Provocation #118. Competition and economics.
Why does economics have such an appreciation for competition? Competition creates winners but also losers, and can we afford more losers? Change always has losers, but a good society would be concerned that the changes help society, and compensate those who have been hurt, not just work for the few. We are not asking what would make a better society but what would make more profitable corporations. Is economics part of a society for the game players, or for all the people?
Agricultural society needed agricultural workers and industrial society needed industrial works. But it is clear that the current economic machine does not need many people. Old elites begrudgingly paid attention to the needs of the whole, but modern elites are much more cynical and disdainful, or pragmatically don’t need to care for the many.
Competition needs to be compared with cooperation and cooperation means relationships and relationships mean some sense of community. The business mind thinks: what is going on that I can participate in that will pull money from the people? They look at an environment in terms of what is not yet exploited. Innovation is encouraged not to make a better society but for a wedge to pry out profit. That Tim Cook makes 500m is a distortion of the logic which says a good economy pays out proportionately to those who contribute. I doubt that Cook’s contribution is worth that much more. If economics were more of a science it would be much more curious about such issues.
Economists tend to like equilibrium but those who think of getting rich know that disruptions and strong cycles are the only way to make serious money. Schumpeter had the least disguised view with “creative destruction,” naming it for what it is, and these days “disruptive technologies” are sought for by VCs.
But could we have an economy that provides more steady state, less disruptive to replace what for many, is, lets face it, a life shattering economy? Think of the high rents on houses bought up through foreclosure, or the land grab in Puerto Rico. Why is there no electricity in Puerto Rico? Drive the price down, shift ownership from those struggling to the beknighted. Then we can have electricity. Probably subsidized solar. How can we more effectively use our concern for the kind of society being built? Where are those economists asking, what would be a good society and then looking for the economy to support it?
I live in redwood country and hear about board-feet in that tree, not its place in the aesthetics of the forest, and the trucks carrying the logs tear up the roadways paid for by gasoline tax which is highly regressive. The apple orchards are replaced by grapes because the payoff is three to five times as great per acre. But then the pollution – mostly excess fertilizer – runs off into the river.
We all know many examples, yet we do not seem to look for alternative systems. Are we that much more beholden to the forces that be that it does not occur to us to think of alternatives? Bad and boring science.
An example of economic thinking that fails to be curious and questioning:
Ricardo developed the “principle of comparative advantage”. The example of trade in cloth and wine between England and Portugal. Assume that, in Portugal, 90 hours of labor are needed to produce a bale of cloth and 80 hours for a cask of wine. In England, meanwhile, it takes 100 hours for cloth and 120 hours for wine. Portugal possesses an absolute advantage with respect to both products, and with respect to wine also a comparative (relative) advantage: the cost difference for wine (80/ 120) is greater than for cloth (90/ 100). (Correspondingly England faces an absolute disadvantage with respect to both products but a comparative advantage with respect to cloth.) etc. you know how it goes. “The happy message of Ricardo’s finding is this: whoever is inferior to another person in everything can nonetheless become involved in a division of labor that is mutually advantageous.” (From Kurz Short History of Economics)
What is missed is that the way business people think is that if our industry is behind that in another country in costs, something might be wrong with the way we are organized and we need to rethink our process, not just for this industry but for others in our country. Certainly not to institutionalize our current “comparative advantage.”
I think we can see what Ricardo is doing ; assuming a fixed system in order to make the calculations work.