Monday, March 03, 2014

Competition and Cooperation


Mark Wadsworth, Young Peoples Party posts (15 February) HERE 
The Invisible Hand is the expression used, among other things, to describe the phenomenon that even though the private economy is split up into lots of smaller organisations, some co-operating and some competing, when you look at it as a whole, it looks as if it had been deliberately organised that way to achieve a reasonably near-optimum level of output, employment, profits etc. (in the absence of state intervention and natural or government-granted monopolies and so on). 

So the Honda car you bought from the Honda showroom was not really built and sold to you by one huge organisation called "Honda". There is an endless chain of sub-contractors, suppliers, franchisees and so on. For some reason, things tend to work slightly better this way, if there are lots of smaller enterprises, each focussed on doing one or two things really well. Now if the entire Somerset Levels were owned by a single landowner, it seems likely that he would have looked after his own interests by dredging rivers, digging more channels, keeping certain areas forested, leaving marshy bits at the edge of rivers, building his buildings on stilts or on higher ground (or whatever it is that he would do) and so on.
But the Levels are owned by 1,000 farmers with an average of 170 acres each (source). Each of them is trying to get as much out of his little bit as possible, so the farmers on higher ground chop down their trees; the ones near the river want to use all the land rather than leave it fallow; if your farm is on low lying ground, that's where you'll build your buildings; I'm not aware that they all chip in to a common fund to dredge rivers.
UPDATE: they do have Drainage Rates actually, see comments.

And so things go wrong, and when things go wrong, they all start whining that it is the government's responsibility. I suppose it is true that the government absolved them of this responsibility and then messed up, but all the same, it illustrates the general observation that once it comes to land ownership, The Invisible Hand simply does not function (which in turn suggests that land ownership is the result of state intervention or a monopoly situation).

See the related topic of retail mix control. A large part of the reason for the demise of "The Traditional High Street" is precisely because they are divided up into tiny units, each owned by a different people, and there is no incentive to co-ordinate and co-operate to get the best overall use.”
Comment
Mark is a little economical with Adam Smith’s actual thinking.  I suggest respectively that he poses co-ordination efficiency as a contest of states versus markets, when in fact history shows they were complementary and ever present. This complementary process was a staggered emergence from post-hunter-gatherer societies and the evolution of the division of labour and property, in which collective band and tribal cultures, including local languages, emerged over many tens of millennia.  This evolutionary process was not universally in step and is still continuing, as anthropology science shows.
Adam Smith surmised that the very long process of human societal evolution roughly conformed to a four-stadia over-lapping sequence of hunter-gathering, shepherding, farming, and, “at last”, commerce.  (Smith “LJ”, 1762-3). He also noted that the entire social sequence was dominated by the universal importance of human “exchange”, that is  The necessary, though very slow and gradual consequence of a certain propensity in human nature which has in view no such extensive utility; the propensity to truck, barter, and exchange one thing for another.
Whether this propensity be one of those original principles in human nature, of which no further account can be given; or whether, as seems more probable, it be the necessary consequence of the faculties of reason and speech, it belongs not to our present subject to enquire. It is common to all men” (Smith “WN”, 1776.) 
This is paragraph is of considerable significance to the “cooperating-competing” axis raised by Mark Wadsworth that when you look at it as a whole, it looks as if it had been deliberately organised that way to achieve a reasonably near-optimum level of output, employment, profits etc. (in the absence of state intervention and natural or government-granted monopolies and so on).”  The phrase “deliberately arranged” is worrying because it applies some extra-human entity deliberately intervening in human social evolution.
Experiences such as in Honda operation’s are not uncommon and have not been non-existence throughout history.  It is typical of the evolution of exchange almost from deep history.  Smith gave an example in the manufacture of the common labourers’ woolen coat in WN.   The supply chain extended beyond immediate neighbourhoods internationally abroad.  Much of this activity was evolutionary and unintentional, even accidental.  There is no semblance of anything like “deliberate” intention and certainly nothing worthy of the simile metaphor of  “as if” it is deliberately arranged”.
Mark slips up on facts but thankfully owns up that “they do have Drainage Rates” but he reveals his attachment if in the negative to the modern myth of an “Invisible Hand” this that “in this case [it] simply does not function”.
Lastly, Mark makes an extraordinary claim that if “High Street businesses are “Divided up into tiny units, each owned by a different people, and there is no incentive to co-ordinate and co-operate to get the best overall use.”
Leaving aside my usual comments on the “invisible hand” (scroll down earlier posts” for details), Mark is up against experience of how competitive major and minor firms “co-ordinate and co-operate” on a permanent and continuing basis on matters of their shared common interests, such as common services they pay for and receive from landlords, local and national governments and which they are obliged to pay for or implement. I have consulted professionally for both sides of such transactions (not at the same time!).
I also recommend Mark reads Daniel B. Klein’s “Knowledge and Coordination” Cambridge University, 2013, for an appreciation of just how significant coordination is for dynamically competitive market economics.  Without combined competition and coordination markets work less dynamically and, in the extreme, severely stagnate

2 Comments:

Blogger rickstersherpa@msn.com said...

Glad you are feeling better Professor Kennedy. Hope all is well.

8:23 p.m.  
Blogger airth10 said...

"Without combined competition and coordination markets work less dynamically and, in the extreme, severely stagnate."

Rarely was a truer thing said.

10:59 p.m.  

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