Competition and Cooperation; D. Boudreaux and H. Macaulay

But those who deplore free-market com petition simply do not understand it. Com petitive markets excel at promoting coop eration. Indeed, to succeed in the market requires great cooperative skills. Adam Smith described how a person buying a wool coat gains his comfort as a result of the willing cooperative efforts of many workers in widely varied activities from raising sheep to spinning yarn to re tailing. Every wool coat requires that very large numbers of people coordinate their efforts-cooperate-in production and dis tribution. Perhaps more famously, Leonard Read told of the pencil-an apparently sim ple device whose existence would be im possible without the cooperation of count less people and firmsfrom around the globe. Still, private firms selling coats and pen cils are described as competitive, not as cooperative. And so they are in a genuine sense. Each firm, each producer, competes Drs. Boudreaux and Macaulay arefaculty mem bers at Clemson University.

for the advantage of satisfying consumer demands. But these firms are no less coop erative. A mistake made by those who condemn competitive capitalism is to as sume that competition and cooperation are two alternative means of achieving some end. Alternatives they are not. Competition and cooperation are not only complemen tary human relationships-each is an un avoidable reality of human society. A mark of a peaceful and prosperous society is that both competition and cooperation are chan neled into their appropriate realms. The Principal Realm of Each Activity A symphony orchestra is an unequaled example of cooperation, yet competition has a role to play even in orchestras. Dif ferent musicians compete for each seat in the orchestra, just as different conductors compete to be maestro. Moreover, different orchestras compete for the privilege of mak ing recordings with prestigious recording studios. Football and baseball teams parallel orchestras in these respects: different play ers compete for slots on the team, and different teams compete against each other for the championship. And although less obvious, the production of steel, the oper ation of a department store, and the publi cation of a magazine all involve both coop eration and competition. Competition and cooperation are unavoidable in human so ciety.

Competition is inseparable from scarcity. 152 Scarcity exists when there is not enough of some good to provide consumers with all they would take ifit were free. It follows that we must find some way to decide who gets how much of any scarce good. The accepted way in a free society is to allow those who want a particular good-say, a bushel of apples-to bid for it. The bushel of apples will then go to the person who voluntarily sacrifices the greatest quantity of other goods in exchange for the apples. We call such bidding competition, but note that such competition differs fundamentally from an other kind of "competition" that could be used to allocate the apples-physical terror: he gets the apples who beats up all others who want the apples. Capitalism's critics insist that there is a cooperative way to allocate resources. Peo ple can meet together and agree who gets what. Early American colonists in James town and Plymouth initially tried to avoid all competition and allocated resources exclu sively by cooperative, collective decision.

The result was starvation. When each settler realized that his food entitlement was inde pendent of the amount of work he put in, too many settlers chose not to cooperate in the community's productive efforts. In both colonies, the specter of starvation forced the abandonment of these collectivist plans, and output then expanded.! Similarly, the Marxist plan for distribu tion is a wonderfully cooperative, and det rimental, scheme. If needs are the basis upon which goods are allocated, it will pay each person to produce not goods but "needs." It will pay people to move toward poverty, for only then will one's needs be maximized. Moreover, if others do not readily recognize these "needs," it will pay those in "need" to exert efforts emphasizing the genuineness of their "needs." Such cooperation on this score would produce not only universal poverty-society would be awash in nothing but "needs"-but also hostility among those who do not receive what they believe to be their due. Such an outcome is hardly a happy consequence for a cooperative society.

Cooperation is appropriate, of course, 153 when the coordinated efforts and knowledge of many people are necessary to produce a good-such as Adam Smith's wool coat or Leonard Read's pencil. People who com peted for jobs now find themselves cooper ating with others to produce a product. This cooperation takes place not only among fellow employees but among firms with their customers, stockholders, creditors, and with all manner of suppliers. Sellers cooperate with buyers so that buyers will become repeat customers. Employers co operate with workers to improve worker productivity. Customers cooperate with suppliers to ensure reliable service and qual ity supplies. Cooperation is indeed a hall mark of all economic activity in a compet itive market. Socialists and so-called "communitari ans" may believe that their systems are free of competition and marked only by cooper ation. Yet resources are scarce in planned economies no less than in capitalist econo mies. At some level, competition will emerge to allocate these scarce resources.

