ECONOMY BETWEEN COMPETITION AND COOPERATION

By Norbert Rost

[This article published 11/25/2008 is translated from the German on the World Wide Web, http://www.regionales-wirtschaften.de/20.61.0.0.1.0.phtml.]




The picture of the market economy is often marked by unbridled competition. This rivalry does exist between businesses and between employees. They compete for market shares that are obviously finite and scarce – in the long run – or for scarce resources.

However competition is not the only principle. Cooperation exists “in the market.” For example, every producer depends on deliveries of his suppliers as requested and every supplier depends on every customer paying on time. Non-compliance in this cooperation is threatened by a production breakdown for one and insolvency for another.

Every business utilizes cooperation. If co-workers of a business work against one another instead of with one another, business goals would be unattainable. The interconnected activities of individual co-workers or departments make possible the most complex products and services.

This is true for all economic actors except for self-providers: every service in the process called market economy is always performed for others and never for the performers themselves.

A service or product only changes its owner when the advantage of utilizing the object of exchange (“practical value”) is greater than the disadvantage of not utilizing. Since this is obviously true for both sides of a purchase or exchange process, a greater benefit arises than without the exchange3 – both individually and communally.

In this sense, “market” already includes the concept of “symbiosis” in which two symbiots have advantages through their relation to one another. The advantages result through cooperation in the labor in a complex finished product and in the consequences of the process of increasing specialization and division of labor in the economy.

Day after day cooperative processes can be seen in the economy, in every purchase and sale, in the collaboration of people within businesses and in the cooperation between businesses through supplier – or sub-contractor agreements.

OPEN SOURCE: SPECIAL COOPERATION

The development of “open source software” is an example of very special cooperation in the economy. (1) Open source software can be used freely, copied freely and changed freely without license fees. These programs are further developed by a large number of people and businesses around the planet. They work together on instruments they use themselves or make available to others. Cooperation is even practiced without people knowing one another personally or sitting at the same geographical place. The communication for harmonization of activities usually occurs over the Internet that connects and interlocks the co-workers in the projects.

The results of the open source software development are useful for actors collaborating in the programming and for everyone who wants to use the computer program. This cooperation benefits a multitude of users and helps create a social cosmos.

ECONOMY AS NETWORK

Understanding and viewing the economy as network will be increasingly important. A network is a structure in which many are tied in units with each other through connections. On the economic plane, the knots are economic actors and the connections between them are business relations formed by exchange processes. Every economic actor can have a large number of business connections. Every purchase or sale of a product or service strengthens existing relations or enables new relations to arise. This is true both for the purchase of a breakfast on the private plane and the purchase of a machine on the business plane.

The global economy can be understood as a worldwide network of billions of economic actors and their business relations. We all utilize the results of economic conduct on our planet: goods and services are the fruits of a shared economy. On the local and regional planes, the global network condenses to clusters, fine-meshed network structures.

All people are bound together within this global network. Everyone who shares in economic life through exchange of goods, services or money, is joined in this net and profits from its state of development. Thus he or she cooperates with this network and is part of it.

Different roles operate within the networks. One effect of networks is that the uses of a network become greater the more actors are part of it. The telephone network is an easily understood example. An individual unconnected telephone is useless. Two telephones enable communicating between 2 participants. The more widespread telephones are, the more useful is the telephone net and the individual telephone. The uses increase supra-linearly. Transferred to the economic network, a large number of participating economic networks means a diversity of available goods and services made possible through specialization, division of labor and exchanging services. Rivalry and working against each other only appear in partial areas of the economic system. The tendency to cooperation dominates.

NET CONSCIOUSNESS (2)

Net-like structures characterize our world. On closer examination, everything is connected with everything else. This relational network exists on the economic plane. One only has to follow the money between the individual economic actors. Despite the domineering influence and the all-pervasive structuring by networks, a consciousness of this organizational structure, net-consciousness, arose slowly. The more penetratingly the awareness for the relational fabric developed, the clearer it became that symbiotic relations nearer cooperation than competition are very frequent. An increasing net-consciousness will have a huge influence on economic interactions because it will strengthen the partnership principle over against the long-dominant profit-oriented principle.

