Nadia Yong



Competition and Cooperation

Markets are competitive — it’s a mantra we hear often, and I’m certainly not disputing it, at least not when speaking of depoliticized markets. Those are markets not manipulated by the political class to benefit themselves, their friends, families, and special interests.

The Biden White House released a paper, which set out the goal of competition: “Healthy market competition is fundamental to a well-functioning U.S. economy. Basic economic theory demonstrates that when firms have to compete for customers, it leads to lower prices, higher quality goods and services, greater variety, and more innovation. Competition is critical not only in product markets, but also in labor markets. When firms compete to attract workers, they must increase compensation and improve working conditions.”

The World Bank lamented how many developing countries are not benefitting from competition because their governments impose structures that inhibit or, in some cases, forbid it. “Many markets in developing countries do not yet benefit fully from healthy and effective competition, and government interventions often fail to provide firms with the right incentives to compete. At the regional, national, and subnational levels, sector-specific rules and regulations frequently limit market entry or reinforce the dominance of a few firms.”

In functioning markets there is plenty of competition and countries with fewer politically-controlled markets tend to be wealthier and healthier on average. Competition means private ownership, not state-owned enterprises rigging markets to forbid competitors or restrict them in order to channel funds in their direction.

Consumers in competitive markets decide where they will spend their money. It isn’t a political decision made by officeholders in the pockets of special interests.

But the depoliticized marketplace is also a place of cooperation. I would suggest there is more cooperation than competition, but it is done in a manner making it harder to notice.

Take Gladys for example, she opens a small shop specializing in grocery items for the residents of her town. She buys some produce from local farmers and her sister takes a bus to a large store and buys sale items to bring to their town, which lacks such amenities. In the process, she saves local residents a lost travel day and all the costs associated with the trip.

The shop does well, and Gladys hires an assistant to staff the shop when she’s not there. She considers opening a second one a couple of miles away. There is more cooperation here than meets the eye. Yes, she cooperates with her sister and her employee, but she is also buying voluntarily from nearby farmers. She’s also purchasing from a larger store with products created by businesses worldwide with thousands cooperating along the way.

In addition, those products contain ingredients from people who have never met one another but are voluntarily cooperating via the mechanisms of the market. Those growing the wheat don’t know the producers of the bags that contain the flour. They sell it and don’t know where it ends up, so they cooperate with people they’ve never met.

Goods are shipped in trucks with drivers who have never met the farmers and will never meet the customers to whom Gladys sells the final product. Each time there is voluntary cooperation those making the exchange tend to benefit from it. If there were no benefit, they wouldn’t do it. Only coercion, not cooperation, leads to a scenario where some or all of those in the exchange are doing things they believe will make them worse off.

Another shop opens nearby hoping to get some of the success Gladys has seen. So, there is competition, and Gladys, to keep her customer base, has to search for ways to lower prices. The customers benefit from the competition. And even if competition doesn’t appear, Gladys is aware it can and needs to find ways to keep her customers happy.

But this competition is nothing compared to the massive web of voluntary cooperation that exists in markets free of political manipulation.

People always talk about the competition but rarely discuss cooperation. There’s a good reason for it and Frédéric Bastiat, the great French liberal, explained it well. He wrote of an economic phenomenon of “that which is seen and that which is not seen.”

For instance, a government spends money, and jobs are created — that is seen. But it first takes money from the productive sector and jobs are destroyed, which tends to be unseen. Thus, people conclude that government spending money taken from the productive sector creates jobs when the likely outcome is a net loss of jobs.

Competition is seen all the time. Stores even advertise how their prices are lower than competitors down the street. They put signs in their widows and clerks will alert customers to these bargains.

But each bargain represents an unknown quantity of cooperation that virtually no one notices. Both competition and cooperation, working together, are necessary for producing wealth. But too often only the former is noticed, even when the cooperation is more plentiful.