Nicolas Taleb's Skin in the Game

I read Nicholas Taleb’s Skin in the Game while in Havana during the Winter holidays of 2020. I am familiar with his ideas because I’ve encountered them frequently in the press—many intellectuals whose work I read, like John Gray, often cite him, and his books are often reviewed in the periodicals, like the Economist, that I subscribe to. I have been meaning to read one of his books in their entirety for a while, but other commitments got in the way. I decided to finally accomplish the task while in Havana, because while I was there, I could devote the early hours of the morning to reading (while spending the rest of the day and the evenings out and about). The effort was worth it, as Skin in the Game provides a fresh and provocative perspective which goes a long way towards explaining one of the key features of the present era (and about which I have published), namely, the rise of populism. 

 

The main concept in the book’s eponymous title, skin in the game, has a seemingly simple meaning: the value or seriousness of ideas or beliefs is directly proportionate to the risk incurred for holding or promoting them. This places a special responsibility on elites, because it is them, and not the masses, who develop, propagate, and apply new ideas. During pre-modernity, the logic of skin in the game was the norm. Taleb cites the examples of bad Roman emperors, ones who harmed the interests or the people of the empire; most were killed by the praetorian guard. The benefits of this system, says Taleb, is that it helped to filter out bad leaders and select ones who were willing to make major sacrifices for their beliefs. Another way Taleb helpfully demonstrates the idea is with doctors and pilots in the modern world. Both pay dearly for their mistakes, and this tight link between the ideas in their heads, and actual consequences in the real world, ensures that, over time, good practices flourish and spread, while harmful ideas and the people who hold them are pruned by reality. 

 

In the modern world, many categories of people at the non-elite level—barbers, mobsters, cooks, etc.—have skin in the game in the sense described above. If they harm others, they pay a price in terms of lost income, employment, or reputation. The same cannot be said about many contemporary elites, says Taleb, particularly politicians, bankers, and journalists. Many in these categories hold and promote ideas and policies and pay no price if they are wrong or cause harm. The example Taleb cites repeatedly is those politicians and journalists who endorsed regime change policies in the Middle East, and particularly Libya in 2011. There were sound theoretical and empirical reasons for expecting this to be a disaster for Libyans, which is exactly what it turned out to be, and yet political decision-makers and their promoters in major newspapers paid no price for the harm caused by the policy they helped to actualize. In other fields, in contrast, like medicine and aviation, or among average people, being so disastrously wrong would have produced severely negative, even career destroying, consequences. Another example Taleb cites is finance. Bankers responsible for the crisis of 2007 not only did not pay a price for their mistakes; they were rewarded with tax-payer bailouts even as the consequences of their decisions were offloaded to ordinary members of society. And politicians which were decisive in providing these bailouts were subsequently rewarded by the very firms they saved.

 

These examples highlight how the absence of skin in the game is a major cause of corruption in the contemporary world. Many are aware of it but are afraid to speak out, and this leads us to another important observation in the book under review: the tension between ethical decision-making and worldly attachments. More prosaically, in Taleb’s words it is hard to speak out when one has a mortgage and kids; the risk of harming the interests of loved ones is simply to high, and hence salaried professionals—in major firms, academia, or media—who see the corruption at the heart of the system are silent. Taleb, of course, does not fall into this category; although he is a scholar, he is independently wealthy and hence possesses what he calls “fuck you money”, the freedom to challenge powerful interests or groups. 

 

A number of important implications flow from these arguments. One is that it is important to pay attention, not to what people say, but to what they do and how much they are willing to risk for their ideas. Professional members of the commentariat who regularly bloviate their policy prescriptions in polished, verbose, and Ivey-League inflected English should be ignored; those who actually risk something if they are wrong have more credibility. 

 

There are also implications for policy. In order to restore integrity, systems need to be designed so that those in power have skin in the game. Taleb might say that we need to rehabilitate the best features of the Roman model, whereby leaders who decide on war actually participate in the fighting (as Julian the Apostate did); those who cause harm to innocents would be swiftly punished. This would increase the likelihood that virtuous leaders would be selected, ones who valued cautiousness and prudence, and whose interests were aligned with those on the receiving end of their decisions.

 

Lastly, Taleb endorses more entrepreneurial activity so that more people can develop a level of economic independence which permits them to denounce corruption without a devastating loss of income. There is a need for a corrective mechanism when the system goes off the rails—defined by Taleb as one where powerful people do not have sufficient amount of skin in the game—and this is less likely when one cannot, at risk of being unable to pay the mortgage, criticise those in power.

