A metaphorical ratchet effect is an instance of the restrained ability of human processes to be reversed once a specific thing has happened, analogous with the mechanical ratchet that holds the spring tight as a clock is wound up. It is related to the phenomena of featuritis and scope creep in the manufacture of various consumer goods, and of mission creep in military planning.
Ratchet effect in sociology: "Ratchet effects refer to the tendency for central controllers to base next year's targets on last year's performance, meaning that managers who expect still to be in place in the next target period have a perverse incentive not to exceed targets even if they could easily do". (Bevan and Hood 2006, p.521)
- Famine cycle
Garrett Hardin, a biologist and environmentalist, used the phrase to describe how food aid keeps people alive who would otherwise die in a famine. They live and multiply in better times, making another bigger crisis inevitable, since the supply of food has not been increased.
Austrian school economist Robert Higgs used the term to describe the seemingly irreversible expansion of government in times of crisis in his book Crisis and Leviathan. Similarly, governments have difficulty in rolling back huge bureaucratic organizations created initially for temporary needs, e.g., at times of war, natural or economic crisis. The effect may likewise afflict large business corporations with myriad layers of bureaucracy which resist reform or dismantling.
- Production strategy
The ratchet effect can denote an economic strategy arising in an environment where incentive depends on both current and past production, such as in a competitive industry employing piece rates. The producers observe that since incentive is readjusted based on their production, any increase in production confers only a temporary increase in incentive while requiring a permanently greater expenditure of work. They therefore decide not to reveal hidden production capacity unless forced to do so.
- Game theory
- Cultural anthropology
In 1999 comparative psychologist Michael Tomasello used the ratchet effect metaphor to shed light on the evolution of culture. He explains that the sharedness of human culture means that it is cumulative in character. Once a certain invention has been made, it can jump from one mind to another (by means of imitation) and thus a whole population can acquire a new trait (and so the ratchet has gone "up" one tooth).
Application in economics
The ratchet effect can be seen in long-term trends in the production of many consumer goods. Year by year, automobiles gradually acquire more features. Competitive pressures make it hard for manufacturers to cut back on the features unless forced by a true scarcity of raw materials (e.g., an oil shortage that drives costs up radically). University textbook publishers gradually get "stuck" in producing books that have excess content and features.
Airlines initiate frequent-flyer programs that become ever harder to terminate. Successive generations of home appliances gradually acquire more features; new editions of software acquire more features; and so on. With all of these goods, there is ongoing debate as to whether the added features truly improve usability, or simply increase the tendency for people to buy the goods.
The term was included by the MAI Negotiating Group in the 1990s as the essence of a device to enforce legislative progress toward "free trade" by preventing legislative rollback with the compulsory assent of governments as a condition of participation.
Rollback is the liberalisation process by which the reduction and eventual elimination of nonconforming measures to the MAI would take place. It is a dynamic element linked with standstill, which provides its starting point. Combined with standstill, it would produce a “ratchet effect”, where any new liberalisation measures would be “locked in” so they could not be rescinded or nullified over time.
- Malthus, T. (1798). An Essay on the Principle of Population. London: Printed for J. Johnson, in St. Paul's Church-Yard.
- Robert Higgs Crisis and Leviathan, OUP, 1987, ISBN 0-19-505900-X
- Tomasello, M. 1999. The Cultural Origins of Human Cognition. Cambridge, MA: Harvard University Press.
- "Mechanisms for standstill, rollback and listing of country specific reservations", Page 3 of note by MAI Negotiating Group chairman, OECD, 15 February 1996