How (14 page)

Now consider the so-called flat tax. Imagine how little thought, energy, and time you would spend each year meeting your civic obligation to fund the government if you had but a single payment to make that equaled, say, 20 percent of gross earnings no matter what your income, with no deductions or loopholes. My guess? About half an hour. The savings to the nation in productivity gained? Billions of dollars. This argument, put forth strongly by proponents of a flat tax, not only would save the objective time it takes to file tax returns, but seemingly would also quiet the internal conflicts that sap focus and concentration from other things. It seems like a no-brainer. Of course, it is not that simple. Rules like the tax code function as proxies for the desires of a society. They approximate a value or standard that a culture deems important, and attempt to achieve it in a clear and unambiguous way. A progressive tax code—where those who earn more pay a higher percentage of their income in taxes—is an attempt to codify a vision of the equitable redistribution of wealth and the responsibilities of the wealthier in society to the poorest members. In other words, the tax code exists to legislate a vision of fairness. If utility, economy, and ease of compliance were the sole aims of the tax code, anything but a flat tax would seem wasteful and inane. When you consider the proxy duties of the tax code, however, the issue becomes far more complicated.

It’s difficult to instill values like fairness and respect throughout a population as large and diverse as the populations of most nations. Yet fairness is a powerful idea, and one most people would agree brings benefit to all. So legislatures create a tangled and inefficient set of rules they believe approximates the prevailing sense of what is fair. This creates a paradox. Almost everyone can argue that, from his or her perspective, one part of the tax code or another is
unfair
. Whether you feel corporate loopholes benefit the powerful over the individual, the mortgage interest deduction favors the middle class over the working class, or the earned income credit favors the poor over small businesses, every line drawn by tax rules to be fair to one group immediately creates a negative space of unfairness to another. A rule, for instance, that gives a tax break to a small business for buying a needed small truck or sport utility vehicle (SUV) inadvertently benefits extremely wealthy people who buy gas-guzzling Hummers for their personal pleasure.
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Rules are rules, but unlike our desire to connect with others and our tendency toward value-based thinking, our brains are not hardwired for rules. They are a social phenomenon.

We grow up as children in a world of external rules—“Don’t touch the stove” or “Don’t run into the street”—determined and administered by their parents and accepted, for the most part, on faith. As we get a little older, we begin to incorporate rule formation into our imaginative play. At first, those rules are in our complete self-interest. “Okay, the rule is you can’t tag me!” We form rules much as we experience them, as expressions of limits imposed by others—in other words, what mommy and daddy want. Pretty soon, though, we begin to realize that our friends don’t like rules imposed on them any more than we do, and so, in the interest of getting along, the rules become more neutral. We learn to “play fair.” Still later in life, most of us begin to find some joy and challenge in playing within the rules. Checkers becomes fun because pieces can only do certain things at certain times, card games add more complexity, games like chess and Go add nearly infinitely more, and sports add specific parameters to physical activity. The relationship to rules that we individually hold by the time we become adults is deeply informed by these early experiences with rule formation and group play.

Civilization itself developed along similarly organic lines, as adults developed ever more complex rules in response to the pressures of living together. We began in small tribes and, as our tribes grew in size and interrelationships became more complex, they began to invent rules to guide, manage, and sometimes control each other. Rules became codified in the form of laws, like the tax code, designed by a cadre of leaders and held up as the structure of civil society. To this day rules, in one way or another, govern the spaces between us, and as we discussed earlier, serve us well in many areas. However, as we begin to consider in depth the new thinking needed to succeed in a world of HOW, we need to examine more deeply our relationship to rules, how our thinking about them helps us and, sometimes, holds us back.

RULES AS PROXIES

Why do we employ rules as proxies? Because rules seem efficient, and modern society (and industrial age capitalism) was built on the foundations of efficiency. Most democratic societies, for example, confer the right to vote based on age. In the United States it is 18, in Japan it is 20, and in many other countries it is 21.
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(The right to vote at 21 also originates in long-forgotten feudal habits—it was the English age for knighthood.) Age, however, does not necessarily correlate to a person’s intelligence, maturity, or sense of civic duty, qualities that arguably comprise a much better standard by which to judge a person’s qualification to vote. If you want to hold an election that will produce the best possible outcome for society, as judged by its ability to do the greatest good for the greatest number of people, you would allow only mature, civically responsible citizens to vote. Instead, we choose a proxy—age—as an objective, easily quantifiable substitute for intelligence and civic-mindedness, and hope that this somewhat arbitrary marker includes enough quality voters to get a good representative government. There are, however, many 25-year-old voters who have little idea of what comprises good government and lots of 15-year-olds with a highly developed sense of civic responsibility. By relying on a proxy rather than a value, we include many who, by the standard of holding the best possible election, should not be enfranchised, and we exclude many others who should. Rules like a voting age, when they act in this way, are both over- and underinclusive.

Though an election including only qualified voters would be a much better election, it would be extremely difficult to administer. It is relatively simple to administer an election if the rule says that you need to be 18 to vote. You verify everyone’s age and citizenship when they register; then they show up with their registration and vote, and the entire election throughout the country takes but one day. Determining a qualification like maturity and civic-mindedness, on the other hand, would be far more complex and time-consuming, not to mention subjective. In a rules-based society, we often choose efficiency over value, but, while rules-based governance systems may often serve well the values of fairness and representation, their seeming efficiency hides a deep and important flaw:
We often rely on rules when they are not, in fact, the most efficient or effective solution to getting the result that we desire
. Understanding that flaw is vital to thriving in a world of HOW.

