Saturday, May 05, 2007

On Competition

It would seem that competition is a fundamental aspect of capitalism. Anti-trusters, in their zeal to regulate business, would have us believe that a market without competition is coercive, and requires legislation in order to restore competition to it. Right-wingers have a zeal for competitive mechanisms, as they try to inject it into such government run programs as education (school vouchers) or health care (re: private insurance options). It is “competitive” mechanisms that will cure inefficient government programs.

But looking through the Objectivist literature, one is hard pressed to find much mention of competition as a fundamental of capitalism. It has a brief mention in the Lexicon, mostly related to government enforcement of such, and it has no mention in the entire OPAR section on capitalism. Competition isn’t an Objectivist virtue, like independence or productiveness so it doesn’t even seem to have an ethical basis. I know that independence and productivity are virtues, and that being “second-handed”, i.e. placing self-worth using others as a standard is wrong. I know that capitalism is the proper political system, and I sure see a lot of preoccupation with competition in capitalism. This leads me to wonder just what the proper attitude toward competition should be. Is it fundamental not? Is it good or not?

My family used to run a Labor Day race every year, A 5K run through the woods of northern Michigan. Our last running of this race found my step-son and I alone on the trail at the half-way point with about 15 minutes to go.

Kendall, I don’t think I can keep running. My legs hurt,” my son said through labored breaths.

hmm. Ok, well maybe we can stop to walk a bit. Tell you what though. See that runner up there,” I said motioning to a woman about 100 yards ahead who had been steadily falling back.


“Is she closer to us now than she was five minutes ago?” I asked.

“I think so,” he responded.

“OK, well that means she started out too fast and we’re going to catch up to her. Do you think you can keep going until we do?”

“Yeah, I think I could do that,” he replied, gauging the distance and the time required. And we stepped up the pace just a little and began closing the gap. He focused on the gap between us and the runner, and he increased his stride, ever so slightly.

After passing her, my son spoke up. “Hey, you know that guy up there looks like he’s falling back too. Maybe we can catch him. Do you think we can in time?”

“It looks like it,” I said. “We’ve got another mile or so to go.”

When I look at top tier businessmen that I know, I see similar responses to competitors. They take a keen interest in what the competition is doing, but never to the extent of allowing the competition to define their actions. Nor do they react emotionally to frustrating moves that the competition makes. Any emotions that are expressed are usually based in a sense of friendly rivalry or respect, especially for able competitors. Mostly, they learn from their competition and focus on their own goals.

Second and third-tier businessmen, however, show the signs of second-handedness. They are preoccupied with the competition. They may respond emotionally and with frustration at competitive moves and make strategy decisions out of a desire for retribution rather than true self-interest.

And so from these few examples I start to get a sense of the proper characterization of competition. It is a side-effect of capitalism. Competition is the natural result of men who practice the virtues of independence and productivity, within a society based upon rational self-interest, and man’s right to pursue it. It is an effect, not a cause.

“Competition is a by-product of productive work, not it’s goal. A creative man is motivated by the desire to achieve, not by the desire to beat others.” - Ayn Rand ["The Moratorium on Brains", The Ayn Rand Letter 1,2,4]

And the proper psychological attitude toward competition? Well, implicitly I understood this from the race with my son. It came to me explicitly as a result of thinking about a discussion on on personal motivation. Competition is a positive tool that we can use. It helps us to learn about the nature of the game we’re playing and to set intermediate goals. It gives us concrete gauges by which we can measure our own progress and performance. It is one of the ways that we turn productiveness into excellence. The same is true in business. The proper attitude is one of benevolence (and maybe a little rivalry) toward honest competition, and of respect and admiration for ability in our competitors.

And the implication for our would-be policy makers who fancy competition, as such? Simple. Focus on creating the causes of capitalism, namely namely individual liberties, and markets free from coercion. Only then will the effects be properly seen. However, if one tries to legislate the effects by short-circuiting the causes, failure is the only outcome.

