The financial crisis in the developed world and the long, slow crisis of African governance have one feature in common: what economists coyly term "high-powered incentives". The financial crisis was the consequence of management decisions in the financial sector. For decades people in these pos-itions had behaved prudently, which is why their businesses built up good reputations. Why was the behaviour of the present vintage so different? The answer is the introduction of high-powered incentives - or, more intelligibly expressed, obscenely large payments tied to some specified performance. The theory is that such incentives overcome problems of managerial shirking and niceties such as putting the workforce's interests before those of shareholders.
This simple theory provided the intellectual veneer for grotesque greed: high-powered incentives are, in reality, very damaging. And I have watched them wreak havoc in the apparently very different context of African politics. The bonuses Africa's leaders pay themselves are sizable even by the breathtaking standards of the developed world; like financial managers, the politicians have a massive incentive to achieve the performance benchmark. In the financial sector the benchmark has been quarterly measured profits; in Africa it has been winning an election.
The pitfalls of a bonus culture
Paul Collier has an interesting comment piece in today's Guardian. In it, he argues that the culture of high-powered incentives that led to the U.S. financial crisis is likewise behind Africa's governance crisis: