Saturday, October 20, 2007

Competitively Cooperative

The modern mind has a strange compulsion for making side issues foundational. Early in this blog I discussed how unity is not foundational. Most people who are calling for unity usually have an enemy in mind that they wish to unite people against. The people calling for unity are actually trying to create an even greater division.

The hegemony argument is another example of people making a side issue foundational. Hegemony has value as a descriptor. But when you make achieving hegemony the primary concern of a system, you change the nature of the system.

Another example of the modern tendency to make side issues foundational is the over emphasis of the role of competition in the free market.

Freedom is the foundation of the free market. The ideal of the free market is that the individual has the ability to invest their time and resources as they see fit.

You can prove that competition is not foundational simply by looking at the way people behave when they have freedom. When people are free, they end up engaging in a mix of both cooperative and competitive activities.

Looking through the table of contents of The Wealth of Nations we see that Adam Smith spends most of his time talking about issues such as the division of labor, rents, the division of stock. All of these issues deal with mechanisms of cooperation in the free market.

Cooperation and competition are complementary forces. The terms serve as valuable descriptors, but people err when they say competition is the foundation of the free market.

The Market as Organized Cooperation

When you get down to the brass tacks, you will find that all financial transactions are cooperative in nature. When you hire on with an employer, you are not engaged in competition with the employer. You are actually making a contract to cooperate with the employer. When you buy food from the local market, you are engaged in a well orchestrated cooperative effort to bring food from the fields to your family.

In most cases, the primary factor in choosing a service is how well the service provider cooperates with you. Service providers compete by their willingness to cooperate.

The Opposite of What You Expect

When you create a system that overemphasizes one side of a complementary force, you often end up with the opposite effect than you intended. The street preacher agitating for unity against his foe causes greater division despite his illusion that he is a unifier. Peace activists who make unjust compromises in a short cut to peace might accidentally lay the foundations for a worse war. A warmonger might accidentally lay the foundation for peace when people listening to his agitations realize that they must address an issue or go to war. As we live in a fluid universe, it is not uncommon for actions to have the opposite effect than intended.

My observation is that systems that overemphasize competition tend to create less competition. When you overemphasize competition in the market, people develop the illusion that they must be big to compete. Look at the current marketplace. You will often see profitable businesses merging simply because their owners feel that they must be big to compete. I've seen many people fail to go into businesses simply because they felt that they weren't big enough or emotionally equipped to compete. When businesses merge, or people fail to enter the market, there is less competition.

Even worse, when people are driven by competition they are apt to undertake anti-market activities to undermine competitors. When you look at the dynamics small towns, you will often find a small number of leading merchants monopolizing main street.

Conversely, emphasizing cooperation has a strange habit of creating more competition.

Most successful small businesses are formed by people who wish to cooperate to achieve a specific end. Let's say a manufacturer needs a new and improved widget to go in their device. When the designers' thoughts are dominated by ideas of competition, they are likely to try and develop the widget internally. A designer who sees the market as inherently cooperative is more open to seeing the widget developed in cooperation with a third party.

The stock exchange is a good example of cooperation. In a stock exchange, people cooperate in forming a market to trade goods. The people in this market are keenly interested in having a diversity of stock to trade. Investors will actively seek out the creation of business so they have something to trade.

Affiliate marketing is an example of cooperation the internet. Affiliate marketing is a system where web sites form cooperative relations with merchants to sell products. Affiliate marketing has drawn a large number of small web sites and small merchants into the online market. Many of these companies would not have existed if not for the cooperative nature of affiliate marketing.

Crass Commercial Intrusion: My attempt at affiliate marketing makes about $200.00 a year. I understand that people who know what they are doing can make a living from the market. My problem is that I am more interested in things from a conceptual level than from an implementation level.

Sadly, people who are driven by competition feel that they must dominate the market and engage in activities specifically designed to undermine the affiliate market. I would not be surprised if affiliate marketing completely vanished in the next couple of years as the major players lock all of the small players out of the system.

Internalizing the Division of Labor

Adam Smith's observation is that the division of labor seems to happen naturally. People want to concentrate on one aspect of the market. A farmer might concentrate on the quality of his crop. The delivery driver would concentrate on the efficiency of his delivery operation. These people would form an informal cooperative network. This division of labor happens naturally.

