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Rewarding Success, Rewarding Failure
by Rick Pasotto

A note from the author: This was presented as a speech to my Toastmasters club.

Should we reward success or should we reward failure?

"What?" I hear you cry, "What a silly question to ask!"

Everyone knows that success is better than failure, that we are better off with more success and less failure, and that you get more of what you reward and less of what you don't reward.

Of course we should reward success and not reward failure.

Okay.

Why, then, do we often do the reverse? Why do we criticize and knock success and reward failure?

First of all, what is success? what is failure? It seems to me that there are two kinds of success and consequently two kinds of failure.

The first kind of success/failure is economic, what we usually refer to as profit and loss. Profit is achieved when the result is worth more than what it costs to produce that result, when you get out more than you put in. Loss happens when you put in more than you get out.

If you're better off (however you define 'better off') after the fact, then there was a profit. If you're worse off, then there was a loss.

Now I'm sure this all seems quite obvious but there is a not-so-obvious aspect that we really only truly understand from a study of economics.

In a market economy, one person's cost is someone else's selling price and one person's selling price is someone else's cost. What this means is that all prices are interrelated and thus, that one person's profit, in a very significant way, is everyone's profit, and similarly with losses.

There is an important but often overlooked point here: In a market economy we don't need to worry about rewarding success because success, in the form of profits, is itself the reward. Similarly, we don't need to worry about not rewarding (or punishing) failure because the losses already take care of that.

One further aspect I'd like to point out is that those who succeed, those who make profits, now have more resources so they can continue and even expand their success, while those who fail, those who suffer losses, have fewer resources to waste.

All in all, a good deal for everyone.

The other kind of success/failure I want to talk about happens when there is no market available, when it is not possible to measure profits and losses. In this kind of situation all we can say is, "Did we achieve the goal?"

And here's where we begin to run into a problem. What do we do if the goal is not achieved? Well, we can either abandon the goal or we can continue to expend more resources attempting to achieve the goal.

Now, if we're just talking about our own personal goals and our own personal resources, there's no problem, because we each have our own internal market, so to speak. We can each judge whether our goal is worth our expenditure of our resources.

But what if there are many people involved and only some of those people desire the goal, but all of them have to pay for the attempt to achieve it?

What can happen then, in fact what often does happen then, is that it becomes more likely that failure to achieve the goal results in more resources being used to continue these attempts. In other words, those who are working towards the goal are rewarded for their failure—they're rewarded by being given more resources to continue their futile efforts.

Consider Lyndon Johnson's War on Poverty. After 7 trillion dollars have been spent, has poverty been eliminated?

Consider the government's War on Drug Users. After billions of dollars and millions of arrests and thousands of raids and countless ways in which our freedom has been violated—have 'drug' users been eliminated? have their numbers been reduced?

In both these cases, and in the case of many, many other government programs, failure to achieve the announced goal has simply been rewarded with additional appropriations giving additional bureaucrats even more job security.

The problem is the lack of a market, the lack of profit and loss to measure success or failure. Using the government to attempt to achieve a goal is necessarily a waste of resources, because failure will necessarily be rewarded.

I started by asking if we should reward success or if we should reward failure. What I am saying to you now is that if you want to reward success instead of rewarding failure, the sphere of government activities must be made as small as possible, and desirable goals left to the energy and ingenuity of entrepreneurs working for the rewards of profits in a free market economy.
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