Competition as the foundation of a fair society

Cross-posted to FreedomDemocrats

Support for competitive markets is often associated with aristocratic ideas such as elevating the innately talented and motivating the innately lazy. Alternatively, some advocates for competitive markets focus on their role in distributing information, thereby guiding workers towards the projects that are most valuable to other members of society. In all this talk about excellence and efficiency, where is the concern for fairness?

In popular perception, competition is the antithesis of fairness. Competition in games results in winners and losers. There is no difference between losing by one point and losing by a hundred; either way, the loser gets nothing. To make things worse, there is always some luck involved in competitions, so even if two competitors are truly equal, one of them will still lose (especially if there is a "sudden death overtime" rule). Such a winner-takes-all setup may be good and fine for recreation, but it is hardly the way that we want to make a living and structure our community. People want some stability in their lives, and an economic system that provides no individual stability is practically worthless, regardless of its society-wide benefits. What's more, human society and productivity is premised upon cooperative behaviors, so cut-throat competition undermines the foundation of a productive economy.

With this perspective, it is easy to view economic competition as a maladaptive behavior to be suppressed, rather than it being the foundation of a fair and prosperous economy. However, this anti-competitive perspective ignores the fundamental differences between economic competition and the "game competition" described above.

First, economic competition is secondary to, and supportive of cooperation. For instance, salesmen don't compete with each other in a vacuum; they compete for the privilege of doing business with a customer. The primary interaction here is the mutually beneficial exchange between the customer and the salesman. The competition between salesmen is secondary. Contrary to the hypothesis that economic competition destroys cooperation, the competition between salesmen actually increases the total number of mutually beneficial transactions between salesmen and customers because it encourages salesmen to provide better deals to their customers.

Second, economic competition is not necessarily a winner-takes-all game. Consider the competition among salesmen again. Each salesman has a limited ability to identify customers and convince them to do business with him. Most simply, he does not have the time to sit down with every person in his town to negotiate deals, nor does he have the logistical capacity to provide them with every product that they may want. The limits of any one salesman means that there is unsatisfied demand that can be met by other salesmen. A good salesman will have a higher income than his less effective peers (because he either has a larger market or makes a greater profit on each sale), but he will not prevent them from making a decent living--at least in markets that approximate this simplistic model of a competitive market.

Our values of fairness and cooperation are only violated when competition takes the form of a winner-take-all game--which I'll call hyper-competition. In fact, hyper-competition often arises because something has undermined regular competition, and replaced its fair distribution mechanisms with the unfair distribution mechanisms of a monopoly following a brief, intense competition (examples below). Consequently, those of us interested in economic fairness should advocate for regular competition, and fight against hyper-competition.

--Examples of hyper-competition--

Patents: Patents are form of intellectual property--a state privilege that provides the owner with the right to exclude others from selling a particular good or service. Patents are initially granted to the inventor of a strategy to solve a problem. Because it is possible for multiple inventors to develop the same general strategy for solving a problem, patents can create a race to be the first to record their solution to the problem. Consequently, competing teams may lose all of their investment if they are not the first to find a solution. Side note: Ayn Rand, with her aristocratic view of competition, justifies this situation by treating it as a normal part of competition, and treating patents as laws of nature rather than laws of men.

Corporations in a market: There's an argument to be made that for corporations in a new market, "slow growth equals slow death". The idea is that a large competitor automatically has a major advantage over their smaller rivals, due to various economies of scale, and will eventually crowd out their rivals. This may be the most prevalent form of hyper-competition in our economy, and this may make it seem like an intrinsic part of competitive markets. Kevin Carson has written a lot about artificial contributors to economies of scale, but the above author (inspired by Geoffrey Moore) doesn't seem to focus on the same mechanisms that Carson has. Instead, this author seems to focus on how consumer's respond to bigness; the companies benefit from name recognition, the network effect, and a general credibility that is associated with bigness. These observations suggest that hyper-competition arises from the corporate structure itself, and its ability to expand to fill the entire market, no matter how big. This may not be a problem if the corporate structure allowed for high levels of autonomy within the corporation (for instance, a franchise brand), but most corporations completely subsume all aspects of production, not just the components (e.g. branding and intellectual propety) that are particularly responsive to scale.

Tournament Markets: Some labor markets fall into a tournament (winner-take-all) structure. This is actually well studied by economists (see Wikipedia for links). This tournament structure may result from reputational positive-feedback -- achievements generate reputation, which produces opportunities, leading to more achievements. This plays a role in academia, and is similar to the corporate competition mentioned above. Sometimes employers explicitly use tournament logic as a strategy to motivate employees, though its value is debatable.

Monopolistic practices: In general, if one market participant can exclude newcomers from entering the market, then it can gain very large rewards for being the first to be established. There are many practices in this category, but the most egregious are those that are enabled by the state, such as the enforcement of non-compete clauses in employee contracts. These practices can even apply more broadly, by making sure that certain high-paying professions are more accessible to those who are born into wealth, thereby protecting wealth that may have been earned (or plundered) in earlier competitive activities. See the Conservative Nanny State for examples.

Elections: Elections are perhaps the cleanest example of a winner-take-all competition that has a real impact on our lives. As with any job opening, the individual candidates will "win" or "lose", but because those candidates represent different factions in society, elections result in widespread winning and losing across society. Many citizens don't ever win, because none of the "serious" candidates share their concerns. Even in the legislature, the pattern of "winning and losing" continues as the majority passes legislation over the objection of the minority, though members of the legislative minority still get some influence.

Indeed, the hyper-competition of politics seems to be the source of much of the hyper-competition in society as large, as various special interest groups vie for political power that they can transform into special economic privileges. The observation of deep hyper-competition at the core of the state should give pause to any who intend to use the state to promote fairness in society. Perhaps their first goal should be to assure fairness within the state itself.