Sunday, September 15, 2013

Co-operation and Competition: Why You Cannot Have One Without the Other

Jonathon Haidt and David Sloan Wilson post (5 September 2013) “Sears the Invisible Band” on Forbes HERE  
Five years ago, Eddie Lampert, the chairman of Sears Holdings after Sears merged with Kmart, reorganized the company so that each business unit functions like an autonomous company, with its own president, board of directors, and profit-and-loss statement.  …
…”The results have been disastrous, in part because Lampert was ideologically committed to the metaphor of the invisible hand and the associated idea that people are purely selfish. Ideology is a lens – it makes some things more visible, others less so. Lampert’s ideology prevented him from seeing that he was destroying the invisible band – the bond that forms around groups that can trust each other and work together toward shared goals” …
… “People are not just selfish. It might make Ayn Rand roll over in her grave to put it this way, but corporations and capitalism depend on the invisible band, as well as the invisible hand.
This is a short extract from an interesting article, but to read more follow the link (I am just about on the verge of breaching Forbes’ copyright to quote more).  It goes on to discuss aspects of evolutionary theory that are worth reading too.
Markets are not entirely “dog eat dog” experiences. I remember hearing an overly self-confident entrepreneur who almost salivated at his commitment to “balls-breaking competition” (he didn’t specify what he meant by that”).
I think it is morea  characteristic of “merchants and manufacturers”, as Adam Smith described them, to aim to avoid competition where they can, which, at root, is the purpose of tariff protectionism since before Smith’s day (plus the Statute of Apprentices, Settlement Acts, and Navigation Acts – prompted by the dynastic and territorial ambitions of European rival monarchies and the clamour of businesses with State legislatures to impose minimum regulatory requirements on smaller businesses unable to afford them and, ultimately force them out of business, rather than genuinely improve product and service quality. 
“Narrowing the competition” has always been a common objective of businesses, manifested in their “trade associations”, lobbying activities and other contact points with politicians, nowhere more evident than in the richest world markets, especially those with large government sectors. Moreover, competition is not “balls breaking”. 
Trade requires at least minimal co-operation.  Smith on exchange by “bargaining” (WN I.ii.) makes this clear with his iconic “butcher, brewer, and baker” example.  Buyers should address the “self-love” of the sellers and vice versa.
Markets do not work well when each party demands only his or her own self-interests (tonight’s dinner) without “addressing” the other parties “self interests” too.  In short self-interested actors must mediate their self-interests to fit in with the mediated self-interests of the party when trying to strike a bargain (not all negotiated bargains are concluded.
In TMS Smith refers to “persuasion” as the way we seek what we want the other party to do to co-operate with us in exchange for what we will do for them. This is called the condition proposition: “If you do this for me, Then I shall do that for you’.
Whatever Lambert running Sears thought he was up to, he was bound to fail and it had nothing to do with Adam Smith's use of the invisible-hand' metaphor.


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