Mechanism Authority

Summary

We propose that Parliament requires the Government to undertake legislative preparation for the enactment of a new Act on the Mechanism Authority. The legislative preparation must ensure that the agency's statutory purpose, independence, and powers are recorded in the law in accordance with the following draft provisions:

1 § Purpose and Mission

Purpose of operations: The primary purpose of the Mechanism Authority's operations is to maximize the long-term success and vitality of Finnish society.

Means of implementation (Mandate): To implement this purpose, the agency oversees, develops, and designs the steering mechanisms used by public authorities — such as legislation, funding models, and incentive structures — to ensure their coherence and functionality.

Scope: The agency's task is also to identify and report on such structural obstacles in society or new phenomena that jeopardize the realization of the operational purpose, regardless of whether they are currently subject to public regulation.

The agency's activities are guided by the goal of maximizing society's ability to maintain well-being and functional capacity across electoral terms.

2 § Proactive Design and Public Analysis

MeV operates as a center of excellence for mechanism design:

• Proactive consultation: Ministries can consult MeV during drafting, before submitting a government bill. Consultation is confidential. The goal is to identify problems at a stage where fixing them is still easy.
• Mechanism design: MeV doesn't just evaluate proposals — it designs alternatives. "You want to incentivize X and avoid Y? Here are three mechanisms that achieve this. Option A works like this, costs this much. B works differently, costs that. We recommend B because..."
• Modeling: MeV models the likely effects of mechanisms before deployment. Simulations, game-theoretic analysis, international comparisons. "If you implement this model, we predict these behavioral effects."
• Mechanism library: A public database of mechanisms that work and don't work. International comparisons: how have other countries solved similar problems? Documented failure patterns: this is how you fail.
• Sector analyses: Regular analyses of how mechanisms in different sectors perform — and how they should be designed. "How does healthcare financing work? How does public procurement affect quality? Where are incentives broken?"
• Post-mortems: When a major reform fails, MeV produces a public analysis of causes and an alternative design. "Why did the healthcare reform fail? How should it have been done?" The goal is learning, not blame.
• Structural analyses: Analysis of decision-making architecture: how laws are made, how incentives affect decision-makers, and which structures prevent or enable course corrections. All structures are mechanisms and thus analyzable.
• Election platform auditing (Dutch model): Before parliamentary elections, parties can voluntarily submit their platforms for MeV calculation. MeV evaluates the economic and dynamic effects of platforms using a unified model — "what does this promise cost and what does it produce?". This ends the culture of "unfunded promises" and forces parties toward honesty. (In the Netherlands, CPB's "doorrekenen" has been in use for decades and has transformed political culture.)

3 § Pre-legislative Review

All government bills must be submitted to MeV's mechanism review before parliamentary consideration. The review evaluates:

• Incentive structures: Does the law create a situation where acting against its objectives is profitable?
• Game-theoretic robustness: How will rational actors (companies, citizens, authorities) respond to the rule?
• Metric distortion: Will the metric become a target that distorts behavior? (Goodhart's Law: "When a measure becomes a target, it ceases to be a good measure.")
• System effects: How does the law interact with other mechanisms and the overall system?
• Future-proofing: Will the mechanism still work when circumstances change? (Demographic shifts, technological development, economic shocks.)

Review focuses especially on significant initiatives: over 100 million euro impact, structural reforms, or system-level incentive changes. MeV is not obligated to comment on minor regulatory changes but may always do so at its discretion.

MeV issues a public assessment of each significant bill's mechanism effectiveness and risks. The assessment does not prevent the law from being enacted, but if parliament passes a law against MeV's public warning, it must adopt an override resolution stating the reason for deviation. The resolution is public and becomes part of the law's preparatory materials.

4 § Continuous Monitoring

MeV monitors mechanism effectiveness throughout their lifecycle:

• Real-time monitoring: Monitors the implementation phase of mechanisms. Identifies problems during rollout — not years later in retrospective auditing.
• Outcome measurement: Compares actual results to intended societal effects (not process metrics)
• Mechanism failure notice: If a law produces the opposite result of what was intended, MeV issues a public notice
• Citizen feedback: Citizens can report "broken mechanisms" (e.g., "I lose money if I accept work"). MeV investigates and publishes verified findings.
• Ministry response obligation: A mechanism failure notice must be responded to within a deadline. If no response comes, MeV publishes a "no response" notice and the matter is automatically referred to the relevant parliamentary committee.