 

It is hard to say whether these prescriptions would fix the problems that afflict modern democracy, of which the most salient symptom is the rise of populist parties, some of whom reject the system outright and want to overthrow it. Taleb is undoubtedly correct that among the most important instances of corruption in recent history were the failed humanitarian interventions and the financial crisis. There is nothing particularly original about this observation, but Taleb’s analysis adds depth by shedding light on the underlying reality of the absence of skin in the game as a major cause of these debacles and the consequent harms done to average people. Had there been skin in the game, promoters and executors of these policies would have been punished, creating a sense of justice and weakening the support for radicals who promised to bring the system crashing down. At the same time, those with leadership aspirations would think twice about their proposals and reforms in the knowledge that if they are wrong, they will pay a heavy price. Perhaps this would help to stitch together the ruptured bond between leaders and the public.

Havana during the holidays of 2020

I am writing these introductory lines while sitting at the desk in my hotel room in Havana, in front of a window which overlooks the bay of Cuba; I can see the waves gently splashing against the fort built by the Spanish in 1589 to protect their territorial acquisition from (mainly English) invaders. I travelled alone to pass Christmas and New Year’s eve in the country, and it is the first time I have been outside of my home, Toronto, during the holidays. I decided to make this trip for three reasons. One is that I am nursing a bit of a heartbreak as a consequence of relationship which ended in November. The second, and related, reason is that it is a bad time to experience heartache in Toronto: the city is in full lockdown, and almost everything is closed, while we are expected to avoid in-person contact with others. Consequently, the events that usually bring me joy during the holidays—big family get-togethers, Christmas concerts, meeting friends for dinner or a coffee—are not possible, meaning I’d be spending most of the time alone in my 550 square foot condo. Thirdly, in March of last year, I began learning Spanish, and wanted to be immersed in the culture of a Spanish speaking country, where I would have opportunities to frequently talk with native speakers. For all these reasons I had a strong desire to travel, and I chose Cuba because it is one of the few Spanish speaking countries where the pandemic is relatively under control. In early December I purchased tickets for a two week sojourn.

View from my hotel room

 This is the second time I have travelled during the pandemic. The last time was when I went to France in the summer of 2020. That trip was anxiety-inducing, but it also helped me to understand that it is possible to travel relatively safely during these crazy times we live in. Flying was very different this time. The flights to and from France were almost empty; in contrast, the flight to Cuba was full, mostly with Cubans returning home, rather than with tourists. Upon arrival to the airport, all passengers, without exception, were administered a Covid test. After leaving the airport, I had to go to my hotel, and could not leave the premises until the public health authorities contacted management to inform them of my result. I waited two days, and upon obtaining the green light, I felt an immense sense of relief, although admittedly in the hotel I did not feel very constrained; while waiting for the test result, I passed the time reading on the terrace overlooking a Havana street while soaking in the warm air, soft breeze, and urban landscape, or walking around the relatively large hotel premises and speaking Spanish with the very friendly staff. 

 

Although the pandemic in Cuba is mostly under control, signs of it were evident around the city. The most visible was the ubiquity of masks: in Havana they are obligatory, including outdoors, and must cover the nose and the mouth. During my two week stay, I rarely saw anyone not wearing a mask properly, even though there were hardly any police on the streets. Unlike in North America, where anti-maskers often protest against this unconscionable symbol of servility, Cubans mostly accept the minor inconvenience of covering their face for the collective good of society. Facetiousness aside, another feature of the pandemic was the relative lack of tourists. Staff at the hotel told me that tourism collapsed 80%; this was clear on the streets where only the odd European or North American could be seen. Lastly, although bars and restaurants are open, nightclubs are not. In some other respects, life appeared to be as it was before the pandemic, particularly in public transport; to get around I took packed buses almost every day where mask-wearing Cubans of all ages were squished together. 

Packed bus in Havana

 

A notable feature of this trip is that I have a Cuban friend who lives in Havana. He has an interesting family history: before the revolution, his mother delivered messages between the rebels camped in the hills and those hiding in the city, while his father was one of Che Guevarra’s personal bodyguards. When I went to his house for dinner one day, his mom recounted the details of those events and showed me pictures of she and her husband with Castro, Guevarra, and other icons of the revolution. She is in her mid-seventies, and hence was a teenager during pre-revolutionary times; I asked her how it was, and she affirmatively replied “mal!” (bad), recounting instances she witnessed of police brutality against innocent civilians. (Interestingly, she is a devout Christian despite being a firm supporter of the socialist revolution. In other countries, the two belief systems often clash and people are either on one side or the other).

