Opinion: Everything is perception

POSTED: 12/30/13 12:31 AM

Why some tax payers are not paying their fare share is a hot topic in St. Maarten. We know that compliance hovers around 35 percent – meaning that 65 percent is basically giving the fax man the proverbial finger – but we don’t know why so many people are not paying their dues.

Marketing guru Rory Sutherland, a partner with Ogilvy and Mather in the United Kingdom may have found at least the beginning of an answer to this question. Here is a rerun of a story we published a year ago – it has lost nothing of its value.

Sutherland made a brilliant presentation at TED Athens – where he remarked at a certain moment that he was probably in the wrong country to talk about people’s willingness to pay taxes.

Everything is about perception Sutherland said. “Classical economics is pre-occupied with reality. And reality is not a particular good guide to human happiness.”

Here is an example: pensioners and unemployed youth. Pensioners are much happier that young unemployed people, Sutherland notes, even though they are both in the same state of life: they have too much time on their hands and not much money. Pensioners are happy in general while unemployed youngsters are unhappy and depressed. This is because pensioners feel that they have chosen for their situation, while unemployed youngsters feel that their fate has been thrust upon them.

Sutherland said that England’s upper middle class has rebranded unemployment: they call it a year off. Having an unemployed son in Manchester is an embarrassment, but having an unemployed son in Thailand is seen as an achievement.

The Briton entertained his Greek audience with other humorous stories about perceptions too. Standing alone staring out of a window at a cocktail party makes people think you are “an anti-social friendless idiot” but if you stand at the same spot doing the same thing smoking a cigarette people perceive you as “a (expletive omitted) philosopher.”

On a more serious level, Sutherland brought up the debate about the level of taxation, a topic as sensitive in Greece as it is in St. Maarten and elsewhere. But there is a more important discussion to be had: about the level of control people have over their tax money.

We think that this is indeed a crucial question, one that our government ought to pay attention to. If tax payers perceive that their contribution to the state coffers is wasted on, say, trips by parliamentarians to Parlatino meetings in exotic locations, or on fancy birthday bashes for TV networks, they will be less likely to pay their taxes then when they know for sure that the government is going to create great sports facilities for our young athletes and that it is going to make sensible investments in our road infrastructure.

Sutherland maintains that there is an asymmetry between the treatment of creative, emotional and psychological driven ideas and rational, numerical spreadsheet driven ideas.

“If you are a crazy person you have to share all your ideas for approval with people that are much more rational than you, and that is probably right. But people with say an engineering framework feel that logic is its own answer. They never say: the numbers all add up but before I continue I will submit it to some crazy people to see if they are able to come up with something better. We prioritize what I call mechanistical ideas over psychological ideas.”

Economists make a fundamental mistake, Sutherland says, by claiming that money is simply money. What they forget is that there is an emotional component involved when people have to pay something. Think about the difference between spending money on a nice meal or an ice cream and forking over hard-earned dollars for a parking ticket. “The pain of paying is not in the amount, the pain is in where people think their money is going,” Sutherland correctly argues.

As an example he mentions toll-roads. At the toll-booths traffic jams tend to occur and that irritates motorists. What if they could take an express lane where they do not have to wait but where they are charged twice the fee?

Sutherland: “If you are on your way to an urgent appointment, you’d probably pay the higher fee. If you are on your way to your mother-in-law you may prefer to stay in the slow lane.”

The marketing guru adds another twist to this story: motorists taking the express lane may start mumbling that the authority that operates the toll booths probably created traffic jams to make them pay extra for the express lane. But what if the company would then offer to donate the extra fees to charity? “That would make motorists almost pay with affection.”

Sutherland thinks that these concepts could revolutionize tax policies and public services significantly.

The Austrian economist and philosopher Ludwig von Mises once noted that in the restaurant business there is not distinction between the value the chef creates by cooking the food, and the value the cleaner creates by cleaning the floor.

Sutherland made clear why this is true: imagine a Michelin-starred restaurant that stinks of sewage and where there are human feces on the floor.”

Under such conditions, there is no point putting more effort in improving the food: the only way the restaurant will be able to upgrade is by getting rid of the stench and the feces.

All in all, Sutherland’s TED-talk offered plenty of angles for local decision makers to chew on. Their mission is clear: find a way to change people’s perception about paying taxes. Spending tax payers’ money in a way that benefits the community would be a good start.

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