5 § System-Level Monitoring and Automatic Alerts

MeV maintains a public dashboard of factors critical to society's long-term success. MeV defines thresholds for indicators that, when exceeded, trigger automatic parliamentary consideration.

Thresholds are based on public analysis. MeV can change indicators and thresholds but must justify changes publicly.

The relevant parliamentary committee must consider the matter within a deadline. No ministerial discretion — when a threshold is exceeded, consideration is mandatory. If the committee doesn't act within the deadline, the matter goes to the plenary agenda.

Goal coherence report: MeV publishes an annual report evaluating the coherence of ministry actions with the government's stated strategic objectives. The report identifies where silo boundaries prevent goal achievement and where ministry actions cancel each other out.

6 § Independence and Expertise

MeV's independence and expertise are secured through:

• Constitutional independence: MeV is established by special law, like the Bank of Finland and Sitra. Status "in connection with parliament" (cf. Constitution Section 90). A ministry cannot give instructions or abolish it by ordinary law.
• Capital funding: MeV is funded by capital (Sitra model), not annual budget. This protects long-term work from budget cuts and removes salaries from political negotiation.
• Board (executive body): The board is responsible for MeV's day-to-day operations, producing analyses, and publications. The first board is selected by an independent selection committee consisting of international academics and representatives of Nordic peer institutions. At least one member from mechanism design or algorithmic game theory, at least one with non-academic background. No Finnish ministries, no domestic research institutes. Selection requires 2/3 parliamentary approval. Thereafter the board appoints its successors.
• Terms: 7-10 year term, non-renewable. Removal only by decision of a three-judge panel.
• International experience: The director general must have at least 5 years of international experience. This breaks small-country network dependency.
• Compensation: Competitive, index-linked base salary without discretionary benefits. No performance bonuses. Official residence and graduated supplementary pension. Details in rationale.
• Cooling-off period: 24-month prohibition on working for supervised entities, at full pay.
• Supervisory council (external audit body): 5 members, of which 3 non-Finnish. Supervises board operations, approves methodology changes, and handles removal proposals. Separate from the board — supervisor and supervised cannot be the same entity. International composition protects against local pressure and prevents network capture.
• Diverse expertise: Economists, game theorists, systems architects, behavioral scientists. Also mechanism designers who have built incentive systems in practice — algorithmic game theory, distributed systems. No single school hegemony.
• International advisors: MeV can invite world-class experts to part-time advisory roles (senior fellow). This enables leveraging top expertise without full-time commitment.
• Public methodology: All analyses, data, and models open and challengeable.

7 § Powers

Access to information: MeV has the right, notwithstanding confidentiality provisions, to receive free of charge from state authorities, institutions, and other entities performing public functions all information necessary for its tasks. MeV has the right to direct technical access to information systems — raw data, bypassing ministry reporting layers. This means access to, for example, healthcare queue databases and social security benefit data directly, so MeV can run its own analyses rather than relying on ministry-produced summaries. Confidential information received remains confidential in MeV's possession.

Modeling capacity: MeV has independent access to state microsimulation models (especially the SISU model) and the right to run alternative scenarios. This enables independent counter-modeling — MeV can test ministry claims rather than relying solely on ministry-produced calculations.

Publication right: MeV has the right to publish analyses without prior approval. The government cannot prevent or delay publication.

Limits of authority: MeV cannot force changes or repeal laws. Authority is informative, not normative. Effect comes from publicity, automatic alerts, and making political responsibility visible.

Rationale

1. Nobody measures whether it works

The state operates without knowing whether its actions work:

• Parliament sets a goal ("temperature 21°C")
• Government implements ("turn on the heating")
• Nobody measures whether the temperature is actually 21°C, whether the heater is broken, or whether an open window negates the effect

MeV closes this loop: it measures whether objectives are achieved and identifies why they aren't.

