Reading: Lesson 4 – Competition as Cooperation

Description:

Markets are essentially extensive networks of cooperation. Learning to cooperate means you learn to trade well with others. In the market, people compete over ways to better serve people. Competition within a free market economy is actually a competition over who can best cooperate.

In this lesson, student will watch and discuss the video “Trade is Made of Win. Part Two: Cooperation” by Professor Art Carden. Next students will read and discuss an article, “Competition and Cooperation” by Steven Horwitz. Then students will participate in an activity which demonstrates the complementary nature of cooperation and competition. Finally, students will read another article that beautifully articulates the fact that competition is a form of cooperation, by Sheldon Richman.

 

Time Required:

45 min

 

Required Materials:

Internet connection, writing instrument 

 

Prerequisites:

Lesson 4.3 – Division of Labor and Specialization

4.4.A – Watch and discuss the following video using the questions below to guide your discussion [5 min]:

Video:(Learn Liberty, 2:43 min)

“Prof. Art Carden examines how trade creates wealth by allowing people working together to produce more than they could individually. Using a simple two-person example, he shows how cooperation during production increases total output and benefits everyone.”

Discussion Questions: “Trade Is Made of Win,” Part 2: Cooperation

1.  What does Professor Carden mean by the statement “Trade is Made of Win?”

1. Professor Carden explains “Trade is a positive sum game, meaning that when people can trade they can produce more stuff than they would be able to if they didn’t trade.”
2. As shown by the example in the video, without specialization and trade there is a total of 500.5 apps and 150,000 peapods produced. However with specialization and trade there are 750 apps and 150,000 peapods produced.
3. Through specialization and trade we can create greater wealth than we could hope to achieve working independently. In this example, society also benefits from the increased number of apps now available on the market.

 

4.4.B – Read the following article using the questions below to guide your discussion [15 min]:

Article: Competition and Cooperation by Steven Horwitz (FEE.org)

“Competition and cooperation are often juxtaposed, yet in the market they are two sides of the same activity... modern goods and services are the product of immense cooperation among human beings. That network of institutions and exchanges facilitates cooperation via competition, with the result being the progressive enrichment of humanity.”

Discussion Questions:  Competition and Cooperation

1.  What do you think of when you see or hear the word, “cooperation?”

1. Most people think of cooperation as intentional and “aware”; that is, voluntarily and consciously helping each other out, usually in person (face to face).
2. Cooperation is the act of voluntarily working or acting together for mutual benefit.

2.  How is any good or service—such as a computer or an airplane flight—an example of cooperation?

1. Every good or service has a long, complex history of cooperation. There are countless people involved in the design, production, and delivery processes; each of these people enter into agreements covering a wide variety of things, including costs, standards, expectations, and so on. It takes an immense amount of cooperation for all of the various elements comprising a product or service to come together to create and deliver said product or service.
2. Steve Horwitz explains that “The shirt I’m wearing today required the cooperation of millions of people to transform it from the most basic raw inputs into the finished product that was delivered to my house by UPS.”
3. The extraordinarily fine and precise division of labor that characterizes modern markets means that we are very limited in what we can do for ourselves individually and therefore must rely even more heavily on the cooperation of others to obtain even the most basic of goods.  Cooperation is just the obverse of the division of labor.”

 

3.  Is unintentional and/or anonymous cooperation we experience through markets inferior to intentional and/or “known” cooperation?

1. No. Cooperation is no less productive or valued if it’s unintentional. According to Horwitz, “Markets generate unintentional cooperation by harnessing the power of competition as it unfolds in the context of private property, sound money, and the rule of law.”
2. If the only cooperation that occurred was between people who knew each other, the number of goods and services available to us would be dramatically fewer, and as a result, everyone would be much poorer.
3. “Even though this cooperation is anonymous and unintended, it creates the same sort of interdependence that intentional cooperation creates.”—Steve Horwitz
4. “There is no need to push for more forms of intentional cooperation when we already know that markets, especially freed markets, are the foundation of the most extensive cooperation in history.  And the most beneficial as well.”—Steve Horwitz

 

4.  What is the name of the metaphor used to describe the guiding force whereby individuals, in the course of pursuing their own self-interest, help others satisfy their self-interest (through mutually beneficial exchange), and in doing so, contribute to an efficient system of production and allocation of valued goods and services?

1. “The Invisible Hand” or Spontaneous Order (See Module 6). This term, coined by Adam Smith in The Wealth of Nations, is used to explain how value is created and allocated by individuals pursuing their own self-interest, and in the process, helping others achieve theirs.
2. “Order” and maximum value creation is best achieved by allowing individuals to produce and freely exchange based on their subjective preferences, as opposed to having a central authority determine the best uses for resources and recipients of goods and services.

 

5.  What is the connection between free market cooperation and civil society?

1. In a free market, people are free to choose the products/services they wish to use/consume. So the more we are connected to people through trade, the more civil and peaceful our society becomes (social cooperation).
2. Trade is a form of cooperation. Competition on the market is a competition to serve other people well.
3. “This extension of cooperation and peace through exchange is what Mises referred to as the Law of Association.”
4. “It is competition among producers, within with the institutional structure of property rights and sound money, which enables them to figure out what contracts to create and what prices to charge in order to best serve customers and earn a profit.”
5. “That network of institutions and exchanges facilitates cooperation via competition, with the result being the progressive enrichment of humanity.”

 

6.  What happens when there are products that people want but are not allowed to purchase? (Think about issues both foreign and domestic).

1. The demand for the product remains, but the production and exchange of these products goes “underground” and becomes dominated by people willing to circumvent the law.
   1. Prohibition: People made and traded alcohol illegally. The alcohol industry became dominated by violent gangs.
   2. Illegal drugs: The criminalization of drugs has had the same effect as prohibition of alcohol. The demand remains, but production and sale is dominated by violent organizations such as cartels.
   3. In the case of trade barriers such as tariffs, consumers are forced to either pay an artificially higher price for a good, and are often made to choose between buying an inferior product, or going without it at all. Also, the producers of the foreign good are hurt because fewer people will buy their goods. Finally, in some cases, military invasion and seizure of resources or goods occurs. There is a saying, “when goods don’t cross borders, armies will.”

 

4.4.C – Activity-Complete the following activity and share your ideas with the group [25 min]:

Activity: The Puzzle Game

In this activity, students divide into teams and compete with each other to solve a puzzle.

 

Directions:

1. Divide the class into groups of no more than 5.

2. Take out each puzzle and mix together the pieces from each puzzle.

3. Distribute the pieces among each group, making sure they each get X# pieces. Assign each group a specific puzzle to complete. At this time, hand out the “coins” to students.

4. Instruct the students that they have X minutes to successfully complete their puzzle. In order to do so, they will need to trade pieces with other groups. Each group should appoint an official trader to conduct trades with other groups.

5. Trades will occur…students will buy pieces for other groups  Encourage students to think creatively about how they conduct trades (ex: they can offer 2-for-1 discounts, adjust prices based on the pieces that are in high demand, they can exchange coins, buy pieces for another groups’ puzzle, etc)

6. The first group to successfully complete their puzzle wins.

 

Discussion Questions:  The Puzzle Game

1.  How did competition factor into this activity?

1. Teams offered different deals based on the pieces they owned and the pieces they needed.
2. Better deals meant it was easier/faster to complete the activity.

 

2.  How did cooperation factor into this activity?

1. Each party to a trade had to agree to the terms of the deal.
2. If no agreement was reached, no trade occurred.

 

3.  What do you think would have happened if everyone had to offer the same exact deal?

1. It would have taken a lot longer to obtain the pieces each group needed and to finish the puzzle
2. It would have been frustrating and progress would have been slow.

Teacher Tip: Teachers should assign Self-Study reading 4.4.D at the end of class.

 

4.4.D – Self-Study: Read the following article. Use the questions below to guide your reading [15 min]:

Article: Competition Is Cooperation by Sheldon Richman (FEE.org)

“For human beings competition is not the negation of cooperation but a form of it…Competition is what arises when people are free to choose with whom to cooperate… Thus freedom plus cooperation equals competition. Those who would banish competition would also have to banish free cooperation.” Compulsory cooperation is what went on in the gulag and concentration camp. In fact, there’s nothing cooperative about it at all. It’s just compulsion.”

Discussion Questions: Competition is Cooperation

1.  What do you think Sheldon Richman mean when he writes, “…competition is not the negation of cooperation but a form of it”?

1. Competition is a natural result of “when people are free to choose with whom to cooperate.” People want to cooperate with each other, but people also have to make choices; as a result, people compete in order to cooperate with others. 
2. “Mises takes this argument a step further. It has been suggested that fellow feeling among people led to economic cooperation and rising living standards. Mises says it worked the other way around. The realization that trade makes us better off encouraged economic cooperation. This in turn permitted the emergence of ‘feelings of sympathy and friendship.’ Cause and effect could not have been reversed. If we were competitors in consumption, ‘Each man would have been forced to view all other men as his enemies; his craving for the satisfaction of his own appetites would have brought him into an implacable conflict with his neighbors. No sympathy could possibly develop under such a state of affairs.’ ”

 

2.  What happens when market cooperation is replaced by politically-forced “cooperation?”

1. Prices become distorted, leading to a variety of negative consequences, including inefficient production and exchange.

• “Without private ownership and trade in the means of production—that is, competition—there can be no true money prices for resources. And without prices there can be no way to calculate the best strategies for satisfying consumers at the lowest cost.”

