Unthinkable Thoughts on Competition

Originally published April 2, 1984

 

 

 

 

 

 

 

CHIEF JUSTICE Warren Burger used to use his addresses to the American Bar Association to complain that the courts (and presumably the society as a whole) are plagued by incompetent lawyers. Since he named no names, a few law school deans grumbled a bit, while everyone else said ho-hum and wondered why he belabored the obvious.

This year the ABA met in Las Vegas, a city renowned for its cultural and intellectual advantages. Although the Chief Justice was said to disapprove of the site, he went anyhow to give the assembled lawyers the benefit of his thoughts. It turned out that he had been thinking the unthinkable. He allowed himself to wonder in public whether the Anglo-American legal system – otherwise known as the adversary system – might not be something less than perfect. A shocked silence followed. He might as well have questioned Mother’s Day or the Little League or the Space Shuttle. Or even the Super Bowl.

Mr. Chief Justice Burger may be comforted to learn that he has emboldened one citizen (me) to wonder about the economics counterpart of the adversary system, which is the idea of competition. In the same way that adversary litigants are said to reach the truth by trying to confuse each other (and the court), adversary businessmen are said to outwit each other into being productive, efficient, forward-looking, and cheap.

Both ideas are deeply imbedded in the Anglo-American tradition. It is often claimed that trial by jury is a humane development from medieval trial by combat and trial by ordeal. This is only superficially so. Trial by combat and trial by ordeal assumed that God, the Mover of the Universe, would reveal the hidden truth by giving the just man strength to prevail or survive. Trial by jury assumes that neither litigant (the “people” being one of them in a criminal trial) knows the whole truth; therefore, each should marshal the evidence as strongly and as one-sidedly as possible. The contest between the partial truths leads the jury to the whole truth.

If you wanted to coin a phrase, you might say that the jury is led to the truth as by an invisible hand.

There is, however, another side to the story – what literary critics would delight in calling the dark side. In brief, the theory is that, given the nature of man and woman, the adversary system is the best we can hope to devise. The reason for this is not, as the medieval mind had it, that in Adam’s fall we sinned all and so are naturally depraved. Grace abounding might take care of all that. The reason is rather that we are naturally solitary.

In a vivid and oft-quoted phrase, Thomas Hobbes, the first modern British philosopher, wrote that the life of man in a state of nature was “solitary, poor, nasty, brutish, and short.” Being clever devils, men get around this by pragmatically forming societies for their own reasons, and they disregard or dissolve the societies for their own reasons – unless restrained by the leviathan-state. They consequently have no reason to trust each other or their society, either. John Locke, philosopher of Britain’s Glorious Revolution and mentor of our Founding Fathers, had a more sanguine temperament than Hobbes, yet still based the right of revolution on the original separateness of mankind.

A century after Hobbes, David Hume, a friend of Adam Smith‘s and an early formulator of the mischievous quantity theory of money, could not see a” necessary connection” between natural events, let alone between human beings. In our day, Bertrand Russell‘s view was not essentially different. The British tradition embraces an atomic theory of truth and of man.

If men and women are naturally atomic, solitary, responsible only to themselves, you have a problem when you try to devise a system for settling quarrels. The leviathan-state can torture people into telling the truth, but torturers are untrustworthy, too, and have been known to ply their trade to payoff grudges, or simply for the fun of it. The alternative is to recognize openly that every party to a law suit (including the “people”) is out for number one, and exclusively for number one. Let them all do their damnedest to win, since that is what they will do anyhow.

Mr. Chief Justice Burger was not the first to notice that this is a shockingly expensive way to get shockingly uncertain results. Among others was Abraham Lincoln, a great President who had been a successful trial lawyer. His notes for several cases survive; in one of them

his strategy was” Skin the defendant.” W.S. Gilbert was confident that Victorian audiences would laugh when the Lord Chancellor in Iolanthe sang of his youthful resolution never to “throw dust in a juryman’s eyes, or hoodwink a judge who is not over wise.” Today, anyone who has been a plaintiff or a defendant or member of a jury (though of mild disposition, I have been all three) could, without straining, think of possible improvements in the system.

