If you’re a psychology junkie like me, you’ve probably heard about the Stanford marshmallow experiment:
http://bit.ly/Wga2Ne

In this experiment, 5 year olds were offered a choice: Eat a marshmallow now, or be left alone in a room with a marshmallow.  If they went 15 minutes without eating the marshmallow, the researcher would give the child *two* marshmallows.

The experimenters found that the kids who didn’t eat the marshmallows turned out to do better in school, score better on the SAT, and perform better in life.  The conclusion?  Self-control is a critical skill.

But it turns out that there was a follow-up experiment, which I learned about on the awesome Priceonomics blog:
http://bit.ly/13n6R4w

“In the modified experiment, researchers at the University of Rochester first gave children crayons and stickers. But they promised to return with an even better set of stickers and crayons in a few minutes if the children held off playing with the toys until the researcher returned. After the wait, one group received the promised art supplies, while the other were told that a mistake had been made and that the promised goodies could not be found. 

When the researchers then presented the children with the marshmallow test, they found that the children’s ability to resist was influenced by some shrewd thinking:
 
‘Children who experienced unreliable interactions with an experimenter waited for a mean time of three minutes and two seconds on the subsequent marshmallow task, while youngsters who experienced reliable interactions held out for 12 minutes and two seconds. Only one of the 14 children in the unreliable group waited the full 15 minutes, compared to nine children in the reliable condition.'”

It turns out that self-control is irrelevant to success in the game if you believe the game is rigged.

Priceonomics goes on to note that Westerners viewed the Japanese, Chinese, and Koreans as lazy and happy-go-lucky savages in the early 20th century–a far cry from the unstoppable tiger moms of today.  The cultural work ethic was there, but the confidence in the system was not.  Once that was put in place, the Asian tigers took off.

“There is no incentive to start a new company in Russia if the oligarchs
who own the competition can imprison you or shut down your business via a
corrupt judicial system. There is no incentive to plant more crops or
improve your farm if a wealthy and well-connected person can confiscate
your land. Acemoglu suggests a simple point: people will work hard, but
only if they expect to benefit from it. That expectation is widely
absent (and often rightly so) in impoverished circumstances.”

Many people criticize the poor for failing to take the long-term view and investing in the future.  But it doesn’t make sense to invest in the future if you think your society is rigged against you.

This is the hidden cost of injustice; not only are the disadvantaged kept from thriving, the problems they face remove the incentives for self-control and creating value.  Why bother, if it’s just going to get taken from you?

Silicon Valley is a great place for startups because we reward entrepreneurs for creating value.  Sure, we also reward people for being lucky, but that’s a necessary side effect.  No one I know believes that their company is going to be stolen by an oligarch or appropriated by machete-wielding paramilitaries.

Good government and fair societies produce economic gains; the tricky part is breaking nations out of the downward cycle of corruption and expropriation.