When you overemphasize competition and de-emphasize cooperation, you end up creating these megacorporations that try to internalize the entire division of labor related to the production of a specific good. If our economic theorists and socio-economic structures were to emphasized cooperation, I think we would start seeing a break up of the mega-corporations as business leaders struggled to create nimbler business structures that were better suited for cooperating dynamic, multidimensional market.

Political Systems

You will notice that I used the word "might" and not "must" in the above sections. Cooperation and competition are simply complementary terms. A politician who takes steps to increase competition may or may not increase competition. Since there is a monopoly in education, it is likely that the Utah Voucher proposal would increase competition. Other subsidy programs designed to spur competition (e.g. farm subsidies) appear to simply give an economic edge to those farmers with the inside connections or the legal expertise to get the subsidies. These insiders use their competitive edge to drive the other farmers out of business, reducing competition.

Neither competition nor cooperation is foundational to the free market. Freedom is the foundation. Since neither cooperation or competition are foundational, politicians and economic theorist are ill advised to create policies that treat the issues as foundational.

Politicians who are interested in seeing the free market succeed should pay attention to how their policies affect the freedom of the people and not on peripheral issues. The disappearance of competition or cooperation in a market might be an indicator of an imbalanced market. Direct political efforts to spur competition are likely to created unintended consequences.


Scott Hinrichs said...

Free markets are indeed a mixture of cooperation and competition. My own employer regularly works and even allies itself with other competitors in the same industry. The company will be working together with another company on one issue, while competing against the same company on another issue.

y-intercept said...

I believe that if our business schools emphasized the important role of cooperation in the free market, then you would see more business leaders and workers who see the establishment of complementary businesses as the path to success as opposed to this current myopic focus on growing the megacorporation to new oppressive heights.

Charles D said...

It is so simple when you assume positive, cooperative motivations to all the participants in the marketplace - and we thought utopianism was confined to the socialists!

Of course, the most effective way to engender cooperation is by coordinated communal effort, not through unfettered markets. Left to their own devices, participants in a "free" market will always seek to make themselves richer and more powerful insofar as they are able. Since there was no level playing field at the beginning, that simply makes the rich and powerful more wealthy and more powerful and the poor and weak less affluent and weaker. It is mindless to postulate Utopian conditions that have never existed. With that logical framework, virtually any conclusion can be supported.

Freedom, however, is not a feature of the market, it is a condition hard won by individuals cooperating with one another against the established order. That's how our nation became free and it is the story of most, if not all others who share freedom.

We are free because our government is based on a Constitution that insures our freedoms, in spite of those in government or in business that would prefer to curtail that freedom. We cannot consume our way to freedom, we have to fight for it.

y-intercept said...

DL, the post said cooperation exists in a free market. For that matter it is rampant. All of the little contracts that people make in the market are forms of cooperation.

The post said that left leaning thinkers tend to overemphasize competition in the free market. They do so specifically so that they can say cooperation is the foundation of socialism.

Of course they this deal of focusing on false premises ignores the reality that there is competition in communal societies. That competition tends to occur at a baser level.

Charles D said...

Cooperation implies a partnership between equals, not a contract in which one party more or less agrees to be dominated by the other.

Competition, of course, is part of the human condition, as is cooperation. There is no political or economic situation (except hypothetical ones) in which either competition or cooperation is entirely missing.

However, if one wants to promote competition in a system, then you would move toward an individualist polity where people can accumulate property and money as much as they are able and can use it to further aggrandize themselves. If you want to promote cooperation, you would move toward a communal polity where people see themselves as members of a larger community and agree to pool some part of their property and money to accomplish goals of the community.

Certainly in a communal polity competition will arise, just as in an individualist polity cooperation will arise, but the each system works to promote one over the other.

y-intercept said...

Cooperation happens between people of differing abilities all the time.

If I accepted your thesis that differing size reduces the ability to cooperate; then I would conclude that a communal society with a totalitarian collective would actually have less cooperation in it than one with a multitude of entities with free agency.

Charles D said...

A totalitarian collective? I'm not discussing communism here, I'm discussing democratic socialism - the kind of thing countries have when they are real democracies where citizens have real choices to make at the polls.

Certainly people with differing abilities can cooperate, but in a capitalist system it is much more common for people with greater economic power to co-opt those with less than to cooperate with them.

The marketplace is not some kind of economics lab in which every player has equal power and equal knowledge and is making sane, independent "free" decisions based on enlightened self-interest. The reality is that unfettered, unregulated markets engender large, powerful players engaged in full-time deceit of consumers (aka advertising), and consumers making uninformed choices. The competition is between corporations vying to put one another out of business so they can get more market share, and workers competing for fewer, lower-paying jobs since the good ones were all shifted overseas by the "free market" corporations.

y-intercept said...

gYour collective is an illusion. People are not.