I mention the adversary legal system only as it throws light on the competitive system in economics. For that is also based on an atomic theory of mankind. Everybody is out for number one. We all learned at our mother’s knee that competition makes everything come out right, and that the knocks we took in midget football not only were good for us but also made America strong. Competition rewards the efficient and effective producer, and it does so by laying before the consumer the greatest array of the best products at the lowest prices. Even though businessmen, like everyone else, have no other intention than to get ahead, to do this they must offer the consumers a better deal than their competitors do. Competition, in short, automatically drives prices down and quality up.

Most people are dimly aware that things don’t work this way in the world of big business. Proprietary medicines outsell their cheaper generic equivalents; automobile manufacturers believe (with market surveys to support the belief) that price competition forces them to resist installing safety air bags; and no one any longer thinks it feasible (though Lewis Mumford proved it cost effective 50 years ago) to produce local brands of soap or cornflakes or myriad other standard products whose manufacture does not require high entry outlays. If consumers are confused or stupid, that’s not the market’s fault. The trouble with this apology is that the theory of the free market requires both buyers and sellers to be perfectly informed and perfectly rational. Gerard Debreu won the Nobel Prize last year for almost proving this absurd theory mathematically.

JOHN KENNETH GALBRAITH, who writes too well and too sensibly to be a likely recipient of the Nobel Prize, has taught us not to expect the free market to work in the world of big business, which he calls the planning system. I’m here to tell you that it also doesn’t work as it is famed to do even in what Galbraith calls the market system.

In the minutely fragmented and fiercely competitive textbook business, competition frequently has the effect of pushing prices up rather than down. I was once a protagonist in such a drama, when I saw a chance to capture an extraordinary share of the market for a history textbook by inserting full-color illustrations where the competition had black-and-white. With the larger market share, resulting in longer press runs, we could do this without raising our price. But of course our competitors put in color, too; we lost our advantage, and with it, our larger market share. Our press runs went down and our costs went up, as did everyone else’s. We all then did what we had to do: We raised our prices.

The trouble with the atomic view of mankind goes a lot deeper than the mere fact that competition doesn’t always produce the good results claimed for it. The fundamental difficulty is that if you start with the atomic view, there is no way to generate the idea of what is good. If you are fundamentally independent of me, what interest can you have in me? You may regard me with prudent wariness. You may contemplate using me for your purposes. But whether I prosper or fail in my purposes can be only an incidental or sentimental concern of yours.

In Adam Smith’s first book, The Theory of Moral Sentiments, he announced: “How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him,” and so on. The alleged principles in man’s “nature” are on the same level as the mother love of birds that even great biologists like the late Jacques Loeb like to enthuse about. It is the pathetic fallacy. Whatever the atomic system generates, it is not right or wrong, any more than catbirds are right and cats are wrong.

You can carry the argument a step further. The atomic system cannot generate anything without contradicting itself. A systematically solitary man has no words to express his ideas. Humpty Dumpty, a true atomist, proposed to be in charge of his words, yet he could not even state his purpose without using words that were meaningful because of the social and historical uses made of them by others.

What, then, becomes of competition? I don’t know, but I think we can say at least this much: It is not the foundation on which to build an economics system, nor is its encouragement – or discouragement – a proper objective of social policy. Thus, that aspect of the antitrust laws that is supposed to foster competition is wrong-headed, and it would be equally wrong-headed to try to foster cooperation. Although there are good reasons for antitrust laws (small is beautiful), they are confused and compromised by the attempt to make competition an objective of policy. Likewise, the best society is not one where workers are in a life-and-death contest for jobs. Nor is the state of the world improved by 156 nations playing beggar-my-neighbor. I hope the Chief Justice will be alert to these problems as he ponders the future of adversary justice.

The New Leader

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