There is a particular kind of essay that business audiences have been reading for over twenty years now. It observes that the Code of Hammurabi put builders to death for shoddy work; it observes that modern bankers are paid bonuses for taking risks that other people bear; it concludes that we have forgotten something the Babylonians knew, and that we would do well to remember it.
I have written exactly that type of essay. I wrote it some years ago and never published it, which turns out to have been a piece of accidental good judgement, because in the intervening period the argument stopped being true. Australia has not forgotten Hammurabi. Australia has legislated him—twice, in the space of a decade, in two entirely separate domains. The interesting question is therefore no longer why we lack skin in the game. It is what happens once we have it, and why it changes fewer outcomes than one might expect.
Reading the Whole Tablet
Hammurabi (𒄩𒄠𒈬𒊏𒁉), sixth king of the First Dynasty of Babylon, ruled for roughly forty years in the eighteenth century BC and issued the law code that bears his name. It is not, as it is often described, the oldest legal text in the world; the code of Ur-Nammu precedes it by two or three centuries. It is, however, the best preserved. The principal surviving copy is inscribed on a diorite stele more than two metres tall, carried off as war booty to Susa in antiquity and rediscovered there in 1901. Two hundred and eighty-two provisions cover trade, agriculture, marriage, wages, professional conduct and the price of hiring an ox.
The provisions that everyone quotes are the building laws:
229. If a builder builds a house for a man and does not make its construction firm, and the house collapses and causes the death of the owner, that builder shall be put to death.
232. If it destroys property, he shall restore whatever it destroyed, and because he did not make the house firm and it collapsed, he shall rebuild it at his own expense.
Nicholas Taleb has twice called Law 229 the finest risk-management rule ever devised, and it is easy to see the appeal. The builder knows more about the house than the owner ever will. He can take a shortcut that will not be visible for a decade. Law 229 collapses that asymmetry by placing the builder inside the consequence: his interest and the owner's interest become, by statute, the same interest.
It is a very good argument. It is also an argument that depends on not reading the next line. Law 230 provides that if the collapse kills the son of the owner, the state shall put to death a son of the builder.
That is not skin in the game. That is the precise inverse of skin in the game—a punishment that lands on someone who made no decision, took no fee, and enjoyed no upside. And it is not an isolated barbarism that we can wave through as a product of its time, because the code as a whole prices human beings by rank: the death of a free man (awīlum), is not compensated at the same rate as the death of a slave (mushkēnum). Hammurabi's stele does not embody a principle of aligned incentives. It embodies a principle of substitutable liability, in which a life may be answered with an equivalent life drawn from the appropriate social stratum.
If we are going to take counsel from Babylon, we should take it from the whole tablet. And the lesson of the whole tablet is considerably less flattering to the case for personal ruin as a governance instrument.
The Physics of Consequence
There is a more durable idea buried in the building laws of Hammurabi, and it is not about severity at all. It is about distance.
On a construction site, or in an emergency department, the margin of safety very largely defends itself. The consequence of an error is immediate, physical, visible, and lands on a named person standing in the room. No board's risk appetite statement survives contact with a site delegate who can see an unmitigated hazard, or with a regulator who can prosecute the officer who signed off on it. The people closest to the harm hold the line, and they hold it regardless of what the appetite statement says, because they can see what is on the other side of it.
Genuine accountability asks men and women who know precisely what they hold to build the thing that would cost them it—and to hand themselves the bill.
Move away from the physical and the same margin becomes increasingly negotiable. Where failure is denominated in dollars rather than lives, where it manifests in three years rather than three seconds, and where it is distributed across ten thousand customers rather than concentrated in one body, the willingness to push increases—not because the people involved are worse, but because the consequence has been abstracted until it is no longer something anyone can see.