The Virtues of Competition; G. Leef

Sometimes the nature of competition is peaceful, and when that is the case, the results are beneficial to mankind, even though the immediate losers may suffer for a time. Sometimes, however, the nature of competition is violent and then the results are harmful to mankind, usually leaving even the "winners" worse off when all the costs are taken into consideration. As noted, competition is thrust on us by nature. Scarcity is a fundamental and ines capable fact of life. Whenever two or more people want the same thing, the necessary consequence is some form of competition to determine who will have it. Violent competition is, of course, not virtuous. Nothing good comes from perfect ing the talents for murder and plunder. When I speak of the virtues of competition, I refer exclusively to peaceful competi tion-the kind that comes about when peo ple must act only in ways that do not violate Mr. Leefis an adjunct scholar at the Mackinac Center, Midland, Michigan, and legislative aide to state Senator David Honigman.

the rights of life, liberty, and property, which all human beings possess. Peaceful competition impels each competitor to con tinually improve his skills, his efficiency, and the desirability of his product or service. It is understood by all that sloppiness, carelessness, waste, and indifference to the desires of others will be punished. Of course, the punishment is not physical, administered by a malevolent authority, but rather the punishment of not getting what one wants, or least not as much as one wants, because people have chosen to deal with others instead. Everyone knows that competition reigns in the worlds of business, politics, and sports. The results of competition there are brought to our attention daily. What most people do not perceive is that competition also exists (usually, anyway) among non profit service institutions, and that when it does, those institutions are affected by it in the same beneficialway that more obviously competitive institutions are. Nonprofit or ganizations are impelled to operate as effi ciently as possible lest they lose the support of their financial backers.

Competition and Charity Consider private charitable organiza tions. We have a great many of them dedicated to assisting needy people, to help ing fight serious diseases, to achieving certain environmental goals, to promoting the fine arts, and so on. They are nonprofit institutions, but that only means that they 513 514 THE FREEMAN • JULY 1996 must spend all their revenues. The fact that they are not trying to earn profits for stock holders, however, does not mean that they are not under competitive pressure. If a charitable institution earns a reputation for having lavish offices, high expense accounts and salaries for administrators, and other expenditures that do not help to achieve its stated goals, contributions will most likely decline. After all, people do not have un limited funds to contribute and will redirect their money to other charities in which they have more confidence.

Just as sellers of products are competing for a limited number of consumer dollars, so are the administrators of charities compet ing for a limited number of contributor dollars. Poor quality products will probably cause sales to fall off, and for that reason, business managers are alert to quality prob lems and try to prevent them from occur ring. It is in their self-interest to do so. By the same token, administrators of charities do not want to be perceived as running low-quality organizations. Self-interest mo tivates them to try to get the maximum amount of benefit from the dollars donated. The parallel here is not exact because it is more difficult for contributors to get good information about how effectively the insti tutions to which they contribute are run than it is for consumers to get information on the quality of the products they purchase. The consumer directly experiences the prod ucts, whereas the contributor seldom di rectly experiences the endeavors of the charities he supports. Nevertheless, there is still some competitive discipline exerted on those who run charities. If they operate inefficiently, that information may leak out and be publicized. That has happened often enough that it presumably exercises some influence over the decisions of the admin istrators. The possibility of losing con tributions to other organizations leads to greater efficiencyin the pursuit of a charity's objectives.

But what if charities were guaranteed a steady or expanding flow of revenue regard less of how well or poorly they perform their missions? The predictable result would be rising costs and falling efficiency. If there is no looming penalty for sloth and ineffi ciency, the human tendency will be to slide in that direction .. We find exactly that in government-run charities, that is, welfare programs. By all accounts, welfare pro grams have significantly higher administra tive expenses and are less adept at making sure that funds are spent effectively than are their private counterparts. The difference is that while there is a direct link between contributions and pri vate charities, there is no such link between taxpayers and welfare bureaucracies. The absence of that linkgives the people who run those institutions the latitude to operate with a high degree of inefficiency and the luxury of not having to worry about it. Even though it is widely known that welfare fraud is commonplace, the administrators of wel fare programs do not need to fear that their budgets will shrink because angry taxpayers decide to take their money elsewhere. They can't. And that makes the administrators unaccountable and irresponsible.

Competition and Education Precisely the same analysis applies to schools. Private schools have to compete for financial support. Tuition dollars and donations cannot be taken for granted. If a school does not continue to satisfy parents, they can and will enroll their children else where. If it pursues educational or non educational ends that alumni disapprove of, it will probably experience a decline in support. That private schools must compete for students and money motivates the peo ple who run them to put forth an educational "product" that is at least reasonably good and often very good. Competition also motivates private school administrators to search for ways to improve so they might fare even better in the future. Entrepreneurial discovery is not unique to profit-seeking businesses. Private school officialsare keenly interested in find ing improved ways to deliver their services.

