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Markets are both competitive and cooperative, but never coercive


Tags Capital and Interest TheoryEntrepreneurshipPhilosophy and Methodology


When people consider the question of how society should be organized, there is a tendency to portray issues in terms of false alternatives. Such is the case with competition or individualism (i.e., market organization) versus cooperation or community (i.e., organization through government). It is often stated, and even more frequently implied, that we can choose cooperation over competition, when competition in markets is in fact a superior way to achieve social cooperation.

This misconception about cooperation and competition, which becomes a false premise for all sorts of doomed-to-failure proposals to "reform" society, is of long standing. As John Ruskin once put it, "government and cooperation are in all things the laws of life; anarchy and competition the laws of death." The presentation of cooperation as superior to competition is attractive on the surface because of the emotions the words elicit. "Competition" triggers images of dog-eat-dog selfishness and conflict, where very disagreeable things might easily occur. "Cooperation" more soothingly suggests communal harmony and benevolence, as well as organization and predictability. As a result, cooperation—"pulling together" for the joint interests of the group—usually wins when it comes to verbal comparisons. In reality, however, a competitive market economy is characterized by more extensive and effective cooperation, because of the form that competition takes, than an economy controlled by the state, which is the means of achieving supposed "cooperation" by way of coercion.

The reason that market competition enhances social cooperation is that it is the process by which we establish who can best cooperate with us. That is why commerce has reduced conflict-especially armed conflict— throughout mankind's history, with greater beneficial effects, the smaller the extent that it has been hamstrung by governments. Markets reward competency, consistent, honest dealing and good faith, which are also virtues that improve the quality of every aspect of social cooperation.

The competition of a market economy, based on a legal framework reflecting people's "natural" rights to life, liberty and property (most notably including "thou shalt not steal", as John Adams and many others, especially in America's founding generation, noted long ago), outclasses that in a command economy because it is permeated by voluntary cooperation across the almost uncountable margins where individual choices interact, rather than far more limited "cooperation" imposed on some against their will.

Competition exists within firms, as well as throughout the whole supply chain. But competitive markets excel at promoting cooperation, because success in the marketplace requires extensive cooperative skills among many individuals in widely varied activities. Further, the stronger the competition for consumer patronage and in the labor market, the more cooperation develops within organizations. 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 outperformed by rivals.

Another way to put it is that competition in the marketplace is rivalry in which the best cooperators-who cooperate more effectively with more other people—earn greater rewards.

Each interaction in the vast web of market relationships (what Hayek described as 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 people follow their self-interest, among participants who often live in vastly disparate places, speak and write in a multitude of languages and often believe many different, and sometimes mutually inconsistent, things. And the more competition operates at each stage, the better the outcome, because the requirement to get others' consent forces competition into positive channels, generating beneficial results.

People compete for jobs to cooperate with others to produce goods and service. And the cooperation 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 all arrangements are voluntary and anyone can offer to cooperate at acceptable, stated terms. The process rewards those most able to meet consumer desires, whoever they may be. Competition overcomes restrictions against those who would willingly offer to cooperate at better terms, opening up improved opportunities for them as well as those who would prefer to deal with them, if given the chance. 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 (which is 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 of a dog-eat-dog world.

Another part of the confusion about competition and cooperation arises from a misunderstanding about goals.

The imagery of cooperation starts from the presumption that we agree upon goals, where the only issue is how best to achieve them. Unfortunately, when it comes to the specific goals each of us wants to achieve, they are differ substantially, and are often at odds. This is usually hidden through aggregation, which camouflages the inherent conflicts (e.g., we can be said to all want food, clothing and shelter, but we do not want the same kind of food, clothing, and shelter, nor do we want them at the same time or in the same place for the same person). As a result, people generally need to cooperate not to achieve the same goals, as implied by those lauding "cooperation," but to achieve different, and often conflicting, specific goals.

It is the presentation and imagery of cooperation as involving people united in the pursuit of a single overriding goal that makes competition appear as the opposite of cooperation, because competition involves individuals pursuing various differing private goals.