In planned economics, people will compete to occupy positions of power. These power struggles, though perhaps hidden from sight, are undeniably compet itive. With more power concentrated among the decision makers, losers may give up more than mere goods. When Stalin decided how to allocate Crimean grain in the early 1930s, approximately two million kulaks lost their wheat and their lives. The Good and the Bad Not all varieties of competition are ben eficial, just as not all varieties of coopera tion are desirable. Labor unions are made up of cooperating workers. To the extent that unions secure special-interest legisla tion, the wages of workers cooperating in a union are raised at the expense of consum ers and of non-unionized workers. Simi larly, businesses often cooperate through trade associations that lobby effectively for import restrictions. Such cooperation yields benefits for the few at the greater expense of the many.

154 THE FREEMAN • MARCH 1996 Popular phrases describing competition were cited at the beginning of this essay. All such phrases are pejorative. And indeed, competition can be bad. If the owners of General Motors spread nails on the roads leading to Ford factories and dealerships, this is a form of noneconomic competition and a most undesirable form. General Mo tors benefits not only at the expense ofFord, but also at the expense of consumers be cause the nails on the road effectively elim inate consumers' option of buying Fords. But notice that identically undesirable con sequences occur when General Motors and Ford cooperate with each other to lobby successfully for import restrictions on for eign automobiles. Tariffs hurt consumers no less than do nails on the road. Genuine cutthroat competition occurs whenever firms successfully lobby government for artificial "advantages" such as tariffs or regulations that unnecessarily burden ri vals: consumers and foreign-producers are harmed by government pandering to interest groups. Few people, however, refer to tar iffs, dumping laws, and costly regulations as examples of cutthroat competition or busi ness cooperation. Instead, such legislation is typically revered as desirable social pol icy.

The phrases "dog-eat-dog" and "survival of the fittest" are harsh-sounding phrases, and they vastly misrepresent competitive activity within privateproperty markets. In competitive markets, firms do not attack each other claw and fang. Rather, firms do battle by seeing who can best serve the customer. That is, in competitive markets, firms compete by seeing who can best co operate with consumers. K-Mart and Wal Mart strive to offer consumers better deals because each firm knows that if it fails to offer good deals, customers will patronize other, more responsive firms. Both firms survive as long as each cooperates with consumers effectively enough to earn profits. To protect firms from the competition of rival firms would be to encourage protected firmsto be less cooperative with consumers. Of course, in any competitive industry only the fittest firms do survive. In the 1930s, groceries were distributed mainly by mom-and-pop stores. Today, supermar kets-each of which carries on average about 50,000 different kinds of products have replaced the mom-and-pops. Super markets did not prey on mom-and-pop stores as cheetahs prey on gazelles. Super markets offered consumers a new shopping choice. Consumers voluntarily switched their patronage from mom-and-pops to su permarkets because, as judged by consum ers, supermarkets cooperated better with consumers than did the mom-and-pops. No supermarket literally killed mom or pop.

Some of these small-store owners retired while others moved into other lines of work. Today, the descendants of the owners of mom-and-pops are surely better off than they would have been had supermarkets never come along. Conclusion Competition in the marketplace is com petition among cooperators. While the best cooperators in each line of work "win" in the sense of earning greater profits than their rivals, these victors do not literally destroy rivals. Rivals unsuccessful in one line of work move into other lines, where they are more likely to enjoy a comparative advan tage. Market discipline, in combination with the information conveyed in the form of market prices, ensures that each of us is cooperating with as many other people as possible, in the most effective manner pos sible. Far from undermining cooperation, the market enhances cooperation. D 1. See Robert C. Ellickson, "Property in Land," Yale Law Journal, Vol. 102, April 1993, pp. 1315-1400.