Any improvement may translate into more satisfied customers. But any change will be carefully considered before it is imple mented, and it will be monitored to see if it works as expected. Failed innovations are quickly dropped. Government-run schools, in contrast, are insulated from the gusty winds of competi tion. Because their funding does not come directly from satisfied parents and willing donors, their administrators need not worry about adverse consequences of their ac tions. If students graduate who cannot read or write, that is no reason for concern-the money will flow anyway. In fact, the worse the performance, the better the chances that the authorities will be persuaded to increase the school budget to deal with the educational crisis the administrators created. Government-school officials have a dif ferent view of innovation. Again, since their revenues do not depend on satisfying par ents, the innovations they introduce willnot likely be intended to satisfy them. Instead, innovations will aim at satisfying those who directly support them, chiefly politicians and certain special-interest groups. For ex ample, an automatic test-scoring machine might be popular with the teachers union and therefore an attractive investment, de spite the fact that such devices are apt to lead to tests with fewer or no essay ques tions and thus less attention to how well students write. Trendy curriculum changes such as "multicultural studies" programs are another example. They please politi cians and special-interest groups, but mean less class time for learning what used to comprise the core of education. Many par ents disapprove, but why bother with their concerns? They have no choice but to keep sending in their money.

Competition and Performance I have discussed charitable organizations and schools, but this analysis applies, I submit, to all human institutions. Whenever any kind of institution is freed from the need to compete for revenues, the results we can expect are wholly undesirable: declining quality, increasing costs, irresponsible and highhanded management. Competition THE VIRTUES OF COMPETITION 515 makes people feel insecure and that is a good thing. When people feel insecure, they strive to become more secure and that in tum causes them to do their utmost to serve those who patronize them. In the end, they reduce scarcity and lift society. It follows that one of the worst mistakes we can make is to exempt an institution from competition. Once we do that, once we sever that vital connection between perfor mance and revenue, we dramatically alter the incentives that people face. No longer must they focus their energies and abilities on doing their best to please customers or contributors. Now revenues and resources can and will be used to make life more comfortable for the administrators, includ ing ongoing endeavors to preserve the cher ished competition-exempt status. Alertness and efficiency inevitably decline. Society suffers.

Freedom and Competition Competition is the natural state of affairs. Competing for jobs, promotions, custom ers, loans, donors, students, victories, mates, space in magazines, and many other things is unavoidable. Other people are constantly attempting to satisfy their desires out of a limited quantity of resources, and that means that each of us has to assert himself-to compete-to get the things we want. As long as others are free to pursue their objectives, whether they are self interested or altruistic, we will find our selves having to compete with them. The attempt to escape from competition can therefore be accomplished only by using coercion to prevent others from pursuing their objectives. If the managers and work ers of the U.S. Postal Service want to be free from competition in the delivery of mail, that can be accomplished only by threaten ing legal penalties, which is to say violence, against others who would like to deliver mail. If the public schools wish to be free from the competition of educational alter natives, that requires taxing people who do not want their money going to public schools. Ifdomestic peanut growers want to 516 THE FREEMAN • JULY 1996 be free from the competition of foreign peanut growers, that requires governmental force to prevent peanut transactions in ex cess of the arbitrary import quota set by federal law. It is only through a willingness to employ violence or the threat of violence, either personally or under the auspices of the State, that people or institutions can attempt to escape from the rigors of com petition. But in fact, they merely substitute peaceful competition (the market) for the violent kind (politics). We must, therefore, choose: do we prefer a world offreedom and competition or one where the unscrupu lous use coercion to stifle or eliminate economic competition where it benefits them to do so?

Conclusion Most people understand that it is a good thing for businesses to have to compete. What I hope more people will appreciate now is that it is universally a good thing for people and institutions to have to compete. To eliminate the need to compete is to eliminate a host of beneficial incentives for optimizing performance and to embrace the dangerous idea that coercion is acceptable. That is always a bad idea. D Satisfactio"-.,Guaranteeul Cancel anytime for a cheerful refund ofall unmailed issues! Sig Happy Fami/~ "The help you need to raise a family today!" Classic family life in a high-tech world. Eleven issues a year! Practical Homeschoo/ing® "The magazine that makes you a homeschool expert!" Give your children a head start with the latest methods and resources for all ages, from preschool to college. Six issues a year! Homeschool PCM "Tomorrowseducation today! "For both PC and Mac owners. Get the most out of your computer with educational software, online academies and universities, the Internet, and the World Wide Web.

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