Over on DanThinksAbout, in a discussion of the public and private sectors, Dan mentions the benefit of markets: that “competing firms innovate in the hope of getting ahead, and successful innovations make the firms that adopt them successful”. This left me thinking about the nature of competition, and of how it leads us to expend our effort. When it is beneficial?
When we think about competition in markets, we tend to think about Asus, Dell and Lenovo all competing to build better laptops at lower cost, and the resulting downward pressure on prices — which is obviously good for consumers.
But competition can itself become a runaway process. Think about male peacocks competing for the attention of females. Peacocks have become genetically locked into the idea that a big, showy tail is sexy, and a male without such a tail with never find a mate — so the small-tail gene will never propagate. As a result, every male peacock has to devote a crazy proportion of his developmental effort into growing a tail which is a grotesque impediment for most purposes — a positive hindrance to survival in the wild, and the cause of peacocks’ very poor flight performance.
Once a competitive area like peacock-mating becomes established, it’s effectively impossible to opt out of. But the same is true of much commercial competition, too. Consider the market for laundry detergent. There may be legitimate differences in performance between, say, Persil and Ariel; but most people will lack the expertise to benefit from, or even detect, those differences. So the two brands compete on advertising instead of quality.
The result is that we have thousands of people working for both of these brands (and many others) doing work whose net value is zero. That is, if those working for Ariel get the upper hand, they benefit their company, but at the cost of harming the Persil company; and vice versa. (The market in washing powder isn’t going to grow. People need as much as they need, so selling the stuff is a zero-sum game.)
That’s not a good outcome for society. This toxic form of competition has taken talented, educated people, and set them working directly against each other. If they both stopped doing what they’re doing, then the effect on the economy would be a significant positive (i.e. no effect on washing-powder sales, but lots of extra people released into the work-force to do something of intrinsic value). And if stopping a thing is a positive, then continuing to do it is a negative. (This is just one of the reasons I could never take a job in advertising washing powder.)
So: from society’s perspective, all those people in washing-powder advertising should be freed from that valueless task and released into something more useful. But of course that doesn’t happen — because from the perspective of the Persil company, money spent on advertising is money well spent, and recoups itself in sales that would otherwise be lost to Ariel. And vice versa.
What we have here is, in fact, a tragedy of the commons: the rational behaviour for individual actors is one that has a negative outcome for everyone; but no-one can stop it because it would leave them at a competitive disadvantage. (But this is much worse, because in this case the resource that is being squandered is not pasture land but human effort.)
What do I conclude from all this? I really don’t know. I’m certainly not advocating for centralised state ownership of the means of production — an outcome that would probably be positive for washing-powder manufacture, but would certainly be disastrous for laptop production. We know from the experience of far too many communist states how this turns out.
I think what I’d like is to see a decrease in what looks like blind faith in markets. This is particularly prevalent in our present UK government (and, to be fair, the one before it, and the one before that). It seems to be taken as axiomatic that competition is always good; but it’s not. I’d like our politicians to carefully consider each case on its own merits before deciding that (for example) private firms should compete for the right to subcontract medical procedures from the NHS. Competition of this kind might be beneficial; but it might be harmful. I’d like to get rid of the blind assumption that it must be good because it’s competition.
In short, for each individual case where competition could be introduced, we need to ask whether it’s more like the case of competing laptop manufacturers (good), competing laundry detergents (bad) or competing male peacocks (disastrous for most purposes).