It gets even worse. Everybody has a different idea of what the collective is. So what happens is that people who are absolutely convinced that they are bringing unity to the world bring disunity.

A philosophical system that starts with individual real people and that explains how individual real live people can thrive in a world will go a lot further than one that starts with a collective.

When you create a system where individuals thrive, you will create a system where wealth bubbles up through society. When you concentrate on the collective first, the idea is that wealth will trickle down. But it never seems to happen.

Your accusation of my wanting to experiment on people is funny. The system I prefer is one where people are free to experiment around and find what works for them. The scientific socialism that is in vogue generally has an elite class that directly does experiments on populations.

Of course you can call every single thing in the world an experiment. Most business (or at least most business categories) started as an experiment. Successful businesses are experimenting with ideas all the time.

In the free market people experiment with things right and left. In socialism, people are reduced to the subjects in the experiment.

As for results. The results pretty much indicate. This system of freedom (that our elite scholars seem to have rejected) then you have prosperity. Pretty much all of the collectives languish in mediocrity.

Charles D said...

Perhaps the problem here is hegemony of economic systems. There is no such thing as a completely free market, nor any such thing as a purely socialist system. The reality is that a mix is present in most circumstances.

The excesses of greed permitted by an unfettered, unregulated corporate capitalism can be curtailed with appropriate regulation, a strong social safety net, and the will of the people expressed democratically. Likewise the tendency to closed, centrally controlled bureaucracy in mature socialist economies can be held in check by a commitment to private property, entrepreneurial capitalism, and a fair tax system.

You seem to suggest that going to a radical form of capitalism, such as the Milton Friedman model, would solve all our problems. The historical record proves otherwise. To initiate the radical change in an economy requires coercion and the results are advantageous only to a few at the top.

y-intercept said...

What is going on in our society is a hegemony of economic systems. Hegemony itself, however, is not central to my thoughts.

What I want is a system where the middle class owns the vast majority of wealth in the nation. So the questions swirling around in my mind is about creating a society where the average citizen owns a substantial amount of equity.

I read a statistics that in the tech sector, there is something lare like $500,000 invested for each $60,000 dollar a year job.

To have a world with a large number of interesting jobs. You actually need to have a lot of capital. For that matter, most of the really interesting jobs are about creating capital opposed to boring jobs delivering consumer services or goods.

What I would like to see is structures that moved ownership of capital away from the current elite and back into the hands of the middle class.

Let's say the average American spent $100,000 in health care expenses. Rather than having a sugar daddy pay out that amount of some mysterious coffer. I would want financial instruments owned by the individual.

Safety nets need to be structured carefully so that they don't draw their energy by knocking down ownership in the middle class. A safety net that is too liberal might encourage self destructive borrowing.

Hegemony is an important issue largely because Marx made it an issue. Marx claimed to be able to scientifically see and control the hegemonic forces of socio-economic structures. He saw that in the feudal society, the middle was suppressed.

During the enlightenment, the middle class grew and pretty much swamped the elite.

Marx despised this this new group that he called the bourgeoisie. The bourgeoisie was a state change.

His fantasy was that educated elements of the elite called the intelligenstia and a disenfranchised peasantry (the proletariat) would rise against the new hegemony. This would create a new state change. He was wrong.

The intellectuals of the world loved this idea because it made them philosopher kings. They saw the party as a new Platonic school. There have been all sorts of really weird things premised on the idea that if you pitted the ends against the middle a state change would occur after which wonderful things would happen.

The idea that our conciousness evolves between these battling hegemonies is entrenched in our society.

One might say that there is a hegemonic battle between those who are just trying to find the best way to be, and those who feel that there we be something wonderful down the line if we could just push ourselves to the next level of evolution.

Charles D said...

I too would like to see structures that moved ownership of capital away from the current elite and back into the hands of the middle class. The most often used such structure with the best track record is government.

In a democratic system, the majority is always composed of middle class and working class people and when they band together to bring ownership of capital into their collective hands, they do it through their government.

The problem in the U.S. is that we do not have a democracy. It is not that our representational system is inherently defective, but it has been co-opted by wealthy interests through marketing, media control, and intentional structural roadblocks so that we are presented a "choice" between two parties, both of whom represent largely the same economic interests. To have any sort of effective government structure to aid middle and working class people, we would have to reform our electoral system.