The only actual factor required for the existence of free competition is: the unhampered, unobstructed operation of the mechanism of a free market. The only action which a government can take to protect free competition is: Laissez-faire! - Ayn Rand
My son passed three more runners that day, two (including yours truly) at the final sprint to the finish, which he initiated 200 yards before I would have. I never heard about the pain in his legs again. We have no idea how the runners we passed ended up, and it really doesn't matter, but I know that he ran longer and harder than he would have otherwise - because of the competition.


Galileo Blogs said...

That is a good analysis, Kendall, which I am going to think further about.

My own experiences with business executives is that the best ones have exactly the attitude you describe toward competition: "benevolence (and maybe a little rivalry) toward honest competition, and of respect and admiration for ability in our competitors." These businessmen, even if they happen to be "second" in their fields, are tremendously successful, first-handed achievers.

I have also met plenty of second-handers in business. These executives spend an inordinate amount of time "benchmarking" themselves against the competition . Often, they spend ridiculous amounts of money on consultants who do nothing more than survey what everyone else is doing. This type of businessman is prone to following fads and even going over the cliff lemming-like when fads fail or a crisis affects their industry that they are unprepared for.

(There is nothing wrong with benchmarking by a first-hander, who uses it as a means of refining goals, etc. The second-hander uses benchmarking as a substitute for independent judgment. He is trying to copy the "leaders" of his field rather than rationally pursuing the best path for his company, as determined by his own appraisal of the facts.)

Kendall J said...

Hi GB, sorry for the delay in responding.

I'm glad to hear that others have had similar interactions with business executives. I find it to be all to common that many people take the second sort of business person you mention as representative, when in fact, these are 2nd tier people.

I think the mis-essentialization of competition is actually a fundamental flaw in many people's view of capitalism. In some cases I think this is conscious and in some cases and unconscious error.

Brian Simpson in his book, "Markets Don't Fail" identifies the fallacious concept of "perfect competition" which he shows is actually the lack of same.

I think the liberal types consciously want to push markets toward "perfect competition" as a destruction rather than creation mechanism. That is, out of disdain for capitalism and to use the markets against themselves, for instance, to create de facto price controls. This is analogous to a dog fighter who creates agressive dogs, starves them and then throws them into the ring to tear each other apart, and then calls it part of the dog's "nature".

The other group are the libertarian/anarchist types who think that competition is a tool for any objective and are overly optimistic about what market competition can really accomplish.

Anyway, I've got a couple of posts coming on those two topics.

Kendall -

Galileo Blogs said...

I look forward to the posts, Kendall. Your point that left-wingers use perfect competition as a cudgel to hammer capitalism is a good one. Perfect competition is similar to environmentalism in that there is enough in it that seems legitimate to ensnare well-meaning, but poor-thinking people, who fail to see that its actual purpose is evil.

For example, everyone wants clean air, water, etc. Therefore, many people support "environmentalism" thinking that is what it stands for, when it really is a veiled (or not-so-veiled) attack on industrialism.

With regard to perfect competition, no one wants a coercive monopoly to charge high prices, fail to innovate, and squash worthy competitors. That is a straw bogey-man that perfect competition theory sets up. Yet that straw bogey-man ensnares many well-meaning, but poor-thinking conservatives who think that they are pro-capitalism.

However, like environmentalism, perfect competition is used to justify the antitrust assault on productive businessmen. It does so by setting up an unreal standard and then demanding that businesses and businessmen be forcefully tortured to fit into the unreal, pseudo-perfect model they have floated. It also conflates two separate classes of businessmen: the illegitimate businessman who benefits from a coercive, government-sanctioned monopoly, and all other businessmen who gain their market position through voluntary trade.

Conservatives, who proclaim themselves to be supporters of capitalism, need to understand that because perfect competition is an unreal standard, it should be dismissed as the arbitrary. However, if they were willing to do that, they would have to dismiss other arbitrary pseudo-conscepts, such as... God, Jesus, etc. If they did all that, they would no longer be "conservatives", but Objectivists!

I will qualify what I just said. **Everyone** should understand the true nature of capitalism (whether conservatives choose to "get it" or not). Perfect competition and its policy offspring, antitrust, are anti-capitalist and should be denounced as the arbitrary-therefore-false, destructive doctrines they are.