Going back through my old posts, I realized I didn’t write the fourth installment to this set up of posts on top-down vs bottom-up.
Now I don’t have to. Nassim Taleb has written about it in his latest book, Skin in the Game.
In short, bottom-up systems work better over the long-haul because decision-makers have more skin-in-the-game for their decisions, which helps the system self-correct.
They pay the consequences for making poor choices and enjoy the benefits for making good choices.
That doesn’t prevent disasters. It’s not perfect. But, it’s better than a system that doesn’t self-correct.
It’s as simple as buying a cup of coffee. If you don’t think it was worth it, you try something else. You self-correct.
Top-down systems separates decision-makers from the direct benefits and costs of their decisions and often provides unrelated benefits for those decisions.
These systems don’t self correct as well as bottom-up systems.
Public schools are a good example.
Parents pay the price when schools are run poorly. The local politician who promises to ‘fix the schools’ by ‘giving them more money’ may enjoy the benefit of winning the election, which is unrelated to the benefit or cost of giving the schools more money.
The real cost of giving more money to a group of people responsible for a failing school is borne by the parents of the children at the school and the children themselves.
Giving more money to the people responsible for a failing school is like continuing to buy the cup of coffee that you don’t like. It’s not likely to self-correct.
The problem is, many parents may have voted for the politician promising more money for the schools because that sounds good. But, if they directly paid for schools, like they do for a cup of coffee, rather than give them more money, they would have opted to find a better school.