Supported by a somewhat misguided understanding of natural evolution, the western world (if not the whole world) has been indoctrinated with the belief that competition matters more than cooperation. And yet cooperation seems to be at least as important, not only in the natural world but in the economy too: the proverbial baker cooperates with suppliers, transporters, accountants, employees, food standards agencies, and so on. The baker needs to cooperate in order to be competitive, and in turn the competition needs to be cooperative (including wider society and the environment on which it ultimately depends) in order to complete the virtuous circle. We can see that the ‘invisible hand’ guides the baker to cooperate just as much, if not more, so as to compete. But pitching cooperation against competition is an outdated way of thinking. Instead, we need to recognise the value and necessity for both, and balance them. If either is allowed to go to an extreme, it will end up as the shadow of its opposite: competition ends up in monopoly and cooperation culminates in an ‘ingroup–outgroup’ mentality (seeing others as either insiders or outsiders). So, rather than thinking in terms of competition v. cooperation, we need to think about good competition and cooperation v. bad competition and cooperation. As it is the case with competition, cooperation too is not always good. For example, companies may cooperate – in a cartel – to fix prices for their products, which is not good for consumers. That which unites also divides. However, as the imbalance is right now in favour of competition, this end of the seesaw will be addressed in more detail.
To start off, it should be pointed out that competition does not always need to be a cut-throat activity with the inevitable results of having losers. There is a win–win form of competition too. For example, one baker may end up producing cheap but ‘basic’ bread while another makes more expensive but higher-quality products. The first must keep their prices lower than the second, and the second must keep their quality higher than the first. Competition is forcing them to find their niches, which also increases the choice for consumers, so everybody wins. Competition that is useful for the economy and society as a whole we suggest needs to be healthy, fair, collaborative and sustainable. Let’s examine these characteristics in more detail.
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Healthy competition is positive rather than negative. Let’s take an example from sport: there are two types of competition, exemplified by running and boxing. In running, you win by exceeding your competitors. In boxing you win by knocking down your opponent. In the first case, you win by making yourself better than others, in the second you win by making others worse than yourself. In the economy, healthy competition is like running: you invest time, resources and effort to excel. Unhealthy competition is when a company invests resources to undermine or beat a competitor, like in boxing. The toxic outcomes of the latter are already recognised – negative advertising is not allowed – but unhealthy competition is still going on in other ways. Saturating the market is a more subtle, or some would say, more devious instance of unhealthy competition. This is how the café chain Starbucks has taken over the market. Its strategy was to open not one but three shops in a targeted area. Of course, not all the shops would be successful, but each would take some customers from existing local coffee shops and make them unprofitable. Starbucks capitalised on the fact that they could afford temporary losses, while local shops could not. Once the local shops have closed (which can happen very quickly, as they already run on small profit margins due to the invisible hand), the big corporation can close two of the three shops it opened and keep the most profitable one. So, how can this be avoided? Legislation to limit similar endeavours would not do the trick. It would be difficult to legislate the number of shops a company can open according to geographical or population size. However, there are other ways:
- When retail space becomes available to purchase or rent, the community can be asked what they need. They could also be encouraged to buy or rent the property themselves. Community Right to Buy already exists in the UK. It gives communities, staff and customers time to organise, raise finance and prepare a bid to buy businesses in their area.
- Another way is to prevent a ‘helping hand’ from the centre. Big companies should not be allowed to subsidise their satellites. In other words, all their subsidiaries need to be self-sufficient. They have to be profitable without help from the central HQ – local shops do not have central HQs so they cannot rely on such help. This is necessary if we really want to have healthy competition. To maintain the balance with consumer choice, franchising should still be allowed, and those who buy a franchise can get training, branding and other support from the central company. However, the franchisees should not be a part of the company, should remain independent traders, and should not be subsidised.
