Trust and the competition delusion: A new frontier for political and economic reform

The Griffith Review has just published a substantial essay of mine that I’ve been working on for some time. I reproduce the introductory section below after which you’ll have to hightail it to their website to finish. But it would be good to see you back here for comments which aren’t provided for on the Griffith Review website.

Designing institutions to force (or nudge) entirely self-interested individuals to achieve better outcomes has been the major goal posited by policy analysts for governments to accomplish for much of the past half century. Extensive empirical research leads me to argue that instead, a core goal of public policy should be to facilitate the development of institutions that bring out the best in humans.

Elinor Ostrom, Nobel Lecture, 2009

SINCE ADAM SMITH, economists have marvelled at competition’s capacity to improve our world – not by fostering virtue, but by harnessing the opposing self-interest of buyer and seller in a market. As Smith himself famously suggested, instead of trusting his wellbeing as a consumer to the benevolence of the butcher, baker or brewer, he’d rather rely on their regard for their own interests in competing for his custom.

There’s a lively debate today about how to inject greater competition into Australia’s notoriously oligopolistic industries – like finance, supermarkets, fuel, energy and telecommunications – not to mention our new global digital overlords like Facebook and Google. And there’s a more ideologically charged debate about whether competition will drive better or worse outcomes in sectors where non-market values are important – like health, education and social services.

Having offered some thoughts on those issues elsewhere, in this essay I discuss something more fundamental and, because of that, widely overlooked. We’re falling for the ‘competition delusion’ by which I mean this: In our embrace of private competition as a goal, we mostly pass over a prior issue – which is the terms on which that competition takes place. That’s undermining trust in a remarkably wide range of institutions in our economic and public life.

The analogy with sport is illuminating. Australian Rules football is the crucible of some of the most intense competition you can imagine. But unlike some thinkers about our economy and society, its administrators understand that competition won’t amount to a hill of beans unless the rules of the game make it the game we want to follow. Seeing things this way, it’s an obvious mistake to ask whether football should be competitive or cooperative. Competition and cooperation are inextricably entangled in the game, each defining the other.

The competition delusion sees competition and cooperation as two ends of an ideological spectrum. And it presumes that, where one has to choose, competition should be presumed preferable to cooperation. The perspective I’m sketching here suggests a new take on JK Galbraith’s argument about private affluence amidst public squalor. As he put it in 1958:

Cars are important, roads are not… Vacuum cleaners to ensure clean houses boost our standard of living, street cleaners are an unfortunate expense. Thus we end up with clean houses and filthy streets.

Whatever the validity of this critique of America’s real economy of the 1950s, it’s a remarkably and increasingly apt picture of the knowledge and ideas that govern our economy and society in the age of the competition delusion.



Podcast at this link.

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15 Responses to Trust and the competition delusion: A new frontier for political and economic reform

  1. paul frijters says:

    Hi Nick,

    you know I broadly agree with this line of thought, using a few different words.

    But I do think the impetus for the illusion comes from a different place and from a different motivation: the motivation is for the winners in our society to claim they are virtuous and have deserved their winnings. And the competition story fits that bill. Its the ‘best’ football players that get payed the most, just as it is the ‘best’ others that supposedly ‘win’, even if what they win at is corruption.

    So much in our society is oriented towards making those who have stolen from the many feel good about themselves and telling others they too should be like that, or even that are actually are like that. I think the tenacity with which a whole layer hangs on to the obviously idiotic story that markets are just about competition is that it fits their individual private wish to be deserving. It’s not a stupidity, its simple self-interest, a much more powerful beast you are trying to slay.

  2. Nicholas Gruen says:

    Thanks Paul,

    As you probably know, I don’t disagree with your perspective, but I don’t think it’s a response to my essay which is at pains to insist that it’s not about competition versus cooperation.

    You are probably right that there’s another competition delusion which is the one that tells those who win the competition that it was fair and they deserve their spoils.

    But lawyers don’t tell themselves that the adversary system is a better system of law from the motives you attribute to them – except in the most diluted way. If you proposed to them what I’m suggesting (in that regard broadly the civil law system of legal procedure) they’d probably oppose it. Some might even realise that it meant lower incomes for them. But most would oppose it from the more innocent motives of intellectual sloth and it-didn’t-do-me-any-harmism.

    Ditto auditors, financiers etc.

