presence or absence of coercion.
The most successful (i.e. most tailored to finding reality) system in the history of humanity is science. Following proper epistemology, the scientific process establishes truth by a slow process of integration based on observed evidence, and weeds out error by falsification and independent verification. There is no need for coercion in science, and indeed, coercion is absurd, since the use of one’s rational faculties can only come about when one is free to think and act.
The market similarly relies on people’s faculties to reason and innovate, and therefore does not rely on coercion. Success, which is closest to a “truth” you can get on a market, is based on being able to fulfill other people’s values, and to persuade them of that ability. Failure to fulfill those values results in lower profits, and eventually losses, as people cease to participate in the agent’s exchanges.
Now look at collectivist systems. They cannot survive without coercion- in fact, their very nature is coercion. The state is based on the principle that the ruling class is justified in using force in order to impose its value system (ostensibly in order to keep everyone else in line). Religion is based on the principle that a deity can use threats of eternal suffering to impose its value system (once again, ostensibly in order to keep everyone else in line).
In collectivist systems, truth and error are not determined by any rational measure, but are rather subverted as processes to the needs of the ruling class. In democracy, ideas succeed or fail on the basis of popular opinion and the schemes of the powerful, the former being useful in order to determine what possible forms of exploitation will be most credible in the eyes of the population. In religion, beliefs become prevalent because of their hedonistic appeal and how well they fit the already-existing hierarchical structures.