Competition and Cooperation; D. Boaz

THEFREEMAN IDEAS ON LIBERTY Competitionand Cooperation by David Boaz D efenders of the market process often stress the benefits of competition. The competitive process allows for constant test ing, experimenting, and adapting in response to changing situations. It keeps businesses constantly on their toes to serve consumers. Both analytically and empirically, we can see that competitive systems produce better re sults than centralized or monopoly systems. That's why, in books, newspaper articles, and television appearances, advocates of free markets stress the importance of the compet itive marketplace and oppose restrictions on competition. But too many people listen to the praise for competition and hear words like hostile, cut throat, or dog-eat-dog. They wonder whether cooperation wouldn't be better than such an antagonistic posture toward the world. Bil lionaire investor George Soros, for instance, writes in the Atlantic Monthly, "Too much competition and too little cooperation can cause intolerable inequities and instability."

He goes on to say that his "main point ... is that cooperation is as much a part of the system as competition, and the slogan 'sur vival of the fittest' distorts this fact." Now it should be noted that the phrase "survival of the fittest" is rarely used by advocates of freedom and free markets. It was coined to describe the process of biolog ical evolution and to refer to the survival of the traits that were best suited to the enviDavid Boaz, executive vice president of the Cato Institute, is author of Libertarianism: A Primer and editor of The Libertarian Reader (both published by The Free Press, 1996). ronment; it may well be applicable to the competition of enterprises in the market, but it certainly is never intended to imply the survival of only the fittest individuals in a capitalist system. It is not the friends but the enemies of the market process·who use the term "survival of the fittest" to describe economic competition.

What needs to be made clear is that those who say that human beings "are made for cooperation, not competition" fail to recog nize that the market is cooperation. Indeed, as discussed below, it is people competing to cooperate. Individualism and Community Similarly, opponents of classical liberalism have been quick to accuse liberals of favoring "atomistic" individualism, in which each person is an island unto himself, out only for his own profit with no regard for the needs or wants of others. E. J. Dionne Jr. of the Washington Post has written that modern libertarians believe that "individuals come into the world as fully formed adults who should be held responsible for their actions from the moment of their birth." Columnist Charles Krauthammer wrote in a review of Charles Murray's What It Means to Be a Libertarian that until Murray came along the libertarian vision was "a race of rugged indi vidualists each living in a mountaintop cabin witha barbed wirefence and a 'No Trespassing' sign outside." How he neglected to include "each armed to the teeth" I can't imagine.

Of course, nobody actually believes in the 529 530 THE FREEMAN • SEPTEMBER 1997 sort of "atomistic individualism" that profes sors and pundits like to deride. We do live together and work in groups. How one could be an atomistic individual in our complex modern society is not clear: would that mean eating only what you grow, wearing what you make, livingin a house you build for yourself, restricting yourself to natural medicines you extract from plants? Some critics of capitalism or advocates of "back to nature" -like the Unabomber, or Al Gore if he really meant what he wrote in Earth in the Balance-might endorse such a plan. But few libertarians would want to move to a desert island and renounce the benefits of what Adam Smith called the Great Society, the complex and productive society made possible by social interaction. One would think, therefore, that sensible journalists would stop, look at the words they typed, and think to themselves, "I must have misrepresented this position. I should go back and read the libertarian writ ers again."

In our time this canard-about isolation and atomism-has been very damaging to advocates of the market process. We ought to make it clear that we agree with George Soros that "cooperation is as much a part of the system as competition." In fact, we consider cooperation so essential to human flourishing that we don't just want to talk about it; we want to create social institutions that make it possible. That is what property rights, limited government, and the rule of law are all about. In a free society individuals enjoy natural, imprescriptible rights and must liveup to their general obligation to respect the rights of other individuals. Our other obligations are those we choose to assume by contract. It is not just coincidental that a society based on the rights of life, liberty, and property also produces social peace and material well being. As John Locke, David Hume, and other classicalliberal philosophers demon strate, we need a system of rights to produce social cooperation, without which people can achieve very little. Hume wrote in his Treatise ofHuman Nature that the circumstances con fronting humans are (1) our self-interested ness, (2) our necessarily limited generosity toward others, and (3) the scarcity of resources available to fulfill our needs. Because of those circumstances, it is necessary for us to cooperate with others and to have rules of justice-especially regarding property and exchange-to define howwe can do so. Those rules establish who has the right to decide how to use a particular piece of property. In the absence of well-defined property rights, we would face constant conflict over that issue. It is our agreement on property rights that allowsus to undertake the complex social tasks of cooperation and coordination by which we achieve our purposes.