2. Proactive beats reactive

When a bill arrives for review, political capital is already committed. The ministry has committed to a direction, and correction is expensive. Review becomes confrontation rather than collaboration.

Proactive consultation reverses this: MeV is a resource, not an inspector. "We're considering this mechanism — what could go wrong?" Problems are found at a stage where fixing them is still easy and there's no loss of face.

Public sector analyses create pressure and awareness without a bill. When everyone knows where a mechanism is broken, pressure for correction emerges naturally.

3. The missing function

Every actor in the state apparatus has a role:

• Ministers make policy
• Civil servants draft and implement
• Lawyers check legal form
• Finance ministry economists prepare impact assessments
• National Audit Office audits use of funds
• Constitutional Law Committee evaluates constitutionality
• Council for Regulatory Impact Analysis comments on impact assessment quality

Why are existing bodies insufficient?

• National Audit Office (VTV) admits that directly measuring effectiveness is often impossible in complex environments. So audits focus on "preconditions" — whether mechanisms have been created. Critique: VTV focuses on processes ("has a strategy been made?"), not substance ("did the strategy work?").
• Council for Regulatory Impact Analysis is purely advisory and under-resourced: members are paid €9,600–19,200/year as a side job. The 2024 annual review found the average score was 3.4/5 — lower than the previous year. Quality is not improving.
• Finance ministry economists produce forecasts AND prepare government decisions. The ministry defends this, but the structural conflict of interest remains.

But nobody systematically asks: Does this mechanism work in practice? How will people respond to incentives? Does this produce the desired outcome — and if not, why?

What these bodies share: none has defined what "success" means. The National Audit Office has no measurable criteria for oversight effectiveness. The Council has no standard for good legislation. MeV's mission is explicit: mechanisms must produce intended effects. This is measurable.

The problem is in the division of labor: the function is missing. MeV fills this gap.

Ministries optimize their own silos, but nobody looks at the whole — another missing function. Result: incentive traps where working doesn't pay. Each part is optimized, but the whole is broken.

Shadow government: Currently the missing function is filled by management consultants. McKinsey, Boston Consulting Group, and Deloitte have been deeply involved in preparing major reforms (healthcare, regional government). Problems: (1) international standard models don't fit Finnish context, (2) consultants have financial incentives to please the client, (3) calculation models are secret as "trade secrets." This "shadow government" wields significant power in shaping reform parameters, but bears zero responsibility for implementation success. When consultants leave with their PowerPoints, civil servants are left to solve practical problems. MeV replaces this with public, accountable capacity.

4. Law is code that runs on society

If software development deployed code to production without testing, systems would crash immediately. In legislation, this is normal practice: pass a law and "see what happens."

MeV is quality assurance for mechanisms. It tests mechanism logic before deployment and measures effectiveness afterward.

5. Case study: Healthcare reform

Finland's 2023 healthcare reform (SOTE) funding model creates a situation where:

• Regions receive more funding the sicker their residents are
• The state covers deficits
• Efficiency is not rewarded

The Audit Committee identified during preparation that the reform's two main objectives — reducing health disparities and containing costs — are mutually contradictory and cannot both be maximized. The mechanism design flaw was known. But the committee couldn't stop the "legislative train" — it has no emergency brake.

Four predictable mechanism failures:

1. Soft budget constraint: Regions have no taxing power, but they know the state will bail them out due to constitutional service obligations. Classic moral hazard — identified in economic literature, but its magnitude was underestimated.
2. Wage harmonization: When staff transferred from hundreds of employers to one, wages rose toward the upper end. Hundreds of millions in additional costs that weren't anticipated.
3. ICT integration transaction costs: Consultant calculations assumed IT system consolidation would bring savings. In reality, maintaining parallel systems during transition increased costs.
4. Outsourcing price rally: Large, rigid regions couldn't negotiate effectively. Staffing agencies priced their services high, exploiting labor shortages.

2024 deficit forecasts grew to over €1.4 billion. The original promise was €3 billion in savings. Each of these mechanism failures was predictable — if anyone had asked: "How will rational actors respond to these incentives?"

MeV's pre-legislative review would have made these findings public, mandatory to address, and automatically subject to parliamentary decision: should we pass a law whose mechanism is documented as broken?