 

Upon arriving in Cuba I knew little about the country other than what I read in history books. Having a local friend with local knowledge was very valuable in reducing the frictions and uncertainties of visiting a country for the first time. Although he and I spoke English (he lived in Canada for 20 years and speaks both official languages), he introduced me to his friends and family with whom I spoke only Spanish, and this allowed me to practice and improve my knowledge of the language considerably. When I arrived, I was probably at the beginner-intermediate level; by the end of my trip, I was above the intermediate level and would probably obtain advanced had I stayed one more month. Getting used to the local vernacular was quite the challenge, because I learned standard Spanish using a language app (Pimsleur), where words were expressed fully, slowly, and clearly; in Cuba, people spoke rapidly, often truncated the words, and used a distinctive local vocabulary.

 

These experiences of hanging out and speaking frequently with locals taught me other interesting things about the country. One is the state of race relations. Walking around Havana, I did not see much evidence of racism—mixed raced couples, friends, and families seem to be the norm. When addressing one another, Cubans of all races often say “mi hermano” (my brother). This piqued my curiosity, and so one day I asked my mixed-race Cuban friend, who is 48 and has lived in the country for most of his life, whether he has ever experienced racism. “No”, he flatly said, although he qualified this by stating that that does not mean there is no racism in the country. One reason for this relative lack of racism, I surmised, is that there has been much more racial mixing and hence many more mixed race offspring, creating blurry and fluid distinctions between racial groups compared to say, in Canada and Europe. This is evident in the physical features of many Cubans. In Canada, it is often easy to identify someone who has one white and one black parent. Not in Cuba; many light skinned people have dark skinned parents and vice versa. And the widespread mixing of indigenous, black, and white peoples has led to combinations of features that defy the simplistic racial classifications people in North America are familiar with. 

 

Another notable feature of my travels is not being connected to the internet all the time. The telecommunications infrastructure in Cuba is not very developed, and hence connecting online is cumbersome and expensive. There was no wifi neither in my hotel room, nor in the cafes and restaurants I frequented. To check emails, I had to purchase an (expensive) internet card at the hotel’s reception, which gave me 1 hour of access, and connect in the hotel lobby to a very unreliable signal. Because of this, I checked and responded to my messages only once a day, and stayed online for approximately 40 minutes. In addition, for three days, between December 30^th and January 1^st, I had no internet access at all because I was in the countryside with my friend’s family (more on this below). It was the longest in at least 20 years that I have been completely offline. This was a major bonus, because I was even more fully immersed in the local social and cultural context. 

 

I also noticed some of the social implications of the lack of internet connectivity: when walking down the street, or in a bar or restaurant, the vast majority of people are actually socializing and talking with one another. In Toronto, or other cities in developed countries, the most common sight in public places is people looking at their phones. They are not fully present in the moment or place where they find themselves; rather, their attention is compartmentalized. Seeing this aspect of Cuba reminded me of pre-smartphone life in Toronto, particularly little Italy (St. Clair West Ave.), where I grew up, when people would hang out in front of cafes, or on their porches, and socialize without digital distractions. This experience of being in a country which has still not made the transition to a society where the smartphone is an omnipresent feature of social relations gave me a bit of nostalgia.

 

As mentioned, I spent new year’s eve with my friend and his family, the latter of whom live in San Jose, which is about a 30 or 40 minute drive outside of the Havana city centre. This, too, was a memorable experience, and for several reasons. One was the opportunity to participate in a Cuban holiday tradition, which involves slaughtering a pig, and inviting extended family over for a feast. I watched—and filmed—the men of the family grab the pig from its pen and forcefully place it on a table, while each fulfilled complementary roles; one held the back legs, another the front ones, another actually did the killing by stabbing it directly in the heart while another held its mouth closed to reduce the extremely high-pitched screaming, screeching, and squealing made by the pig as it was fighting for its life. This, admittedly, was hard to watch (and to film!), in particular because one sensed that the pig knew it was going to die and suffered immense anguish as a result. My instinct was to turn away and go into the kitchen, but I forced myself to watch because I was soon going to eat this pig with the rest of the family. It was therefore ethically incumbent upon me, I felt, to see the entire process, even the unpleasant parts. After the pig was dead, they shaved it, removed its innards, put it on a stake, and began roasting. It was all very collaborative and social; while doing this, there was much talking, story-telling, joking, reminiscing, and all the other forms of communication which contribute to the joy of big family get-togethers.

