The Trap of Foolish Policymakers for Wise Policymakers
The Trap of Foolish Policymakers for Wise Policymakers
Three strategies to avoid getting knee-deep in the mud of foolish decisions: focus on net future benefits, define exit criteria for projects, and remove the sanctity from policy decisions.
History is full of policymakers and managers who are not foolish but get trapped in foolish decisions. Why? Let’s review three examples and then analyze the root causes. The United States, despite human casualties and heavy financial costs, remained in the Vietnam War for a long time. American politicians, due to the money spent and soldiers lost, and the fear of losing credibility, refrained from a quick withdrawal. This war continued until 1975.
During these twenty years, six presidents from the two main parties, Democrats and Republicans, came and went.
The continuation of the Concorde airplane project: The British and French governments continued the supersonic jet Concorde project despite rising costs and decreasing economic justification, knowing it was no longer profitable. This project led to significant financial losses.
The Soviet presence in Afghanistan: The former Soviet Union maintained its military presence in Afghanistan for a decade despite international condemnation and heavy casualties. This prolonged, pointless presence resulted in economic pressure and political instability within the Soviet Union.
Why do policymakers get knee-deep in foolish policies? The root can be identified in the concept of sunk costs. This means when individuals, organizations, or countries are reluctant to abandon something they have spent money or time on, even if continuing is unprofitable and illogical.
Well, if we want to analyze this, we reach interesting topics. Let me point out two for now.
1. Loss aversion tendency: We are very sensitive to losses. Losing something we already have causes more psychological harm than not gaining something new. 2. Escalation of commitment: Individuals or organizations, even in the face of new evidence, tend to stick to their previous decisions. This behavior stems from social pressure, the need to prove competence, or fear of judgment or losing credibility.
Do politicians always get stuck in the mud of foolish decisions? No. One of the best examples is the change in international and economic policy in Vietnam. The reforms in Vietnam are one of the outstanding examples in contemporary history that show how a country’s leaders can make decisions despite losing credibility and being accused of retreat and betrayal.
3. Reforms in economic policy: After the war with the United States, the communist government of Vietnam implemented a centrally planned economy inspired by the Soviet Union, including the nationalization of industries and state distribution of goods. The result of these policies was economic stagnation, food shortages, and increased poverty.
In 1986, the Vietnamese government introduced an economic renovation program, including economic liberalization and support for the private sector. The Communist Party of Vietnam emphasized Marxist-Leninist ideology, and these reforms negated the fundamental ideological principles that had been promoted for years.
Vietnamese leaders faced internal criticism from party conservatives who considered these changes a betrayal of revolutionary ideals. Ultimately, the economic reforms were successful, and Vietnam became one of the fastest-growing economies in the world. Moreover, the Communist Party of Vietnam retained its power and credibility despite changes in economic policies.
4. Reforms in international policy: After the Vietnam War and the invasion of Cambodia in 1978, Vietnam was sanctioned and isolated.
In the late 1980s, Vietnam decided to withdraw from Cambodia and improve its relations with neighbors and the world. It sought to rebuild its diplomatic relations with the West and the United States and eventually normalized relations with the U.S. in the 1990s. Changing international policies could be perceived as Vietnam’s weakness against external pressures and a retreat from previous positions and decisions.
Three strategies to prevent costly decisions: Focus on net future benefits instead of calculating sunk costs. Base your decisions on net benefits from this moment forward minus costs from this moment forward. Define exit criteria for policies/projects. No policy or decision is right for all situations and times. Therefore, before starting any project/decision/policy, clearly define the conditions under which you should abandon it to avoid decisions without an off button. Remove the sanctity from policy/decision/project. What matters is solely and only public welfare.