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Nudging ourselves out of the economic nightmare


Professor Tshilidzi Marwala is the seventh Rector of the United Nations (UN) University and UN Under Secretary-General.

How South Africa can use ‘nudges’ to improve the well-being of its people.

Joseph Stalin was a man of steel. Faced with the principle of his party that stated that “from each according to their needs, and to each according to their ability”, he soon realised that his people did not readily embrace this. His people, like any other, were inherently greedy and did not want to work for free. His solution was to use violence to force them to work.

He created the gulags, forced labour camps, and moved the Soviet Union from an underdeveloped country to a fully industrialised state. All these were done through sheer force, and it was a bloody affair. Kirov, Trotsky, Rykov, Bukharin, Krestinsky — the list goes on — all these people had to die to make way for Stalin’s will. But there are other means of making people behave in a certain way without forcing them, and this is through the nudge

At the University of Johannesburg, I have a reading club where I invite students and staff to discuss a book that I have read. Last week it was a book titled Nudge, authored by Richard Thaler and Cass Sunstein. Coincidentally, Sunstein dropped me a tweet thanking me for choosing his book as reading matter for my staff and students. Thaler won the 2017 Nobel Prize in Economics for his work in behavioural economics, including the theory of the nudge. A nudge is an object that, whether physical, linguistic or otherwise, encourages people to behave in a particular desired way. 

You probably have not noticed that Woolworths subtly made a move in 2019 to alter consumers’ behaviour. No longer are the alleys to the till littered with chocolates, sweets and chips. Woolworths removed all junk food from its checkout queues in South Africa. Now, instead of a Bar One, you are more likely to find rice cakes or vegetable chips. This is a nudge from Woolworths for consumers to make healthier choices. While Woolworths is using nudges to control people, Stalin used force to control people.

Traditionally, economics assumed that people make rational choices in pursuit of their self-interest. As many economic models will have you believe, markets work efficiently to allocate resources and set prices based on this. The concept of nudging has thrown a spanner in the works, and interestingly, it is frowned upon by many traditional economists.

Behavioural economics has shown us that humans can never be entirely rational, and they use abridged logic and incomplete information to make decisions. Human behaviour limits the efficiency of the markets. In inefficient markets, people can gain from the market without putting in the effort, and this can result in an inefficient allocation of resources and curtailed productivity.

In 2010, then UK Prime Minister David Cameron set up a nudge unit to find innovative ways of changing public behaviour. The unit’s work now spans seven offices, having run more than 750 projects. Many countries, including France, The Netherlands, the US and Australia have begun behaviourally influenced policies.

The Obama administration appointed Sunstein as the Administrator of the Office of Information and Regulatory Affairs. Spain has used nudge policy successfully for organ donation. The country works on an opt-out system with all citizens automatically registered for organ donation unless they choose to state otherwise. Spain implemented an opt-out system and now has an organ donation rate of 43 donors per million people — a rate more than double that of the EU’s average of 19.6 per million people and significantly higher than the US rate of 26.6 per million people.

Nudge introduces the concepts of choice architecture and libertarian paternalism to explain where attention should be focused when people are faced with a decision. Choice architecture refers to the way options are presented or displayed to us and how this can influence our choices. Libertarian paternalism refers to conscious efforts, by institutions in the private sector and also by governments, to shift people’s selections in paths that will advance their lives.

In 2019, First National Bank (FNB) partnered with the Entertainer app, which provides discounts or deals on restaurants, travel, health or beauty. No doubt a perk for customers, the app also offered FNB invaluable insight into spending habits. 

Medical aid company Discovery Health works somewhat similarly through its Vitality Rewards programme, which rewards users for completing health checks, doing an HIV test or attending a gym regularly. Like FNB, Discovery stores this data and uses it to keep track of its users.

The idea of storing data for rewards has been adopted by the Chinese government, which uses a Social Score to control and manage people through machines. For example, if you litter, you may lose points, but if you pay your bills on time, you may increase your scores. The government then ensures that you are rewarded for your behaviour.

Banks could offer you lower interest rates, or you could be promoted faster and get better job offers, for instance, based on your social score. Following the outbreak of the coronavirus at the beginning of 2020, this proved a useful tool in tracking the spread of the virus and providing adequate treatment. By using voice robots and big data, it is possible to check information such as personal identity, location and health condition. It can then categorise information and produce daily reports.

In Chicago, nudging was used to prevent road accidents around perilous bends. The curve on Lake Shore Drive and Oak Street is one of the city’s most dangerous spots. In 2006, to try to limit accidents, the city painted a sequence of white lines which were perpendicular to the direction of the cars. These lines become increasingly tighter as drivers reach the sharpest section of the curve, offering them the illusion that they are speeding, and thus nudging them to reduce their speed. In the following six months there were 36% fewer crashes than over the preceding six months.

However, nudging is not always practical. In a study, a power company tried to nudge consumers to use less energy by comparing their power consumption to their neighbours. However, many took it as an indication that they could increase their power consumption. There are particular types of nudges called sludges, which are used to coerce people to act against their interests. Thaler refers to sludge as nudging for evil. For example, while newsletters and subscriptions are often easy to sign up for, they are incredibly difficult to cancel.

Virgin Active ropes you in with a free gym bag, a water bottle and the first month free. If you are with Discovery and you use Vitality, you pay about R250 per month and receive rewards. Yet, if you wanted to cancel your contract before it was complete, you would have to pay 40% of the remaining contract amount. Virgin Active also has all kinds of tactics to keep you interested. Governments also show signs of sludge. In the US, for instance, the local government in Ohio kicks people off voters’ rolls if they skip a few elections.

Similarly, a programme named the earned income tax credit that is intended to encourage work and transfer income to the working poor, requires people to fill out a tax form that many eligible taxpayers fail to complete.

In 2017, it was found that Uber was using various insights from behavioural economics to nudge its drivers to pick up more fares, often with little benefit to them. Drivers received in-app notifications telling them how far off their current earnings were from previous days, and the next fare was loaded before the current one was complete, encouraging them to take another fare.

Sludge thus can either discourage behaviour that is in a person’s best interest, or it can embolden self-defeating behaviours such as investing in a bad deal that appears to be good.

How can South Africa use nudges to improve the well-being of its people?

In his recent State of the Nation Address, President Cyril Ramaphosa announced the establishment of a new smart city in Lanseria. While this is to be commended, let us first improve the well-being of our existing cities such as Johannesburg CBD, which has been progressively decaying in the past 20 years. In this regard, let us nudge people not to litter in our cities. South Africa has been experiencing plenty of power cuts, and Eskom needs to be fixed. One of the wicked problems of Eskom is its inability to collect money for service in certain areas. In Soweto alone, Eskom is owed a whopping R18-billion. We ought to use nudges to make people pay their electricity bills to save Eskom.

In 2019, Melitta Ngalonkulu reported that of the 25 million credit consumers in South Africa, 10 million are behind with their payments. The situation is becoming progressively worse as the fortunes of the country decline. We can use nudges to make South Africans save more and spend less and ease their debt burden.

One of the problems destroying the future of our country is corruption. We should use nudges, such as pamphlets in every public space, to nudge people to desist from corruption and secure our future. Like in other countries such as the US, China and the UK, let us use nudges to solve our political, economic and social problems. DM


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