Cooperation trumps Competition

People tend to view economics as a zero-sum game.  What I consume, you cannot consume.  The job I have is the job you cannot have.  The contract my company gets is the contract your company cannot get.

This way of thinking has limited application in the real world.  Yes, in many ways we live in a competitive world of scarcity, but the history of society and of economic development is actually one of cooperation rather than competition.  If you think about it, you’ll soon realise that economic interactions in the real world are characterised to a far greater degree by cooperation than they are by competition.

Think about it, you get up in the morning, shower, eat breakfast and brush your teeth.  It’s all cooperative.  You entered into voluntary trade with others in order to avail yourself of the products and services that make your life easier.

You get in your car you bought fuelled by petrol you bought.  Those products were made available to you in a convenient way by hundreds of people cooperating throughout the supply chains from source to shop floor, from ocean bed to petrol tank.  You drive along busy roads to get to work with thousands of people cooperating with each other to get their large metal death-machines to work on time.  You get to work and greet your colleagues, who all have the goal of cooperating to get a job done.

You ask your supplier to fax to you the invoice from the shipment delivered yesterday.  He cooperates and sends you a link to a trade payments system website to help you make payments easier.  You get on the payments system provider and create an account, and so your business becomes more streamlined.

You phone a customer and ask him for feedback on your latest product offering.  He likes it but suggests y0u make it a little more versatile by making it a little smaller and in a few different colours.  You get the same feedback from other customers and agree that this is a better way to make the product.  You relay the message to your supplier who says it can’t be done.

“What? Can’t be done?”  That’s crazy! I’ll have to find another supplier.  And BOOM…our first encounter with competition all day.  The other supplier is able to do it, and for cheaper!  You tell your current supplier who says she’ll get back to you.  She does, and says she can make your product.

You then quickly scoot off to a car auction you read about in the paper that was delivered to your front door.  Your son needs a car before he leaves for university in Cape Town.  You get there and the auctioneer has a range of good cars on offer at competitive prices.  You get outbid for your best option, but outbid the guy with the big moustache for your second best option.  Incident No. 2 of competition.

The auctioneer takes you aside to organise payment and financing and facilitates sale and transfer of the car, without you even asking for it.

You get home from work and go to the Trustee meeting for your residential estate to iron out some problems that have arisen with the underground water pipes.  The meeting is attending by a bunch of strangers who have decided to cooperate around a common objective.  Once done you get home where your wife has made you a steaming hot meal.  After dinner you check your daughter’s homework and then get online to send a donation to your favourite charity.

Not much competition in that day, because competition enters our lives sporadically and for short bursts.  Our competitive interactions are very important, but they are occasions to be dealt with quickly and efficiently in a two way subjective bargaining process.  Sometimes competitive interactions lead to the formation of new partnerships and as a result even greater and more fruitful cooperation sprouts forth.

Cooperation is the default setting of an economy, with spots of competition splashed in to increase the efficiency of our trade relationships.

The notion that economics is primarily about competition is a myth.  Yes, competitive dynamics are hugely important, but to focus on these alone would be to miss the fact that so much of our system and societal interaction is characterised by harmony and partnership.

Conventional economic theory does quite badly with the cooperation thing, instead inventing the altogether implausible ‘Homo Economicus’, the hyper-rational, perma-cost-benefit calculating bore who wafts through life as some kind of unemotional plank.  Mainstream economics has tried to address this inadequate theoretical construct by exploring behavioural economics and building complex repeat-game models to simulate multiple economic interactions over time.

While these modern economic techniques are sometimes impressive, they largely miss the point.  The point of studying economics is not to try and sit above society as some kind of academic god trying to figure out the aggregate whims and wants of millions of people.  The Soviets tried that and failed miserably.  No ’social scientist’ can or should try to build the optimal macro-solution.  No one can know or understand the multiple and complex wants, desires, needs, intensities of preference, tastes, whims, indecision, rate of mistakes, emotional fluctuations and individual human actions of the members of society.

All value at the human level ultimately is individually subjective.  Everyone values everything in multiple different ways and each assigns their own subjective valuation to each thing.  The economist can never keep up with this kind of complexity, and shouldn’t even be trying.  Instead the economist should endeavour to understand the basic tenets of human action that hold true most of the time for most people.  These basic axioms of human action should form the basis for an economic theory.

By way of example, one key axiom is that all people make decisions that they believe will make their lives easier, not harder.  This simple sounding axiom maintains the notion that we all make forms of cost-benefit analysis in our lives, whether they be  quantitative or use a mix of experience, heuristics, and some guestimates of monetary costs, but it avoids the problem of having to deal with preference rankings and the problems surrounding the varying intensities people’s preferences.  Moreover it recognises that individual action is what matters and that millions of individuals collectively making such decisions freely and un-coerced creates the greatest aggregate benefit in society.

This basic axiom therefore is the basis for freedom and free markets, because it shows that individuals who make free choices are each making what they subjectively perceive to be life-bettering choices.  It doesn’t matter whether it is the banker doing a multi-billion rand deal, or a street kid begging at a traffic light, if both are making their decisions unhindered both will be subjectively better off than before.

This way of thinking about the economy means fancy-pants social planners in their ivory towers can rest easy that their services are not needed.  They have no reliable way of knowing each individual subjective preference, but they can know that every day every person is making a string of personal decisions.  To be sure some decisions prove not to be good ones, but that provides a lesson the individual must learn.  The lesson learned will alter their subjective valuation paradigm in ways that will improve their decision making in the future.

This is such a deeply personal and private experience that to suggest the state must intervene in this process of discovery is actually vulgar and tyrannical beyond belief.  Furthermore for economists to infer things like aggregate efficiency and then propose constructing policies to bring about more ’socially optimal’ outcomes is one of the worst kinds of god-complexes on this earth.  That such theoretical planning is even effective is also a terrible fallacy to boot.

And maybe that’s really what I wanted to say in this post: We’ve got state sanctioned competition commissions, and anti-trust lawsuits, and regulations upon regulations, and labour laws, and ’consumer protection acts’, and central planning commissions and on and on and on, and yet few are willing to trust PEOPLE (the yous, mes, and John Smiths who live at No. 8 Dreary Lane) to make the right choices for their lives.

Therefore we do not live in freedom but in some kind of surreal adult’s nursery school in which a few well-positioned people get to make all our decisions for us.  Meanwhile, while the powers that be pontificate about how to move the masses out of poverty, the masses are steadily working every day like busy bees getting themselves out of poverty, competing, cooperating, and adding value in their own unique ways.

While we all live in an interconnected system, it matters less what others are doing or achieving than what you are doing or achieving, and your benchmark is not others but your previous condition.  Economics is about opportunity cost and the next best alternative.  It doesn’t matter that some high-level businesswoman earned another R1 billion rand today and some poor township-dweller only earned R10, it simply matters that the poor person is R10 better off than he was before.

So while central planners of our lives get all twisted into pretzels and spend their days with earnest frowns over how to solve the world’s ills, free people are getting out their every day, cooperating in fresh and innovative ways to relieve the problem of scarcity and each makes decisions that leave them better off.  Economics is by and large not zero-sum.  All members of society, if they can enter into free trade, free agreements, free contracts, free exchange, and free choices that don’t impinge upon the basic freedoms of others, can all be better off each day.

Forget zero sum, try never-ending addition.