Now one can say "we didn't know." MeV removes this defense.

6. International models

Long-lived civilizations have developed similar organs: Roman censors, the Chinese imperial censorate, Venice's Council of Ten. Common feature: a constitutional body insulated from immediate political pressure, tasked with maintaining system functionality over a longer horizon than any election cycle.

Modern comparisons:

• CPB (Netherlands): Centraal Planbureau (~150 economists) independently analyzes the economic effects of bills. CPB's distinctive feature is its statutory monopoly: the government is obligated to use CPB's numbers as the basis for its budget. Politicians cannot choose favorable forecasts. "Keuzes in Kaart" (doorrekenen) — party election platforms are calculated before elections using a unified methodology. This has transformed Dutch political culture: numbers aren't disputed, focus is on value choices. In Finland, parties present their own calculations — figures aren't comparable. MeV extends the CPB model: not just economic effects, but all mechanism effects.
• RSB (EU): Regulatory Scrutiny Board evaluates the "intervention logic" of Commission proposals. A negative opinion forces the Commission to respond — doesn't block, but forces explanation.
• RPC (UK): Regulatory Policy Committee rates impact assessments. A weak assessment requires explicit ministerial justification to parliament.

MeV combines these: CPB's analytical capacity, RSB's "explain or fix" mechanism, and RPC's public rating. And adds: automatic committee referral and full lifecycle monitoring, which none of these do.

7. International pressure

Finland has fallen behind international recommendations:

• GRECO (Council of Europe anti-corruption body): Finland has fulfilled only 4/14 recommendations from the fifth evaluation round (2024). Finland is under "enhanced monitoring."
• EU rule of law reports: The Commission has repeatedly noted Finland's deficiencies — especially regarding "trading in influence" and criminalization of foreign bribery.

This is not just reputational risk. The EU increasingly ties rule of law requirements to funding mechanisms. Finland's credit rating (AA+/AA) and EU funding require that oversight mechanisms are in order.

MeV's role in anti-corruption: MeV is not a criminal investigation body — investigation of individual bribery and abuse cases belongs to police and prosecutors. MeV's role is structural: it analyzes whether transparency mechanisms (like lobbying registers) work, whether rules create conflicts of interest, and whether procurement laws favor certain actors. This is analysis of "corruption-enabling architecture" — not chasing individual cases.

8. Compensation design

MeV's compensation structure is designed using mechanism design principles. Goal: attract world-class expertise without political suicide.

Lesson from the VTV scandal: A Finnish National Audit Office scandal showed that the problem wasn't high salary but opaque discretionary benefits — airline points, beauty treatments, unclear travel expenses. Small lifestyle perks destroy legitimacy more effectively than high transparent salary. MeV's solution: high base salary, zero discretionary benefits, nothing that ends up in tabloid headlines.

Salary level and comparisons:

• Director General: 18,500 €/month (= ~231,000 €/year with holiday bonus)
• Seniors: 14,500 €/month (~174,000 €/year)
• Comparison: IMF department head $241,000-373,000 (tax-free), ECB senior 220,000-290,000 €, Sitra CEO ~228,000 €
• Finnish public sector pays economists 50,000-80,000 € — this doesn't compete for world-class talent

Official residence (tax benefit): MeV acquires official residences in central Helsinki. Market rent ~4,500 €/month, but tax value only ~1,600 €/month. Net benefit: ~3,500 €/month after taxes. Producing the same net benefit via salary would require ~7,500 €/month gross increase — official residence is thus 2.5× more efficient than salary increase.

Graduated supplementary pension: 66% of final salary, vests gradually: 0% under 5 years, 50% at 7 years, 100% at 10 years. This binds top talent to long-term work and makes early departure to a supervised entity financially unattractive.

Recruiting expatriate Finns: Target pool is Finns at IMF, ECB, Fed, and top universities. Returning to Finland means 50-60% drop in net purchasing power. Official residence and pension structure compensate for this without a politically impossible headline salary. Academic affiliation (adjunct professorship at Aalto/University of Helsinki) and research sabbaticals (6 months per 4 years) maintain international networks.