A free society does involve people coming together to pursue common goals. But such organizations are voluntary—voluntarily-joined and pursuing voluntarily-chosen ends. No coercion is necessary in the guise of forced cooperation. Further, while groups can organize around certain goals they share, society does not have any similar comprehensive shared set of goals. Society is simply the term we use to describe the group individuals who comprise it, and none of them are the same. My desires and situation are not exactly the same as yours, so we disagree about most of the particular goals we pursue. But we all gain from finding ways to cooperate, despite those differences.

Organizing whole societies as if they shared a single set of common goals has never failed to be a recipe for disaster. Competition then takes the form of groups with political power trying to impose their goals on others, which is always oppressive to those not in power. Individuals, in all their diversity of situations and preferences, cannot be successfully regimented into lockstep, so that the identification of government impositions as cooperation and competition as lack of cooperation has its logic reversed.

That is why the proper function of government is only the negative one of defending individuals against others' efforts to restrict their freedom to pursue their own self-chosen goals. Common action should be limited to this, which is virtually the only common, specific end we share (although our language typically camouflages our disagreements on particulars by referring only to broad, general ends), otherwise coercion is necessary. Attributing specific goals to society—which is the entity introduced into the discussion not because that grouping makes sense in discussing goals, but only because it appears to justify that coercion to those who won't think too carefully about it—when they only characterize individuals, only confuses us and offers an invitation toward The Road to Serfdom.

A further problem with viewing competition and cooperation as alternative ways of organizing society is that in "cooperative" societies, there will be competition to control the supposed cooperation.

No societal organization can eliminate scarcity or self-interest, and thereby none can eliminate competition. In the "cooperative" public sector, however, it takes the form of competition for control of those laws and rules which are to be imposed for their advantages over others—to extract all that is possible from others through the coercive powers of the state. So despite the imagery that all agree, allegedly cooperative benefits in fact go to some at others' expense, and the competition for that control is just the cooperation of some to win special favors by controlling the government apparatus that will enforce "cooperation" on those who are not otherwise (i.e., not really) willing. And that competition can be unbelievably ugly, as the socialist regimes of the 20th century proved.

Competition is simply the freedom to offer to cooperate on terms one is willing to accept. An absence of competition means cooperation among the subgroup of those currently with power to benefit themselves at others' expense. That is why calls for more cooperation are, at heart, calls for more state coercion, to force some to sacrifice for ends they oppose.

But nothing prevents individuals who are sovereign over themselves from voluntarily cooperating whenever all involved expect to benefit. We do it countless times each day, without even noticing it. Competition is not eliminated when those with political power can impose limits on how we are allowed to cooperate with others; it 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, which focuses on reducing the options of others.

The terms coined to characterize competition are intentionally misleading, as well as derogatory. Their harsh imagery massively misrepresents competition derived from self-ownership, applied to the fruits of one's efforts. In competitive markets, workers and firms compete to discover who is best able cooperate with others, with their rewards calibrated to the extent of that success. To reduce that competition in the name of cooperation would reduce people's efforts to cooperate with others.

Competition in some form 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, but under "cooperative" decision making, competition for political power destroys wealth and hamstrings society from being a truly cooperative arrangement. The key to the success of competition in capitalism is that it is limited to the voluntary sphere of production, and kept barricaded away from the compulsion of the political arena.

Contrary to those who rhapsodize about cooperation's superiority to capitalism's competition, capitalism is the only system that strips force away from all relationships, allowing truly voluntary cooperation to exist. The issue is not one of competition versus cooperation, but channeling people's competition, inevitably arising from their self-interest, exclusively into forms that lead to mutual cooperation and benefit. Markets do that. But "cooperative" arrangements, enforced by governments, actually ensure the absence of the cooperation their partisans sing the praises of.

Gary M. Galles is a professor of economics at Pepperdine University. He is the author of The Apostle of Peace: The Radical Mind of Leonard Read.


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