We Americans seem lately to be turning nearly every aspect of life into a competition in which somebody must win and somebody must lose. Many popular TV programs have people competing not just in answering quizzes or solving puzzles but also in activities like singing and dancing. Shows with singing and dancing for their own sake, without the voting or the criticism, are very rare. Romance becomes a competition on programs such as The Bachelor. Comedy Central has a show where you find out “who wins the Internet,” and American Public Media has a radio program to “help you win your dinner party.”
Our prosperity arises from our mutual dependence.
Sports have always been popular, but even there, the competitive aspect, the winning and losing, seem to be taking on more importance. In my youth, we asked, “Who are the Tigers playing today?” Now my young grandsons say, “Who are the Tigers versing today?” making a neologism out of the Latin word for against. Rather than celebrating the artistry of the game, we worry about how many more years it will be before our team gets a conference championship or a spot in the national tournament or, best of all, the right to call ourselves Number One.
Politics now is all about the horserace: who has raised the most money, who is ahead in the polls, who has the most delegates or the most endorsements. Now the substance has become a competition too: Which country is out-competing us for international influence, trade surpluses or military power?
Economics is all about competition, and the way we talk about it now emphasizes winners and losers. The Japanese are taking away our export markets, the Chinese are taking away our jobs, Europe is attracting investment that we should get, and Mexican immigrants are displacing American workers. The workers get lower wages so that the shareholders can take higher profits, and consumers pay higher prices so that innovators and entrepreneurs can be rewarded. Taxpayers fork over more so that retirees, students and the unemployed can live more easily. I win; you lose.
ALL CAN WIN
Economics is all about competition, but putting it in terms of winners and losers gets it fundamentally wrong. The great idea that economics has contributed to human progress is usually called “the gains-from-trade theorem.” It goes like this: If each of us specializes in what we do comparatively well, and then we trade that work for the other things we need, the total amount of goods and services available to us grows, and we can all be better off. Once more for emphasis: If we specialize and trade with each other, we can all be better off. No winners and losers. We all can win.
This is how economies develop. When you think about it, some of the poorest people in the world are quite self-sufficient. Subsistence farmers in tropical parts of the world raise their own food, build their own homes, make their own clothes and educate their own children. They are incredibly knowledgeable, resourceful and industrious, but they are very poor. In contrast, the people who earn the highest incomes from their work are people who do the same specialized task over and over again, drafting corporate merger contracts, transplanting hearts, trading stocks or performing their greatest hits. The more we specialize and trade, the richer our economy becomes. Our prosperity arises from our mutual dependence.
Competition comes into this in the process of sorting out who should specialize in what task. A young person might aspire to be a professional, major-league athlete, but might not make it to the big leagues and end up with a career in sports writing or teaching. A med student might not make it as a heart surgeon and instead becomes a primary care physician. We survive these experiences in the resilience of youth and find satisfaction in having useful, remunerative careers. We don’t consider practitioners of these careers to be “losers.”
Things become especially tough, however, when changes in the competitive environment do create winners and losers. A new trade agreement may find U.S. manufacturers competing with foreign companies that have newer technology, better access to raw materials or a work force accustomed to lower wages. New environmental regulations might force some industries to shrink or to change their technology dramatically. New technology arising from new science might displace workers as industry employment shrinks or new skills are required. As the society becomes more affluent, people buy a different basket of goods, and some industries shrink as others grow.
There are policies that can be put in place to help displaced workers gain new skills, find new employment or transition to retirement. It is worthwhile for the sake of the economy to do this. The alternative is to obstruct economic change, which is not good for the economy in the long run and does not serve the interests of society as a whole. Change is costly in the short run, but if those costs are shared by the whole society, they are much less burdensome.
WE NEED NOT ALWAYS WIN
If we want to make sure that everyone benefits from economic specialization and development, we can’t go into the market thinking that we must win at someone else’s expense. Rather, we have to go into the marketplace with the attitude that everyone will come out a winner. Unfortunately, our increasing preoccupation with the sports metaphor for economics has pushed us into bad attitudes and practices concerning economic competition.
A common idea is that “you can’t leave money on the table.” If you did that, someone else would benefit more and you would lose. This happens a lot in business negotiations and labor contracts, but I’ll take as an example ticket scalping. Sir Paul McCartney is coming to town for an arena show. Eleven thousand tickets go up for sale on the venue’s website at 8 am, and they are gone in about half a second. Some minutes later large numbers of them reappear on a different website, and tickets that were $75 apiece are now going for $200 or $300. The money is not going to Sir Paul, of course, who at least has the excuse that he is talented. No, it goes to talentless hacks who happen to have access to large amounts of financing.