Why no performance bonuses? Deliberate choice. Performance bonuses create distorted incentives and short-termism. MeV's impact is measured in decades, not quarters.

Political framing: MeV's supervised mechanisms control billions. Preventing one policy error pays back the director general's entire career salary a hundredfold. Right framing: "cheap insurance" and "patriotic return," not "high salary."

9. Small country network risks

In Finland, the relevant talent pool is small and networks are dense. This creates two capture mechanisms:

"Old boys' network": Officials, politicians, and business representatives have attended the same schools, served in the same organizations, and meet at the same events. Formal independence doesn't help if supervisor and supervised are decades-long acquaintances.

Future employer constraint: A regulator has practically only a few potential employers in Finland (major banks, pension companies, ministries). This creates an implicit incentive to regulate gently.

MeV's responses:

Cooling-off period at full pay: 24-month prohibition on working for supervised entities, 100% salary during cooling-off period. Paid transition time enables international return or academic career.

International experience requirement: Director general must have at least 5 years of international experience. A person whose career is at the IMF or Fed is not dependent on Finnish banks' or ministries' approval.

Diaspora recruitment: MeV's target group is Finns already abroad. Culturally competent, detached from networks.

First board recruitment constraints:

The first board determines the agency's culture. Selection errors at this stage become permanent.

The following backgrounds disqualify from the first board:

1. Finance Ministry career track. The ministry is a supervised entity, not a supervisor. The ministry's perspective is budget-driven, not mechanism-driven.
2. ETLA, VATT, or EVA. These form one social network under different names. Independent perspective requires independence from this network.
3. Helsinki GSE monoculture. Finland's economic policy preparers come mainly from one educational program (Aalto/Hanken/University of Helsinki). Same curriculum, same professors, same blind spots.
4. Central bank orbit. Bank of Finland and ECB career paths emphasize monetary policy, not mechanism design. The expertise profile doesn't match the need.
5. Lobbying history. Anyone who has represented interest groups in ministries is structurally compromised.

Principle: You cannot evaluate a system from inside the system. Outsider status is a prerequisite.

10. Addressing counterarguments

"Who watches the watchmen?" — Public methodology. All analyses, data, models, and conclusions are openly available. MeV's conclusions can be publicly challenged. Unlike internal ministry preparation, MeV's thinking is visible.

"Who decides what's a good mechanism?" — MeV's assessments are based on public methodology: incentive analysis, game theory, system dynamics. Methodology is challengeable — anyone can point out errors in logic or assumptions. Predictions are testable: if MeV says "this mechanism produces X" and X doesn't materialize, the error is visible and analyzable. Unlike political promises, MeV's claims don't disappear — they remain in the public record and are compared to actual outcomes.

"This adds bureaucracy" — On the contrary: MeV consolidates fragmented functions. Currently mechanism oversight is scattered: Council for Regulatory Impact Analysis (scarce resources), National Audit Office's transparency register (disconnected from other analysis), Strategic Research Council studies (which nobody reads), and ministries' own impact assessments (written after the political decision). MeV unifies these functions in one institution: the council's analytical work, transparency register data, and integration of research into the legislative process. Result: one agency instead of fragmented committees.

"Ministries won't listen" — Hence publicity. If a ministry ignores MeV's warning and the law fails, responsibility is documented. A public prediction creates political cost for ignoring it.

"Experts aren't neutral" — Hence diverse expertise (§6): economists, game theorists, systems architects — no single school hegemony. Hence public methodology: anyone can challenge the analysis. And hence long, non-renewable terms: no need to please political masters.

"We already have the Council for Regulatory Impact Analysis" — The council is important but insufficient. (1) It reviews only draft bills — authority ends when the law is passed. (2) It's purely advisory — cannot prevent passing a flawed law. (3) Resources are scarce: members are paid 9,600-19,200 €/year, so it's a side job for top experts. They can read a proposal and check logical consistency but cannot re-run ministry econometric models. (4) Results aren't improving: the average score in 2024 opinions was 3.4/5, lower than the previous year. MeV does more: it covers the full lifecycle (drafting → passage → implementation → evaluation → correction), but also acts proactively — identifies broken mechanisms and proposes new laws or repeal of existing ones. The council reacts to bills; MeV can also generate them.