It would be nice if love could accomplish that task, without all the emphasis on self interest and individual rights, and many op ponents of liberalism have offered an appeal ing vision of society based on universal benevolence. But as Adam Smith pointed out, "in civilized society [man] stands at all times in need of the cooperation and assistance of great multitudes," yet in his whole life he could never befriend a small fraction of the number of people whose cooperation he needs. If we depended entirely on benevo lence to produce cooperation, we simply couldn't undertake complex tasks. Reliance on other people's self-interest, in a system of well-defined property rights and free ex change, is the only way to organize a society more complicated than a small village. Civil Society We want to associate with others to achieve instrumental ends-producing more food, ex changing goods, developing new technolo gy-but also because we feel a deep human need for connectedness, for love and friend ship and community. The associations we form with others make up what we call civil society. Those associations can take an amaz ing variety of forms-families, churches, schools, clubs, fraternal societies, condomin ium associations, neighborhood groups, and the myriad forms of commercial society, such as partnerships, corporations, labor unions, and trade associations. All of these associa tions serve human needs in different ways.

Civilsociety may be broadly defined as all the natural and voluntary associations in society.

COMPETITION AND COOPERATION 531 Some analysts distinguish between com mercial and nonprofit organizations, arguing that businesses are part of the market, not of civilsociety;but I followthe tradition that the real distinction is between associations that are coercive-the state-and those that are natural or voluntary-everything else. Whether a particular association is estab lished to make a profit or to achieve some other purpose, the key characteristic is that our participation in it is voluntarily chosen. With all the contemporary confusion about civil society and "national purpose," we should remember F. A. Hayek's point that the associations within civilsociety are created to achieve a particular purpose, but civil society as a whole has no single purpose; it is the undesigned, spontaneously emerging result of all those purposive associations. The Market as Cooperation The market is an essential element of civil society.The market arises from two facts: that human beings can accomplish more in coop eration with others than individually and that we can recognize this. If we were a species for whom cooperation was not more produc tive than isolated work, or if we were unable to discern the benefits of cooperation, then we would remain isolated and atomistic. But worse than that, as Ludwig von Mises ex plained, "Each man would have been forced to view all other men as his enemies; his craving for the satisfaction of his own appe tites would have brought him into an impla cable conflictwith all his neighbors." Without the possibility of mutual benefit from coop eration and the division of labor, neither feelings of sympathy and friendship nor the market order itself could arise.

Throughout the market system individuals and firms compete to cooperate better. Gen eral Motors and Toyota compete to cooperate with me in achieving my goal of transporta tion. AT&T and Mel compete to cooperate with me in achieving my goal of communica tion with others. Indeed, they compete so aggressively for my business that I have co operated with yet another communications firm that provides me with peace of mind via an answering machine. Critics of markets often complain that capitalism encourages and rewards self interest. In fact, people are self-interested under any political system. Markets channel their self-interest in sociallybeneficent direc tions. In a free market, people achieve their own purposes by finding out what others want and trying to offer it. That may mean several people working together to build a fishingnet or a road. In a more complex economy, it means seeking one's own profit by offering goods or services that satisfy the needs or desires of others. Workers and entrepreneurs who best satisfythose needs willbe rewarded; those who don't will soon find out and be encouraged to copy their more successful competitors or try a new approach.

All the different economic organizations we see in a market are experiments to find better ways of cooperating to achieve mutual pur poses. A system of property rights, the rule of law, and minimal government allowmaximum scope for people to experiment with new forms of cooperation. The development of the corporation allowed larger economic tasks to be undertaken than individuals or partner ships could achieve. Organizations such as condominium associations, mutual funds, in surance companies, banks, worker-owned co operatives, and more are attempts to solve particular economic problems by new forms of association. Some of these forms are dis covered to be inefficient; many of the corpo rate conglomerates in the 1960s,for instance, proved to be unmanageable, and sharehold ers lost money. The rapid feedback of the market process provides incentives for suc cessfulforms of organization to be copied and unsuccessful forms to be discouraged.

Cooperation is as much a part of capitalism as competition. Both are essential elements of the simple system of natural liberty, and most of us spend far more of our time cooperating with partners, coworkers, suppliers, and cus tomers than we do competing. Life would indeed be nasty, brutish, and short if it were solitary. Fortunately for all of us, in capitalist society it isn't. 0 THEFREEMAN IDEAS ON LIBERTY Discoveryand Economic Freedom by Daniel B. Klein ''IJhen an economist stands at the black , , board and draws a supply-and-demand diagram, he pretends he knows all the rele vant opportunities. Economists must posit such settings to frame the story. When stories are given an exact formulation, especially when expressed in math or diagrams, they are called "models." A resolution in such a model is called "equilibrium." Models teach us much about competition, investment, and many other important topics in economics.