Ticket scalping used to be illegal, but it’s not any more. Partly that is because the laws always were hard to enforce and now have become practically impossible to enforce. In the name of free-market ideology, we have convinced ourselves that this sidewalk auction, now carried out online, is the right way to handle the allocation of seats at concerts and sports events. But why did we once consider it wrong? Because we thought that the gains from this exchange should be split between the performers and the fans, with each coming away happy and that the “money on the table” should not go to a bunch of rapacious traders.
Another way people talk about this is that a business must “capture all of the value” of its products. This locution is especially common when we are talking about pharmaceuticals and other health-related items. When Turing Pharmaceuticals under the leadership of the notorious Martin Shkreli bought the rights to the drug Daraprim and promptly raised its price by a factor of 55, he was just capturing its value for himself and the other shareholders. After all, why should poor, sick people benefit? It’s not their drug. They are losers. No wonder the media call him “the most hated man in America.”
Sometimes businesses even try to discuss this with us. One time when I decided to stop subscribing to Comcast for a while, I thought I’d be nice about it and return the company’s equipment. The comely young woman behind the counter asked, “Why are you leaving us?” “Because it’s too expensive,” I replied. She batted her eyelashes. “What do you want to pay?” she suggested. So there I am, negotiating with Comcast. I had already tried this, on the phone every other month when my bill increased every other month. The company would give in for a couple of months, and then the increase would come back. The truth is, I was tired of trying to negotiate with Comcast. It was hopeless anyway.
Another practice that was once illegal is price discrimination. This means charging different customers different prices for the same good. The communications and pharma companies have become masters at this, but it was pioneered by the airlines. Airlines can’t shed costs without changing their schedules, and demand for tickets is very sensitive to prices. This means they can increase their profits easily by offering special deals to different groups of customers. This is the origin of “official” airlines of various companies, frequent-flyer cards, bereavement fares and last-minute weekend deals. It also led to price wars and bankruptcies, until we got down to just a few powerful carriers. When the airlines were regulated, this did not happen.
BACK TO BASICS
The focus on winning big profits by imposing losses on others goes back to Ronald Reagan’s decision to fire the striking air traffic controllers in 1981. It was always legal to fire striking workers, although the unions always considered it unfair and had long fought for legislation to outlaw it. Private employers had never dared do it. The controllers’ strike was illegal because they were federal workers, but as union members, they felt it was their last resort. By breaking the long-standing if unwritten rule, Reagan made it clear that at least when it came to labor markets, the naked exercise of power was perfectly all right. Big businesses were happy to follow his lead and to treat any and all counterparties with complete disrespect, if not utter contempt. This was the time when middle-class incomes began to decline.
So the rule became, Rules don’t matter. After that came the savings and loan scandals, the Enron scandal (which reached many firms besides Enron, especially in the communications industry), the Wall Street scandals uncovered by Eliot Spitzer, the insider trading scandals and finally the great financial collapse of 2007-8, which uncovered much more scandalous behavior in the finance and real estate sectors.
Sometimes these practices are justified with libertarian patter about “capitalist acts between consenting adults in private.” The fact that you agreed to the deal means you must have benefited because, after all, nobody held a gun to your head. So it’s all good, and the government should leave it alone.
The parallel to sex acts is instructive. Most religious people do not think that mutual consent is enough to make sex okay. There are supposed to be elaborate public promises involved. Furthermore, even the most liberated among us do not think that sex is okay where a big power differential is involved, for example, between teacher and student, professional and client or pastor and parishioner. So why should Comcast be allowed to negotiate with me? It can take away my TV. I can’t do anything to it. Talk about a power differential!
How do we make this economy work again? We have to go back to basics. The economy works best when the gains from specialization and exchange are divided more or less evenly between buyers and sellers. Prices should reflect costs, including opportunity costs but should not be arbitrary or exorbitant. We should reward talent, skill, knowledge, judgment, patience, foresight, thrift and hard work. We should not reward power and greed.
Perhaps the biggest necessary attitude change would be looking out for the interests of others as well as our own. Many economists and businesspeople make a distinction between self-interest and greed. They claim that if people behave according to their (long-run, enlightened) self-interest, the economy will work at its best. This is a half-truth. It is not wrong to pay attention to your own interests when dealing in markets. But if that is all you consider, then you are being greedy. The only way to avoid greed is to pay attention to the interests of others.
Maybe I could summarize this way: Love God above all, and love your neighbor as you love yourself. Do unto others as you would have them do unto you. This is a basic teaching of Christianity, but it is shared in one form or another by all the world’s great religions. It is the key to godliness, happiness and peace. If we have those things, we will stop worrying about winning.
John P. Tiemstra is retired from teaching economics at Calvin College, Grand Rapids, Michigan.