Every institutional reform solves some problems and creates others. The reformers who acknowledge this are more honest and often more effective than those who do not.
The Second-Order Effects
Institutional reform produces second-order effects — the unintended consequences, the new problems that the reform creates, and the institutional adaptations that the reform generates among the actors it affects — that are predictable in type if not in specific magnitude. The reform that changes incentive structures will produce the behaviours that the new incentive structure rewards, including behaviours that the reformers did not intend and would not endorse. The reform that changes accountability mechanisms will produce the behaviours that the new accountability structure encourages, including the gaming of the new accountability metrics that the old ones did not incentivise. The reform that disrupts established relationships and practices will produce the uncertainty and transition costs that disruption always generates, whether or not the disrupted practices were the ones the reform was targeting.
The reformer who acknowledges the second-order effects of their reform is not acknowledging defeat — they are acknowledging complexity. The reform that is designed with explicit attention to its likely second-order effects, that includes monitoring mechanisms to identify them as they emerge, and that has adaptive management provisions that allow the design to be adjusted in response to observed effects is more likely to achieve its intended purpose than the reform that assumes the first-order effects are the only effects and discovers the second-order effects only after they have undermined the reform's objectives.
The reform that creates new problems is not a failed reform — it is every reform. The question is whether the new problems were anticipated, whether monitoring can identify them early enough to address them, and whether the reform's design includes the adaptive capacity to respond to them. These are design questions, not failure admissions.
Discussion