Another problem with rules lies in the fact that they are not created in a very efficient, or systematic, way. Elected bodies, vulnerable to the demands of the political process, write them; those who wield or seek to wield power over others, either militarily or professionally, write them; owners or boards of companies, or a manager chosen by professional meritocracy write them. William F. Buckley once joked that he would rather be governed by the first 2000 people in the Boston telephone directory than the Harvard faculty, and those Harvard folk are pretty smart people.
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Despite the best of intentions, people create rules variously and often in
reaction
to behaviors deemed unacceptable to the larger goals of the group. That is why we often find ourselves revising the rules when new conditions reveal their loopholes. Again, let me share a couple of examples.

In 1991, the U.S. Congress issued federal sentencing guidelines to incent good corporate behavior.
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At that time, the Congress laid out a number of steps and programs corporations could adopt to mitigate their potential liability should they be found guilty of criminal violations. It was a rules-based solution proposed by a rules-based organization: the U.S. government. In response, companies spent enormously on compliance programs (proxies for good behavior, really) and grew large and costly bureaucracies of compliance in an attempt to inoculate themselves against future penalties. This carrot-and-stick approach, however, did not lick the problem. Companies added more enforcement, more penalties for getting it wrong, and more incentivizing rewards for getting it right, and yet they did not see substantially more compliance. Despite this huge investment in more compliance programs, since 1991 there have actually been more companies that have run afoul of the law. In 2003, the ad hoc advisory committee to the Federal Sentencing Commission concluded, after studying these compliance programs, that they failed to achieve “effective compliance.”

In the wake of a seeming abundance of corporate scandals at the turn of the twenty-first century, the U.S. Congress hastily wrote a new set of rules to govern corporate conduct, the Sarbanes-Oxley bill (commonly called
SOX
), and revised the sentencing guidelines to react to those transgressions. Corporations again immediately allocated billions to figure out how to comply with the new regulations, just as they did a dozen years before.
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Consider this smaller example of the same phenomenon: A manager puts up a sign in your company lunchroom that says, “Please Clean the Microwave after You Use It”; then another, “Do Not Put Your Feet on the Tables”; then a third, “Don’t Eat Other People’s Food.” All these rules, and the myriad more little lunchroom dos and don’ts that your manager madly prints out and posts, attempt to codify a single value,
respect
. Rather than declare a common value, such as “Respect Our Common Spaces,” most rules makers spend their time chasing human ingenuity, which races along generally complying with the rules while blithely creating new behaviors that exist outside of them.

What does the persnickety lunchroom manager and his signs have in common with the U.S. government and Sarbanes-Oxley? Both reveal a startling truth about rules: Rules respond to behavior; they don’t lead it.
Rules don’t govern human progress; they govern the human past
. This essential truth shapes our thinking about rules: To succeed, it seems to imply, we must learn to dance with the rules.

DANCING WITH RULES

I believe in the rule of law, and I believe we need rules and laws. Certain laws work. Laws have done a good job of regulating easily quantifiable human actions. Environmental laws, safety laws, child labor laws—these are areas where society unquestionably benefits from hard floors that regulate action. We do not select a bottled water based on how few people it has poisoned, nor do we buy the car least likely to spontaneously combust. If extensive and reliable science exists about how to build a house to best withstand earthquakes and hurricanes, society benefits by codifying that science into law. We should not give builders four options for building something when we know that only one will work. Remember that this book is not about crime, sociopathic behavior, or the desire to undermine or destroy civil society; it is about the habits of mind and behavior that can lead to long-term, sustained success in a hyperconnected, hypertransparent information age. When I talk about rules, I’m talking about the rules that regulate behavior within the mainstream of socially acceptable action.

Likewise, I believe that we should all master the ability to live well within the rules. Mastering the rules is a Hill of B accomplishment. It’s safe, well-defined, and basic. Like all basic knowledge, it is a necessary stage on the path to real understanding. But too many of us get stuck on the Hill of B.

We live in a rule-of-law society, and due to our history of ever evolving toward fairer rule making, we have grown very comfortable with rules. In fact, our reliance on them has become part of the problem; we turn to law to solve too much. If the law says we
can
, then we do. We’re very good at
can
versus
can’t
thinking. Our habits of mind are so strong in this area, in fact, that we’ve become muscle-bound, as overdeveloped as a bodybuilder trying to touch his toes—strong, but inflexible. We overrespect rules, which leads us into a quagmire where all our actions get mucked up in the spectrum of legal permissibility. We’re so strong in this way that we begin to feel like we can do anything as long as we obey the law. We become like Microsoft was in the 1990s, believing that we can crush the competition as long as we don’t break the letter of the law.

As Supreme Court Justice Potter Stewart suggested, we’ve conflated legal permissibility with permission. Dancing with rules often leads to losing your sense of what is right for the long term. Since rules often blow around with the winds of political expediency, they don’t provide a stable reference with which to steer a true course, especially when the seas are rough and changeable. Microsoft never got into trouble for being a monopoly. There is, in fact, no law in the United States against
being
a monopoly. No one minded Microsoft being a bull—we like bulls in business—but no one could stand the company conducting itself like a bully. When Microsoft used its position as a virtual monopoly to act unfairly and with belligerence in the marketplace, the U.S. Justice Department and the European Commission prosecuted the company.
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Microsoft never got into trouble for its WHATs; it got into trouble for its HOWs.

It might be easy to assume from all this talk about the limitations of rules that I’m an advocate of breaking them. “Rules are meant to be broken” is a familiar strophe in popular culture and conventional entrepreneurial wisdom. “I believe in rules,” said legendary baseball coach Leo Durocher. “I also believe I have a right to test the rules by seeing how far they can be bent.”
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When we “get around” the rules, we feel we are free of constraint, but this is a dangerous illusion.