Prizes aren’t always the best way to reward ideas

Even Europhile economists must have pricked up their ears at the offer of £250,000 to the person who comes up with the best plan for winding up the euro. Only the Nobel offers a more valuable bounty to the dismal scientists.

But whatever you think of the goal, is the Wolfson Economics Prize – offered by Lord Wolfson, the youthful, Eurosceptic, Conservative chief executive of Next, the UK retailer – the best way to achieve it? These days, bright business ideas often emerge through collaboration, rather than competition.

The Economist last year listed some of the most successful prizes for innovation: the X Prizes (which have already brought us the reusable private-sector spacecraft); the Netflix prize to the best ideas for improving its recommendation algorithms; or, going back a bit, the British government’s 1714 Longitude Prize seeking ways to help seafarers work out longitude. Peter Diamandis, who runs the X Prize Foundation (“Revolution through competition”), told the publication he was convinced that “focused and talented teams in pursuit of a prize and acclaim can change the world”.

Fair enough. But prizes have some disadvantages. You have to decide how they should be awarded. For instance, for those awarded for achievement, should the nomination process be closed (like the Nobel), or open to the public? As Sir Sigmund Sternberg (the British philanthropist who won the Templeton Prize for Progress in Religion in 1998) wrote in a letter to the FT on Wednesday:

The Nobel process tends to reward men and women who have already found celebrity within their particular ranks. By widening the nomination process, the Nobel Foundation could open the roster of worthy prize-winners to those still in midlife for whom this recognition would act as a spur to even greater accomplishment.

A bigger disadvantage of prizes is that they tend to encourage competition – with teams or individuals shielding their innovations from one another – rather than collaboration. (The fact the Netflix prize was eventually won by groups that co-operated online seems to underline the point that collaboration can be more productive.)

Tim Brown, CEO and president of IDEO, the global design firm, likes competition. He’s rather proud that the consultancy has just won an award for helping design a bike, for instance. But he sees huge benefits in an open system, such as OpenIDEO, which challenges people to “solve problems together for the collective social good“. He told me this week:

The one thing you never get in a prize-based system is people coming in with contributions and then working with others on them.

If Lord Wolfson really wants to encourage people to come up with a workable plan to dismantle the euro, he could learn some lessons from the flaws in the eurozone itself. Originally conceived as an ambitious collaboration, the single currency area risks being undermined by members’ failure to co-operate with one another to solve its problems.