Foreign policy is about incentives, the rest is commentary

By Michael Singh

Economist Stephen Landsburg famously observed that "economics can be summed up in four words: people respond to incentives." "The rest," he said, "is commentary." Examples of such incentives -- in their proper sense as both prospective rewards and punishments -- in the economic sphere include the incentive to work less created by high marginal tax rates, or the encouragement of riskier behavior arising from the provision of insurance. It would not be too great a stretch to apply this same lesson to diplomacy. In international relations, incentives are a powerful force in determining the behavior of states and their rulers; a decision-maker who ignores the incentives his policies create does so at his peril.

Unfortunately, the United States has too often reverted to solipsism in its foreign policy. Ideally, policy should be informed by a careful assessment of the range of incentives influencing allies, enemies, and those in between, and decisions made in order to alter those incentives to produce the outcomes we desire. (This is similar to what Joseph Nye refers to as "contextual intelligence," a term borrowed from psychology.) Instead, policymakers often act with little thought for how others see the world, with the blithe expectation that other states' actions will be a direct function of U.S. power or popularity. It is solipsism, rather than any particular type of policy or action -- unilateral or multilateral, aggressive or accommodating -- which most often causes foreign policy to go awry.

Any occupant of the White House needs to pay careful attention to the incentives created by his policies, which can have an impact on U.S. national security that far outlasts his tenure. A frequently-cited example of this is the decision by President Reagan to pull U.S. Marines out of Lebanon following the bombing of their barracks in 1983, which may have suggested to future enemies that the U.S. is irresolute in the face of attack. Likewise, paying ransoms to pirates, while often seemingly the only choice available to save innocent people, is widely regarded to encourage further piracy. Such approaches, while surely justified in the eyes of decision makers faced with nothing but bad options, lead to trouble down the road.

In this same vein, President Obama should heed the incentives his policies create. Already we have seen that a tougher U.S. approach to Israel has not prompted Arab states to reach out to Israel, but rather has probably caused many of them to take harder lines on the Israeli-Palestinian conflict, as they have strong incentives to avoid political gambles at a time when the peace process is bogged down or to escape the appearance that they are more accommodating toward Israel than is Washington. At the same time, the deterioration in U.S.-Israel relations likely reduces the Israeli incentive to accept U.S. assurances in the future to offset risks taken to achieve a peace agreement. Of course, incentives work not only on those at whom they are targeted, but also other observers. Iran, for example, will watch carefully how the U.S. deals with North Korean belligerence and groups like Hamas will pay heed to how we approach the Taliban in Afghanistan.

Along the same lines, the U.S. needs to understand when its policies, even if popular, fail to change incentives. Obama's announcement of his intention to close Gitmo, for example, was met with applause around the world. Yet, few countries stepped forward to accept the prison's detainees, as their incentives for doing so were not changed by the U.S. announcement. Likewise, engagement with Iran has not yet succeeded in large part because the Iranian regime has strong incentives to refuse regardless of who occupies the White House. Iranian policy is not a function of U.S. actions, but rather the reflection of their own interests and ideology. Likewise, Russia and China's willingness to impose sanctions on Iran is unlikely to be greatly affected by a U.S. effort to engage, as their intransigence probably stems from their own incentives rather than a sense of fairness toward the Iranian regime.

There are times, of course, when morality or other obligations require that a certain course of action be pursued regardless of the consequences. Americans rightly demand that their government occupy the moral high ground. Barring such circumstances, policymakers are best served by fixing upon an objective and reasoning backward to determine how to achieve it, including by creating the incentives necessary to work with and through others. This approach does not, in itself, prejudge the content of one's foreign policy. Whatever outcome we seek, we must create or change incentives to bring it about. While the unpredictability and sometime irrationality of the world will sometimes thwart us, if we ignore the incentives our actions and policies create we will surely thwart ourselves.