    It’s remarkable – to me anyway – how so many of the economists who have now read the piece think it just must be about debates it reminds them of, even though it’s not about them. Rabee T on Twitter comments that I can’t find now said it was all about the role of government and another British Economist says my essay hasn’t taken into account state capacity. All interesting arguments, but not the issue I was focused on.

    • paul frijters says:

      it is about your post, Nick, ie about it is both your use of the word of the word delusion and about why I think the competition story is so hardy. I think ‘ruse’ is a better fit. ‘Delusion’ has the notion of a mere stupidity. I am saying its a very convenient myth that has staying power because it keeps giving. People can have delusions of grandeur, but they have group myths for a real purpose, which is to justify and protect their patch. By using the word competition delusion you take away from your competition/cooperation message (which allows a role for competition, which will confuse people) and you make it a “you are deluded” thing, which is not quite what you mean.

      So yes, there is also sloth but I think the sloth bit is dwarfed by the ruse motive.

      • Nicholas Gruen says:

        OK – understood.

        I’m happy with the word ‘delusion’ for my purposes – which is to say I think it’s an accurate word, but it’s also used for ‘cut-through’ purposes so I wouldn’t change it, but I understand your point a little better now.

        (And there’s nothing wrong with thinking of competition and cooperation as opposites – they are. But outside of war they are opposites in a context and that context is one of cooperation.)

  3. Moz in Oz says:

    > back here for comments

    :) I’ve just been booted from The Conversation for reasons unknown, but it’s likely related to a “report this comment” troll visiting a thread I was posting in. Again.

    I think your point about “but who creates the market for market creators” is valid, BTW. And I suggest the devaluing of expertise has extended to parliament as well.

    You might perhaps extend your discussion the to widespread outsourcing of Australia law to “private arbitration in the state of California”, which even our own government requires us to use via their use of various google properties for submissions on proposed legislation (one example, there are doubtless more). I mean, they have obviously bought the best advice possible on the consequences, but that perhaps reinforces your point about the inanity of adversarial systems “I recommend my client not use the system in which I have expertise”.

    Also, I fear you’re deluded about the usefulness of Yelp and TripAdvisor. Both are heavily gamed and indeed could be likened more to mob operations than honest reviews “nice business you got, be a shame if my users destroyed your reputation. Now on a completely separate note{wink}, would you like to buy some advertising?”

    • Nicholas Gruen says:

      I find TripAdvisor very helpful and use it all the time.

      I also know that because of that very fact it will be gamed, and that TripAdvisor won’t be able to do a perfect job of policing it. Judging from TripAdvisor’s interface, it doesn’t try that hard. It’s more interested in keeping the business churning out cash, which requires it to make itself useful, rather than make itself outstanding.

  4. Moz in Oz says:

    The disconnect between the legal system and justice was thrown into harsh relief by the “alien” case this week. Apparently it’s perfectly reasonable for a high court justice to state that bluntly:

    Never more perfectly poignant are the words of Gageler J when he said in his dissenting judgment at para 128, ‘Morally and emotionally engaging as the plaintiffs’ argument is, the argument is not legally sustainable.’


  5. Nicholas
    “Designing institutions to force (or nudge) entirely self-interested individuals to achieve better outcomes ”
    Nudge-force aimed at individuals has become is so ubiquitous and the same time the quality of virtue has all but disappeared from so many of the institutions that seek or have the power to Nudge us.
    That well could be all you need by the way of explanation of the roots of the deep individual anger- disaffection that has powered many of the populist variations on ’drain the swamp’ – hypocrites and vipers .

  6. John Quiggin says:

    The big deal is getting prices right. Under the ideal conditions, competition does this. But, if prices are wrong, the fact that they have been produced by a competitive process doesn’t matter.

    • Nicholas Gruen says:

      Thanks John,

      That seems like a very reductive view – worthy of your discipline ;)

      I think I can see counterexamples. It’s possible to imagine markets with monopolistic margins (and therefore which generate substantial price distortions) nevertheless being something close to as good as they can be made. I suspect the market for super-airliners is probably like that.

      More importantly, a major part of my argument is directed to the ethical dimensions of practice. The only way to reduce this to price would be to define price, and in particular externalities, in such a fastidious way that it’s a bit like those moves which prove that everyone always acts with selfish motives it’s just that some have ‘altruism’ in their preference set or whatever gobbledygook is preferred at the time.

