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Tuesday, May 27, 2014

Compulsion Is Not Cooperation

Market competition expands cooperative arrangements among people

If you ask people whether competition or cooperation is better, almost everybody picks cooperation. It just “feels” better. However, when it comes to economic relationships, the question is not “either/or,” despite long-standing confusion.

FDR’s often-echoed statement was that “cooperation, which is the thing we must strive for today, begins where competition leaves off.” Market competition is actually the process that leads to better cooperative results than are otherwise achievable. Market competition actually expands cooperation.  

A competitive market economy is characterized by more extensive and effective cooperation than a “cooperative” economy controlled by the State. That is because market competition embodies a discovery process that reveals who will best cooperate with us, and how. So far this system has no equal. That is why commerce has reduced conflict throughout history, with greater beneficial effects, the less it has been hamstrung by governments. Even in an age of open source and peer-to-peer, market arrangements—exchanges of value between parties—still give rise to the greatest level of prosperity.

A market economy, based on a legal framework of people’s rights to life, liberty, and property, outclasses a command economy because it is permeated by voluntary cooperation across the almost uncountable margins where individual choices interact. Consider the “cooperation” imposed on some by others against their will: Such a system of technocracy discards massive potential gains realized through exchange.

Competition exists within firms. But success in the marketplace requires extensive cooperative skills among many individuals in widely varied activities. Just as sports teams and orchestras illustrate how fierce competition can produce outstanding cooperation, the employees of firms must cooperate to produce high-quality, low-cost results, or risk being of being outperformed by rival cooperative teams.

Market competition is the process of rivalry in which the best cooperators—those who cooperate more effectively with more people—earn greater rewards. Further, the stronger the competition for consumer patronage and employees, the more such cooperation develops.

Each interaction in the vast web of market relationships (which Friedrich Hayek called the “extended order” of the marketplace) involves voluntary cooperation, which is the origin of the market’s mutual benefits. No arrangement is imposed by someone else’s decree. Rather, each develops as participants advance their mutual self-interests, among participants who often live in vastly disparate places, speak and write in a multitude of languages, and often believe many different things—even mutually inconsistent ones. And competition improves outcomes because the requirement to get the consent of all whose rights are impacted (absent in other systems) forces competition into positive channels, generating beneficial results.

People compete for jobs to cooperate with others to produce goods and services. That “competitive” cooperation also extends to owners and creditors, suppliers and customers. A worker that cooperates more effectively earns more income. A firm that better cooperates with customers and suppliers raises its market value.

Market competition leads to improved cooperation because everyone is free to offer to cooperate at whatever terms they find acceptable. The process rewards those most able to meet consumer desires, whoever they may be. Competition replaces restrictions imposed to benefit the politically powerful by denying others opportunities to cooperate on better terms. The result is improved results for them as well as those who would prefer to deal with them, if given the chance. Based in secure property rights, it does not allow the strong to abuse the weak; rather, it favors those better able to serve others, however weak they may be in politics or other aspects of society, with a special premium for benefiting the masses (where really large rewards can be reaped). In that way, competition is the primary uplifting force for the poor, not the means of making them victims.

Nothing prevents individuals who are sovereign over themselves from voluntarily cooperating whenever all involved expect to benefit. We do it countless times, without even noticing it. But when those with political power can impose limits on how we are allowed to cooperate with others, competition is transformed into a political war to control what we must cooperate in pursuit of, as well as how and for whom. There is nothing harmonious, benevolent, caring, or community-minded about such conflict. It focuses on reducing the options of others.

Scarcity means competition cannot be avoided, no matter how society is organized. In capitalism—voluntary cooperation based on private property (in turn based on the principle of self-ownership)—it creates wealth out of otherwise-latent abilities in others. The key to its success is its limitation to voluntary activities, barricaded against political compulsion, because under “cooperative” decision-making, competition for political power destroys wealth and hamstrings society from vast areas of true cooperation.

Contrary to those who assert cooperation’s superiority to competition, capitalism is the only system that strips force away from all relationships, allowing true voluntary cooperation. The issue is not competition versus cooperation, but channeling people’s scarcity-induced competition exclusively into mutually agreed forms. Markets do that. As Ludwig von Mises put it, competitive markets comprise “a system of mutual cooperation,” where “the function of competition is to assign to every member of the social system that position in which he can best serve the whole of society and all of its members.” In contrast, government enforced “cooperation” actually crowds out or destroys real cooperation.

  • Gary M. Galles is a Professor of Economics at Pepperdine University and a member of the Foundation for Economic Education faculty network.

    In addition to his new book, Pathways to Policy Failures (2020), his books include Lines of Liberty (2016), Faulty Premises, Faulty Policies (2014), and Apostle of Peace (2013).