2. Social cohesion, trust, and respect for others weakens as a result of laws restricting how people can cooperate and pursue their interests. This can cause feelings of frustration and disrespect and resentment from government giving favorable treatment to some and not others. We also tend to see reductions in the availability of goods and services causing people to become desperate to acquire them.

• “…when competition (which arises from market cooperation) is forcibly suppressed, cooperation breaks down and something like the real law of the jungle takes its place.” –Sheldon Richman
• “Compulsory cooperation is what went on in the gulag and concentration camp. In fact, there’s nothing cooperative about it at all. It’s just compulsion.”—Sheldon Richman

3.  How is competition among people different from competition we typically think of between wild animals?

1.  “The competition that goes on in the marketplace is not, for the most part, competition in consumption, but rather competition in production. Or, to be more precise, we compete to consume by competing to produce.”—Sheldon Richman
2. When governments force cooperation, competition becomes more about consumption and less about production.

 

 

Lesson Recap

 

• Trade creates wealth by allowing people working together to produce more than they could individually.

 

• Competition in the market is a form of cooperation.

 

• Through specialization and cooperation through trade, we can create greater wealth than we could hope to achieve working independently.

 

• Competition and cooperation are two sides of the same activity.

 

• “There is no need to push for more forms of intentional cooperation when we already know that markets, especially freed markets, are the foundation of the most extensive cooperation in history.  And the most beneficial as well.”

 

 

Additional Resources

Article: Competition and the Limits of Sports Analogies by Steven Horwitz (FEE.org)

“It is in this sense that both economic and athletic competition are consistent with a point Hayek made decades ago when he noted that the Greek word for competition also means “to search for together.”  All competition is a form of learning, but in sports that learning does not provide benefits to people outside the activity in the ways that markets do.  Market competition creates positive spillover effects for everyone, and so economic competition is not the zero-sum game the critics imagine.  It is a positive-sum game in which the losses of some are far outweighed by the benefits to all.  And therein lies the limits of the analogies from athletic competition.”

 

Article: Cooperation: How a Free Market Benefits Everyone by Jeffrey Tucker (mises.org)

“The significance is impossible to exaggerate: It means that it is not necessary that all people of the world have the same talents in order to benefit from cooperation. In fact, it is the very diversity of the human population that makes it advantageous for them to work together and trade to their mutual benefit. What this means is that isolation and self-sufficiency lead to poverty. Cooperation and the division of labor are the path to wealth.” [available in audio]

 

Article: Competing on Customer Service: An Interview with British Airway’s Sir Colin Marshall (Harvard Business Review)

“In this interview, Sir Colin Marshall explains how British Airways is using both cooperation and competition in the market to deliver value to its customers through improved customer service.”

 

Video:(Learn Liberty 3:02 min)

“Many believe that market economies create a dog eat dog environment full of human conflict and struggle. To Prof. Aeon Skoble, the competition in markets does not create conflict, but rather, encourages people to cooperate with one another for mutual benefit.”

 

Article: Cooperative Companies Offer an Alternative to Franchising (Entrepreneur.com)

“People are slowly beginning to realize the power of cooperatives and their potential as a viable business model. In addition to groceries and agriculture, there are coops for other types of retail, as well as banking and housing. “By our best estimate there are 29,000 cooperatives generating 2 million jobs in the U.S” Bailey says. “They hold 3 trillion in assets and add $650 billion [annually] to the economy. The recession has really driven interest in co-ops. They are affordable and people are looking for deals.”

 

Article: Freedom, Selfishness and Cooperation by David Boaz (Cato Institute)

“The market arises from two facts: that human beings can accomplish more in cooperation with others than alone and that we can recognize this. If we were a species for whom cooperation was not more productive than isolated work, or if we were unable to discern the benefits of cooperation, then we would remain isolated and atomistic….Cooperation is as much a part of the market system as competition. Both are essential elements of the simple system of natural liberty, and most of us spend far more of our time cooperating with partners, coworkers, suppliers and customers than we do competing.”

 

Article: The Ultimate Chain Letter by Russell Roberts (Hoover Institution)

“It has become natural to us to rely on those we do not see and cannot examine for their honesty, reliability or excellence. Yet, most of the time, this extended order of human cooperation fulfills our expectations that the products and services we want will be waiting for us when we want them.

We understand the role of competition in sustaining this system. Having alternatives helps create accountability and raises the costs of failing to meet our expectations. But we often fail to understand or notice the resulting cooperation among strangers whose coordinated actions within and across companies serve us.”

 

Article: Trucking, Bartering, Community, Esteem – by David Schmidtz (Stanford Encyclopedia of Philosophy)

“Insofar as society is a cooperative venture for mutual advantage, learning to survive—not just physically but as full members of a community—will involve learning to cooperate. Learning to cooperate involves learning to become a trading partner. In other words, cooperation begins with having something to offer: a way of making people better off.”