I will agree that in the instance you cite, Marx was quite wrong. We do tend to discuss economic issues in extremes influenced by either Marx or Hayek, but both were extreme ideologues. It seems that most economists have lost sight of the purpose for which economies are created - the well-being of people.

An economic system that rewards a small minority while depriving the majority is immoral. A system that attempts to remove ambition, even greed, from humans and create some kind of uniform economic level is doomed from the outset.

IMHO, one cannot avoid hegemony unless you embrace democracy. If everyone has an equal voice in setting overall economic goals, then we can move beyond the polar extremes.

y-intercept said...

Come on. Governments have a horrible legacy in their attempts to control the economy and redistribute wealth. Governments always direct wealth toward their supporters and, consequently, into the hands of the few.

Direct government control of any market almost always results in consolidation and centralization of that segment of that market.

You mention that our democracy seems more ccrrupt these days. That's what happens when you get too much crossover between the market and government. When government becomes the determining factor in the success or failure of an enterprise, then businesses must invest in government influence to survive.

When government takes to creating the market, then they start out with government connections being the determining factor in success. So, you it is very difficult to undo government meddling with more government meddling.

Today, a person should not even think of starting a business if they do not have a good lawyer and proper connections with the current ruling party. I hate this reality because if forces the disenfranchised into servitude.

In health care, we see that, as governor got more and more involved in things, the independent practices all disappeared. We are now left with large politically connected firms that dominate the market, and they use political connections to thwart the devleopment of competition.


BTW, there is hegemony in democracy. A two party system simply provides a control structure for hegemony to switch from group to group as the parties realign between the election cycles. Multiparty systems do the same, but between alliances between parties and not internal alliances within a party.

Problems exist when one group has an ideology that demands that their group must take complete control. Such people tend to start doing really nasty things. Some think that Bush intentionally used the war as a wedge issue in hopes of isolating the democrats and creating a permanent hegemony (fascism) for the Republicans. I reject that idea.


I wouldn't really call Hayek an extreme. Hayak's deal is that he watched first hand as Russia and Germany turned totalitarian. He wanted to tell the world what people were talking about before they went totalitarian and why he thought the issues that defined the day ended up with such horrible governments.

Like all reactionaries his message carries an imprint of the things he reacted against. However, that doesn't make the guy an extremist.


Finally, I don't mind using hegemony as a descriptor. So we can say something like there appears to be a battle for hegemony between the classical liberal and modern liberal view.

The classical liberal view wanted a smaller government with clearly defined role without much direct influence on the day to day operations of the market.

The modern liberal view wants a very active government that has a policy in place for the issue of the day (whatever that might be). In Andrew Jackson's day it was handling the Indian menance and creating a system that preserved slavery. In the late 19th century the issue was manifest destiny and keeping the freed slaves from becoming all uppity. Jim Crow laws and unions worked hard to keep these people out of the market. The nation cheered on environmental devastation and atrocities against Native Americans.

Thankfully, the issue of the day changed in the Civil Rights movement.

The fact that the issue-of-the-day thinking occasionally gets it right doesn't mean that it will start getting it wrong again. Richard Dawkins thinks the issue of the day is ridding the world of Christianity. GW Bush sees the issue of the day is a war between the US and radical islam.

Gore might have it right that the issue of the day is climate change. I don't like that he has positioned his argument in a way that claims climate change is the result of our conciousness and not our actions (which I find troubling and anti-science).

The issue of the day can and will change. Notice how the issue of the day almost always has a motivation of fear.

In the battle between a well defined government and issue-of-the-day politics, issue-of-the-day thinking clearly has hegemony. I wish it was otherwise.

Charles D said...

I would agree that we have too much crossover between business and government, but the effects are most readily seen in government which is outsourcing everything but the kitchen sink to corporations, not supervising them, and spending more than they did when their own staff performed the job. Government regulation of and interference in business has steadily dropped since the early 80's. The is now too little government regulation rather than too much.

I don't equate democracy with the two-party system. This system used to provide a measure of democracy when both sides were willing to compromise to pass legislation that was in the nation's best interests. Unfortunately the Republican Party stopped compromising altogether and insists on having its way. The Democrats seem to think they are still the compromising Repubs of old and usually get trashed as a result.

Charles D said...

As a possible stimulus to further conversation, I'd be very interested in your take on Mapping the Real Deal: The American Tapeworm.