      • John Quiggin says:

        But in the “superairliner” case, the price would be too high, and too few would be produced and sold, relative to the social optimum This is the standard case for public monopolies (against which there are standard counterarguments of course).

        Having said that, I agree entirely with what I take to be your central point. Competition is, in large measure, a necessary evil, not a good in itself. We would be a better society with a mixture of co-operation and emulation, allowing competition where it was needed.

        • Nicholas Gruen says:

          Actually John, as I try to make clear in the second paragraph, that’s not my point. That’s others’ point and that’s the way the debate on competition is usually held. I’m saying there’s a prior consideration which can’t be reduced to the idea that competition and cooperation are opposing forces or options – they mutually constitute each other and the question is the terms on which that constitution takes place.

  7. Nicholas
    Bellow is a quote from a review of Steven J Pyne’s book “Still Burning Bush” .

    Pyne’s thoughts seem relevant to your theme:

    “Though “Australia is among the world’s firepowers”, Pyne sees problems in the response to the threat in this country that would be easier to solve if there was a more straightforward approach to fire: “The country seems locked into a polarised politics of identity for which conflagrations provide a dramatic backdrop.” Fire never changes, but as the Australian nation has developed, the official response to fire has become more and more complex and diffuse.

    The solution to the problems caused by the increased sophistication of our society, writes Pyne, is to make the chain of responsibility more democratic and accountable. The government agencies that deal with fire should not be at cross-purposes.

    “When technocrats or scientifically informed bureaus have aggrandised that job to themselves in the name of depoliticising it, the outcomes have failed because they were in truth doing politics by another name,” Pyne argues. “The issue is not whether politics should be present, but that the politics be fair, informed, and open.” “

  8. I would like to question Nick on the statement in his Essay that states:
    “Second, a prominent theme of micro-economic reform should be to minimise the tension between the pursuit of internal and external goods in our institutions and practices wherever possible.”
    This is because at least some tension is required to establish a universal phenomenal of nature described by Bucky Fuller as “Tensional integrity” or “Tensegrity”.
    Harvard biologist Donald Ingber describes Tensegrity as “The architecture of life”. Neuroscientists David Engstrom and Scott Kelso introduced the tilde sign ~ to identify Tensegrity or what they described as Complementary ~ Contrary human behaviour. Examples being Cooperative ~ competitive, Selfish ~ Altruistic, Suspicious ~ trusting, Fight ~ flight, etc. Tensegrity is hard wired in social animals by their DNA to prove all five models of the “The Nature of Man” posited by Mike Jensen and Bill Meckling in 1994 are mostly wrong.
    Tensegrity drives evolution. Micro-economic reform that minimises tensions would create stodgy bureaucracies. It is Tensegrity that allows the “polycentric compound republics” identified by Ostrom to avoid “The tragedy of the Commons” without markets or hierarchy. The emergence of Tensegrity in bottom up stakeholder governed firms helps to explain their success that produced a “Dilemma” for Williamson.
    A fundamental problem is that no graduate school of business, management or government teaches how to design polycentric republics that are found in bottom up stakeholder governed firms like The John Lewis Partnership in the UK, Visa Inc. in the US or the Mondragón cooperatives in Spain.
    Many of the problems Nick identifies in his Essay mostly disappear if tensegrity is introduced into social institutions. This is because Tensegrity replaces the need for either markets or hierarchy to further the common good.

  9. Nicholas Gruen says:

    Thanks Shann

    I personally doubt we have a case of a disagreement here. At least in my way of discussing such things, the intention of statements should be read sympathetically with their context. I offered my statement as a general principle, not as an immutable cosmic law. So if there are exceptions to it, then that is something interesting that I’d be interested to know about.

    But in that case, to understand the point you’re making I need some context, and some concrete examples. I’m afraid you’ve presented ‘Tensegrity’ in a very abstract way and I have no idea what it is. I am familiar with Ostrom. You quote her as if her work stood for some principal that is somehow superior the one I’ve suggested in some way. I think she’d approve of what I’ve said, but I can’t prove that.

    Her own researches don’t say all that much. As you say, she showed how there are various arrangements that avoid the tragedy of the commons that aren’t markets or unitarily hierarchical. She also inducts from her empirical work some principles which bear on whether they’ll function well or not. I don’t think anything I’ve said is antithetical to anything she’s said in that regard.

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