PROFIT-ORIENTED PRINCIPLE VS. THE PARTNERSHIP PRINCIPLE

Whoever strives for profit wants it for himself. Profit for others only benefits indirectly. Without net consciousness, this indirect benefit will seem insignificant for those who are intensely profit-oriented.

The profit-oriented principle has brought us far. It has presented us with innovations and enormous wealth for particular individuals and regions. On the other hand, its domination has led us to excessively exploit and endanger our planet. Like climate change, the dying of species will have unforeseeable repercussions on human life.

Mitigating the consequences of this development on one side and producing a balance on the other side will reinforce the partnership principle. As shown, cooperation exists in many aspects of economic life. Thus a partnership economy is nothing new. How we consciously apply this knowledge in daily life and in our economic system may be new.

The market principle joined especially with competitive behavior has brought us far and will be applied in the future. One could say that the market helped reduce scarcities by rewarding problem-solvers. In many areas (particularly within the industrialized world), scarcity in material goods is hardly felt. Many things are available in abundance. One could conclude that new approaches are necessary for managing what is not scarce. The solidarity principle closely bound with cooperation could begin here.

The discoveries of the experimental economy and the neuro-economy demonstrate that fairness is a basic principle of human societies. Every person has an unfairness-aversion and rejects unfair behavior of other actors. Experiments show that most people are even willing to accept losses to punish the unfair conduct of other actors (see Arnim Falk “Homo Oeconomicus vs. Homo Reciprocans”). (3) How can social and economic framing conditions be created to promote fairness and cooperation – or even competition where it is desired?

PROMOTING COOPERATION AND COMPETITION

Experiments in game theory show that cooperation can arise even when the environment is dominated by selfish conduct. The likelihood of cooperative conduct is influenced by the dominant framing conditions. These conditions exist in a democratic society through laws and rules imposed by groups or the population. When cooperation is considered desirable and worthy of sponsorship, the society can define these framing conditions correspondingly.

Cooperation can be promoted as follows, according to Robert Axelrod (4):

1. Expand the shadows of the future: the future must be important relative to the present. For human relations, this means people must expect to deal more often with each other. Making interactions lasting and more frequent promotes cooperation.

2. Change the payoffs: the long-term incentive to cooperation must be greater than the short-term incentive to non-cooperation. For state authorities, possibilities result here on the plane of taxation and for private authorities on the plane of fee structures.

3. Instruct people to be concerned for each other. The importance of cooperation in our society must be communicated. People who understand this perspective naturally tend to make themselves useful and cooperative.

4. Instruct people on reciprocity. From an aggregate social perspective, promoting mutual interests is more useful than exploiting the weak. People could become aware of mutual dependence and interactions (net-consciousness) through win-win situations. Reciprocity in its simplest form is found in the principle: “Treat others as you would want them to treat you.”

5. Improve remembrance. Exploitation strategies are not always recognized as such. The individual does not always remember past interactions with other persons. In organizations, people change their posts and lose remembrance of cooperation partners…

Armin Falk emphasizes the upgrading of small political units in the sense of the subsidiarity principle leads to strengthened reciprocity. The organization of society in spaces comprehensible for the individual could inspire cooperation.

Cooperation is not desired in all areas of economic life. For example, the task of the German Federal cartel office is to prevent price agreements and monopolies to balance imbalances within the economic system or not allow these imbalances to arise. As framing conditions can be set in favor of cooperative conduct, they can also promote competition. Discovering where cooperation and competition are desirable is vital.

CONCLUSION

The economy cannot be reduced to the competition principle. Both competition and cooperation plan a role in economic life. This becomes clearer the more the economy is understood as a network and awareness for these net-structures is developed. Promoting cooperation or competition in different cases can be sensible. Play theory and experimental economics emphasize the reciprocity of human relations.

FOOTNOTES

1. http://www.regionales-wirtschaften.de/15.58.0.0.1.0.phtml

2. Norbert Rost, 2008: Homo Oeconomicus - Eine Fiktion der Standardökonomie, Zeitschrift für Sozialökonomie 158/159

3. Armin Falk, 2001: Homo Oeconomicus vs. Homo Reciprocans: Ansätze für ein neues wirtschaftspolitisches Leitbild

4. Robert Axelrod, 1984: Die Evolution der Kooperation, ISBN: 3-486-53996-5