Doing my part before the feast

 

During my three days in San Jose I also witnessed and experienced a level of poverty that is unknown in Toronto. Cuba is still a developing country, which means that many households lack the basic necessities that people in rich countries take for granted. The house I stayed in while in San Jose had no hot water, shower, flushing toilet, or toilet paper. I have been taking daily cold showers for years, and so bathing with frigid water was not a problem. But because there was no shower, this involved filling a bucket with water, and using a cup to scoop it and then pour it on my body, for both lathering and rinsing. And since there was no toilet paper, the process of cleaning after defecating was more or less the same with the exception that one washed only the backside. To flush human waste, one had to use the same bucket to pour water into the toilet. I slowly got used to this, and had I stayed longer I would have eventually fully adapted, but I could not wait to get back to my hotel in Havana where I could once again have the accoutrements of modern life. Nonetheless, it was a valuable experience because it taught me how the meaning of “poor” or “poverty” can change depending on context. For example, when my mom left my dad and took sole custody of me and my three brothers, for the first 3 years we were poor—on welfare, living in a rat infested apartment in one of Toronto’s run-down neighbourhoods. Although my brothers and I were deprived of some things, we never lacked the basic necessities. Hence, compared to my friend’s family in Cuba, we were hardly poor; rather, we had that status compared to our peers in Toronto. I also learned that it is possible to live with dignity while lacking material resources (within certain limits). My Cuban hosts were mostly happy and absorbed in the moment and the simple joys of being together. Many people I know in Toronto are either miserable or much-less happy for a myriad of reasons—failed relationships, broken families, economic insecurities, and other sources of anxiety—even though they are materially comfortable. 

The house I stayed in on New Year's Eve

 

The trip to Cuba taught me a lot about geopolitics as well. American sanctions' policy against other countries is a recurring feature of the news cycle, and while staying in Cuba I actually saw their effects, which are quite brutal. When Obama was in power, he eased restrictions, and many more Americans travelled. This increased standards of living for many because of how dependent the country is on tourism. When Trump came to power, harsh restrictions were once again imposed, and hence many lost an important source of income. At the same time, many goods could no longer be imported. Consequently,  stores lack basic necessities and the shelves are almost completely empty. Because international banks and financial firms cannot do business in Cuba as a result of the sanctions, the Cuban diaspora cannot, or can only with a very high cost, transfer much needed money to struggling members of the family in the homeland. This creates more economic hardship and stress (although some adapt better than others). The purpose of the sanctions, say many hardliners in the U.S. who favour them, is for the Cuban people to become so frustrated that they rebel against the socialist government and replace it with a (pro U.S.) liberal democracy. In my view, this is delusional. Most Cubans, perhaps like most people, are not concerned about these ideological and abstract ideological clashes; rather, like others they are more concerned about the concrete aspects of their lives—paying the bills, supporting their children, and ensuring a decent standard of living for their families. Moreover, rebellions are often successful only under very specific conditions, one of which is the existence of an elite vanguard which represents an alternative government and which enjoys a high level of support among the people. There is little evidence of this in Cuba. 

 

I spent most of the time in Havana’s city centre, and greatly enjoyed the old Spanish architecture. One notable place is the cathedral built in 1777. On Christmas Eve I went there for midnight mass with my Cuban friend, and it was enchanting. Before the mass, the church bells rang loudly and rhythmically for around 20 minutes. When the mass started, the pews were full of locals who came to attend the service, which included a  choir that sang Christmas carols. Subsequently, the priest delivered a powerful homily (in Spanish of course) which placed the meaning of Christ’s birth in the context of the horrible year which was about to end, characterized by pandemics, riots, and economic crises. I could not help but notice how different public speaking is in Havana compared to in Northern countries.  There is the stereotypical Latin passion which manifests as much more gesticulating and body movement but in a way that is coordinated with each sentence and phrase. Speaking is more performative, a kind of symphony of voice, breath, message, emotion, facial expression, and other non-vocal communication. There are no pause sounds, like the “umms” that English speakers often express between sentences and words. Rather, the pauses, some lasting 3 or 4 seconds, are silent, while the speaker looks intently at members of the audience, until the next passionate sentence bursts out to enrapture the listeners’ attention. This is very similar to how public speaking occurs among members of my own ethnic group (Italian), and reminded me that the common Italian phrase “cugini latini” (Latin cousins) to refer to Southern Europeans or Latin Americans actually has substance. 

Typical street

 

I’ll conclude with general observations about being in a socialist country. Despite having this status, there is clearly a lot of private market activity in the country. Cubans, like people elsewhere, buy and sell goods, from houses to clothes, for the purpose of making a profit. Some are doing quite well—I visited one friend who was staying in a house situated in a very upscale neighbourhood—although locals told me that it is mostly because they have children successfully working in the U.S. who send money back to Cuba. One remarkable feature was that there was no advertising anywhere, which was a stark contrast with North American cities which are saturated with it. For example, I went to watch a film in Havana, and it just started with no commercials! In Toronto, commercials often last 20 minutes before the movie even starts. In a similar vein, public spaces in Toronto, like bus stops, sidewalks and major streets, are full of posters selling one thing or another. In Havana, they were nowhere to be seen, and my sense was that this improves the urban landscape considerably.