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. It begins with some basic economic ideas, but broadens out to much wider political matters – comprehending our interest in sortition. 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, retail, 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.

OUR LEGAL SYSTEM illustrates the issues. … Continued at The Griffith Review.

7 Responses

  1. Very interesting read.

    Some unordered thoughts: Why is it that the idea of competition (electoral and otherwise) is so seductive? It does have some intuitive superficial appeal.

    Are the drawbacks of competition always the same, or do they depend on the context? IIUC, you imply that this is the case. That the problem is the rigging of the rules.

    The root cause for the problems with elections, AFAIU, is “the principle of distinction”. This is not a matter of rigged rules. It may be a situation that is specific to elections. Maybe this is a special case of “economies of scale”? It doesn’t seem so, because in the economies of scale situation, the big operation (major candidate) really does provide better outcomes than the small operation (average man-on-the-street). This is not the case with elections.

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  2. Thanks Yoram,

    I guess you’re asking the easy questions first? ;)

    Economic theory has competition having good or bad effects depending on the context of the structure of the market in which it occurs. I’ve tried to broaden that idea and give it much wider application.

    I’m not sure I agree that the root cause of the problem with elections is the principle of distinction. (By which I presume you mean that voters only get to choose between the parties positions and promises and can’t otherwise express their views – please correct me if I’m wrong.)

    That can be a problem but it’s can also be a benefit. It’s one of the means by which the system solves what I call the “e pluribus unum” problem of collapsing the multitude of a views into a unitary policy of government.

    On the other hand making competition the singular logic of one’s politics is turning out to be a pretty bad story. It’s also the singular logic of our media. And in both cases, scale economies lower economic costs but can introduce a lack of authenticity into political advocacy which is pretty bad news.

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  3. Hi Yoram,

    I was hoping from some more from you on this :)

    What do you agree or disagree with regarding what I’ve written?

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  4. Nick,

    The “principle of distinction” is from Bernard Manin’s Principles of Representative Government, whereby ‘elected representatives . . . rank higher than most of their constituents in wealth, talent, and virtue’ (Manin, 1997, p. 94). While Madison claimed this as an epistemic justification for large territorial constituencies, in current “audience” democracies it’s more a case of those who make the most noise. Although sortition has the theoretical potential to undermine the principle of distinction (as persons are selected purely by chance), it is not possible to shield allotted bodies from the undue external influence of “distinguished” opinion shapers.

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  5. Nicholas,

    I agree with your criticism of the veneration of competition. I guess I would go farther than you seem to and claim that competition is essentially universally destructive and that a major part of the human experience (historic and even prehistoric) is the struggle against competition.

    In this sense I concur with the common wisdom that there is a cooperation-competition spectrum. As you point out, competition (except for total war) always happens within a framework of cooperation. However, the converse is not true. Cooperation does not require competition in order to flourish. Indeed, cooperation flourishes when competition is eradicated and withers when competition is encouraged.

    As for the “principle of distinction”: As Sutherland points out, it is a term coined by Manin. However, I would define the terms of distinction less restrictively than Manin does. The distinction does not have to be that of “wealth, talent, and virtue”. In fact, the distinction could very well be a negative distinction (Trump and Clinton were both more widely hated and despised than beloved and admired).

    The crucial point is that elections cannot produce a government “by the people” in the sense that normal people (who are known to only a tiny fraction of the electorate and do not control powerful bodies) cannot be elected to office. Thus, elected government is populated by a distinct class of people. Since people with power tend to use it to promote their own interests, having an unrepresentative government is likely to lead to the pursuit of unrepresentative policies, i.e., policies that do not promote the interests of the normal person. That is, in the absence of “by the people” there is an absence of “for the people”. “For the people” is the essence of democracy, and thus elections are anti-democratic.

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  6. Yoram:> a major part of the human experience (historic and even prehistoric) is the struggle against competition . . . people with power tend to use it to promote their own interests

    So the task is to change human nature (or “species being” in Marxian terminology)? That’s certainly quite a challenge. The realist alternative is the Madisonian project of developing the “heroic virtue of political institutions” (Herman and Muirhead, 2020) — i.e. designing institutions that go with the grain of the crooked timber of mankind.

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