The 'Competition Makes Everything Better' Fallacy

One of the pillars of right wing economic thinking is that things are made better by the existence of competition. Without competition, the theory goes, people get lazy and organisations go downhill. On the other hand, create a free market where all the players must fight to succeed, and the competition between them will force them to work harder and run more efficiently - they'll be better.

This thinking has a clear parallel in Darwinism. Only the fittest survive, so species gradually become fitter. The free market believer would probably look on impressive creatures like tigers and sharks and see admirable examples of how the free market of nature produces deadly efficiency. By contrast, isolated ecosystems, protected from the greater competition of the mainland, allow the proliferation of sluggish leaf chewers and dozy flightless birds. The message is clear: greater competition produces stronger, better animals.

This argument has two major flaws: one, we mistake the efficiency of the result for the efficiency of the process; two, we assume that 'fitter' within the market or ecosystem is the same as 'better'.

The first flaw is apparent from a consideration of how evolution works. The resulting organisms are indeed well adapted to their environments and efficient to boot. What we don't see is all the failures, the millions of ill adapted and inefficient organisms which were spewed blindly into the world only to die without offspring. Even well adapted species might produce thousands of young in the hope that just a couple will make it to adulthood. When you consider the success rate of individual organisms, evolution can be the least efficient process imaginable.

This flaw also applies to a free market. A successful organisation is likely to be effective and efficient, but for every winner there will be many failures and also-rans, and it can take a long time to eliminate all these failures. You can't just introduce competition and expect everything suddenly to be better. Moreover, whilst some of these lesser players will be swiftly eliminated, others may continue to plod along being slightly rubbish but never quite bad enough to be knocked out. These successful failures are all over the place in evolution. Wisdom teeth and hay fever are pointless and irritating, but they're not bad enough to kill you so they never get fixed.

The second flaw is a confusion of values. Does the crocodile's high energy efficiency and success as a predator make it better than other animals? I dare say you would not think too highly of the beast were it chewing on your leg. Evolution created the wonder that is humanity; it also created cholera. I don't hear many people using cholera as a great example of the benefits of competition between intestinal bacteria.

Similarly, this applies to free markets. Frequently, the most successful organisation within a market is not the one that makes the best products, or the one providing the best service. The most successful might be the best at marketing, the best at litigation, the most ruthless, the most exploitative, the most corrupt. The measure of success is not necessarily aligned with the interests of the general public.

This is not to say that all competition is bad. It can be a great motivator within individuals of the right mindset, and sometimes the successful are also good. However, it is certainly not a universal cure for inefficiency, and it does not guarantee that the winner will be good at anything except the rules of the game.

In some circumstances, a properly regulated monopoly could be more beneficial than multiple, self interested competitors. When crocodiles, sharks and tigers come to play, the wise hesitate to let the competition in.