"The Yli-Viikari case shows independent agencies get corrupted" — The National Audit Office scandal is a warning about bad architecture, not a reason to abandon independence. MeV's structure is designed with this lesson in mind (see section 8): high transparent salary, zero discretionary benefits, mandatory international evaluation, three-judge removal procedure. Ethics is an engineering problem: build constraints, don't rely on virtue.

"This is too experimental" — The status quo is what's experimental: legislation is the only complex system that isn't tested before deployment. Cybersecurity, military, finance, AI — all have solved this. The risk isn't establishing MeV; the risk is not establishing it.

11. Mechanisms of mechanisms

Laws are mechanisms. But the legislative process is also a mechanism. The electoral system is a mechanism. The Constitutional Law Committee's role is a mechanism.

MeV's authority covers all levels: individual laws, their interactions, and structures that produce laws. If some structure systematically prevents the emergence of functional mechanisms, MeV must analyze it — even if MeV cannot change it.

MeV's task is to improve mechanisms. The constitution is a mechanism. If it doesn't work, MeV says so — and says how it should work. What parliament does with this information is parliament's business.

12. Fix it yourself or it gets fixed for you

States that don't fix their own mechanisms eventually become subject to external correction. Greece in the 2010s, Argentina repeatedly, Italy under EU pressure — when internal correction capacity fails, the IMF, ECB, or EU set the terms.

Finland isn't there yet. But the direction is clear:

• Public debt is growing structurally
• GRECO and the EU have already noted deficiencies
• The healthcare region funding model is documented as broken
• Pension system sustainability requires corrections that aren't being made

Without internal correction capacity, Finland will drift into a situation where outsiders — credit rating agencies, the IMF, the European Commission — define what must be done. Then the choice is no longer what to fix but how quickly to comply.

MeV is a sovereignty investment. It builds the capacity to identify and fix mechanism failures before they accumulate into crisis. The alternative isn't "no correction" — the alternative is "correction on external terms, without discretion."

External correctors optimize for their own objectives: the IMF for creditors, the European Commission for eurozone stability, credit rating agencies for investor risk management. These are not the same as the long-term interests of Finnish citizens. Greece's austerity served German and French banks, not Greek pensioners. MeV is the only institution whose explicit mission is to optimize for Finnish society's success — not creditors, not the eurozone, but Finland.

Countries that build their own analytical capacity (Netherlands, Singapore) stay in control. Countries that don't (Greece, Italy) lose control. Finland can choose which group to join.

Background research

Current state of mechanism analysis in Finland: Detailed mapping of what capacity the state already has (Finance Ministry, VATT, evaluation council, sector-specific actors) and what's missing. International comparison with the Netherlands (CPB), the UK (OBR), and Singapore. (In Finnish)

Academic background

Academic mechanism design is an established field of economics. Nobel Prizes in 2007 (Hurwicz, Maskin, Myerson) and 2012 (Roth, Shapley) recognized the field's importance. Mechanism design is applied in practice — auctions, school choice, organ donation — but applications are narrow and bounded.

Adjacent fields include: game theory (mathematical foundation), public choice theory, institutional economics, behavioral economics, and Regulatory Impact Assessment (RIA). However, none of these systematically asks of legislation: "How will rational actors respond to these incentives? What is the equilibrium when everyone has adapted?"

Comparison with other fields:

The most developed work happens in fields where "code is law": in AI safety, researchers study "specification gaming" (achieving goals while circumventing rules), and in distributed systems (DAOs), tools like cadCAD are used to simulate governance systems before deployment. The lesson from these fields: you cannot secure a system without trying to break it.

MeV would institutionalize this approach for legislation. In software development, a similar shift occurred when testing moved from ad hoc activity to its own function — Quality Assurance (QA). MeV would do the same for legislation: systematic testing before deployment, monitoring during operation.

Connection to other proposals

Legislative infrastructure: MeV needs infrastructure to function. If laws are unclear or fragmented, system-level analysis is difficult. (In Finnish)

Effectiveness monitoring: Effectiveness monitoring measures individual laws, MeV looks at the whole and identifies system-level problems. (In Finnish)