Fair: the greater the production volume, the cheaper the cost per unit. It is cheaper per unit to produce 50,000 loaves of bread than 500. Therefore, big companies can undercut small ones in price. So, the bigger a company is, the greater the advantage it has, slowly killing the competition – not because it is better, but simply because it is already bigger. One can say, so what? If everything else is equal, consumers benefit from cheaper products and would lose otherwise. Not really, because ‘everything else’ is never equal. Some products may be a fraction cheaper, but consumers pay for it in other ways. This may include environmental costs or the health cost of pollution from transportation, for example (50,000 loaves of bread cannot all be sold locally). Nowadays large companies can mostly get away with such ‘externalities’. Bearing the total cost for which these companies are responsible would, among many other benefits, make competition with small, local producers fairer, especially if combined with the previously mentioned restrictions on subsidising the subsidiaries. This, however, would still not be enough, particularly for retail companies that are not producers. If only shops belonging to large companies can sell strawberries in the middle of winter because small shops cannot afford to import them, that shop can effectively become a monopoly, keeping prices artificially high. Strawberries are not produced by supermarket chains; they are purchased from suppliers around the world. One way to make this fair is to separate the supply and retail branches of a business. In practice, this would mean that supplies (buying and bringing strawberries from Spain to Britain) cannot be monopolised and should be open to any retailer for the same price. In this way, the supplier still buys in bulk and therefore can keep prices low, but every retailer could take advantage of it. This would not only secure fairer competition, but could also stimulate diversification, as well as increase consumer choice and local employment.
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Collaborative: the other possible problem with competition is the consequences it can have on industries and activities that do not directly compete, but are affected nevertheless. For example, if you bring the gambling industry to a rural town, as has happened in the US, it can drive away all other businesses and industries, such as family tourism. For this reason, competition needs to be collaborative – meaning that the possible disadvantages (and advantages) for a wider context need to be taken into account. Let’s take another example from sport. Football players cooperate with their teammates and compete against the opposing side. But both teams also collaborate with one another – they (mostly!) accept the rules of the game and the decisions of referees or umpires – as well as with the wider context (players must behave appropriately, so making racist remarks, for example, is unacceptable). If sport can be regulated in order to have decent games, there is no reason why businesses cannot also be regulated in order to have a decent economy.
Sustainable: there is one inherent problem with competition: it is ultimately self-defeating, as winning leads to a monopoly (just like in the game of the same name[1]) which, in turn, stifles competition and its benefits. So, to save competition from itself and allow the invisible hand to do its job, competition needs to be moderated. This is also important because the prospect of monopolising the market makes the economy less productive. Joseph Stiglitz, a Nobel Laureate for economics, states:
Some of the most important innovations in business in the last three decades have centred not on making the economy more efficient but on how better to ensure monopoly power or how better to circumvent government regulations intended to align such returns and private rewards. (In Harvey, 2014, p.133-4)
Many countries already have anti-monopoly laws but they are inefficient. In the US, a company that is in danger of monopolising the market is supposed to be broken up, but this rarely happens, as the larger the company, the greater its political and other leverage (as Bill Clinton found when he tried, and failed, to take on Microsoft). So, it is generally better not to let businesses become too large in the first place, unless they serve a socially useful purpose and are sufficiently controlled so that they cannot abuse the power that comes with their size.
These principles themselves may not secure the right balance between competition and cooperation, but this is not to say that implementing them is not important. As economic historian R. H. Tawney pointed out, “It is obvious, indeed, that no change of system or machinery can avert those causes of social malaise which consist in the egotism, greed, or quarrelsomeness of human nature. What it can do is to create an environment in which those are not the qualities which are encouraged.”
~ What we can do now ~
- Support local producers and service providers.
- Implement a so-called commercial diversity ordinance (or formula business restriction) that restricts formula or chain businesses; The ordinance caps the total number of formula businesses, prohibits them entirely or requires that they meet certain conditions to open. This is already a common practice in a number of towns and cities, including San Francisco. We can learn from their success and apply the same in our own localities. For more details, see this article on the Institute for Local Self-reliance website.
- Help refine the measures of the real cost of production and distribution, and lobby to make companies responsible for paying their fair shares.
- Stand up against the erroneous assumption, used to justify antisocial practices, that unrestrained competition is good and natural. Of all the actions we can take, shifting this belief is possibly the most important.
[1] That is, in the popularised version. One of the inventors of the game originally suggested two sets of rules, one of which precludes monopoly and leads to more cooperative competition and outcomes.
