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What Competition in Nature Should Teach Us about Markets: Should We Be as Dumb as Trees?

The views expressed are those of the author and are not necessarily those of Scientific American.


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Though the free-market faithful have long preached that competition creates efficiency, as if it were a law of nature, nature itself teaches a different lesson. The seductively simple story of the virtues of competition contains some general theoretical truth, but execution is how theory dies, and we can’t let blind faith prevent us from seeing the deviling details of how it operates in practice. Unregulated competition in nature regularly delivers disaster. And ignoring nature’s lessons for our economy would have us be as dumb as trees. Competition frequently creates foolish costs and undesirable outcomes.

Richard Dawkins, a noted explainer of nature, tells us, “Tree trunks are standing monuments to futile competition.” In his book The Greatest Show on Earth, he makes the necessary distinction between a “designed economy” and an “evolutionary economy,” using the fable of the “Forest of Friendship.” “In a…mature forest,” he writes, “the canopy can be thought of as an aerial meadow…raised on stilts…gathering solar energy…but a substantial portion of the energy is ‘wasted’ by being fed straight into the stilts, which do nothing more useful than loft the ‘meadow’ high in the air, where it picks up the same harvest…as it would—at far lower cost—if it were laid flat on the ground.”

No tree can afford to not compete in the height competition. However, if somehow the trees could arrange a pact of friendship to limit their heights, each tree, and the forest as a whole, could save energy. This is obviously not possible for trees, but if it were, Dawkins concludes, the “Forest of Friendship [would be] more efficient as a forest.”

Systems of self-interested agents, responding only to local incentives, can easily evolve energy-wasting, unfruitful competitions. Dawkins doesn’t make the obvious connection between free- market theory and freely evolved systems, but you should. Once a way of competing is established, it’s very difficult for individuals not to play along. If we let our economies imitate trees, and the majority of nature, in practicing unguided free competition, the results will often be suboptimal, for each and for all. Worse, we will miss the main benefit of being human, which is to use reason to coordinate better outcomes.

Enormous ill-suited “monuments to futile competition” exist at the heart of our health-care system. A 2008 study found that pharmaceutical companies spend 24% of their revenue on marketing and promotion (versus 13% on research and development). Drug prescription decisions should be based on objective medical criteria, and data on performance and side effects is publicly available. So why on earth would it make sense for pharmaceutical companies to spend so much on the armies of sales reps that visit doctors with such relentless regularity? The local logic at work is that no individual company can risk not playing the game. However, a neutral body with the power to enforce adherence to agreed-upon limits could change these dynamics, collecting the information that companies seek to provide to doctors and making it available online. This would cost a trivial fraction of the monumental $62 billion wasted by the current free market approach (based on latest pharmaceutical revenue in U.S. $260 billion). It would also prevent nonmedical distortions in prescription decisions.

The way wasteful competition gets entrenched is a worrying example of an entire class of errors in which what passes for rational decisions can create undesirable outcomes. These include the tragedy of the commons, Prisoner’s Dilemma-type games, and Nash equilibria. Applying a narrowly self-maximizing logic yields suboptimal results for everybody. But tackled as coordinated action problems, with monitoring and enforcement— they’re easily solved to greater benefits to each and all. Precisely the lack of this complex cross-agent coordination prevents “the market” from increasing efficiencies in our unintelligently evolved U.S. health-care system. Competition’s benefits are created by constraints. Creative responses to designed and guided limits can work better than “natural constraints” in avoiding negative-sum games.

Free competition does not magically lead to the best outcome in nature. Nor does it in economics. The magic of markets isn’t like the magic of science; it’s more akin to stage magic, where the effect is achieved by misdirection. A selective spotlight story focuses our attention, on the one hand, on the benefits of unbridled competition, but draws attention away from the other, invisible hand, as it’s busy externalizing costs or in other ways causing harm. This oversimplifying and oversold story has outlived its fitness. Our choice is either to be as dumb as trees, or to guide competition for better outcomes.

Some are waking up to nature’s lessons for economics, for example, Robert Frank author of The Darwin Economy. But much work remains to be done to overcome old myths. Too many parables that have been proven wrong are still peddled by politicians. For example, voucher plan for Medicare is built on this error—an unfounded faith in unguided competition’s creed.

PHOTO credit: Public domain, by David Wagner

Jag Bhalla About the Author: Jag Bhalla is an entrepreneur and writer. His current project is Errors We Live By, a series of short exoteric essays exposing errors in the big ideas running our lives, details at www.errorsweliveby.comwww.errorsweliveby.com. His last book was I'm Not Hanging Noodles On Your Ears, a surreptitious science gift book from National Geographic Books, details at www.hangingnoodles.comwww.hangingnoodles.com. It explains his twitter handle @hangingnoodles Follow on Twitter @hangingnoodles.

The views expressed are those of the author and are not necessarily those of Scientific American.






Comments 9 Comments

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  1. 1. Dimitrii 1:04 pm 10/23/2012

    The author may be a communist… And we have no free competition in economy since say WW2.

    Link to this
  2. 2. Laroquod 1:09 pm 10/23/2012

    The author of the previous comment may have cooties… And we have no antidote for cooties since the Inquisition.

    Link to this
  3. 3. Snells 1:28 pm 10/23/2012

    This works perfect, has sounds principles and clear objectives, if it were in a vacuum.

    Link to this
  4. 4. Dimitrii 1:35 pm 10/23/2012

    Of course all my sympathy goes to Laroquod, who should consider the basic hygiene, may i propose. But if a pharmaceutical company spends less on promotion and more on research, it may die standing like a tree, don’t you think?

    Link to this
  5. 5. Cramer 1:55 pm 10/23/2012

    Dimitrii wrote, “But if a pharmaceutical company spends less on promotion and more on research, it may die standing like a tree, don’t you think?”

    Yes, that was exact point made by Jag Bhalla. Do or die.

    Link to this
  6. 6. Cramer 2:05 pm 10/23/2012

    The author states, “But much work remains to be done to overcome old myths.”

    Many people study economics the way religious fanatics study the Bible. They cherry-pick what they want to believe. Many libertarians discard Adam Smith’s warning of the tyranny of corporations (or they are even unaware of it).

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  7. 7. Lost Martian 3:20 pm 10/23/2012

    Scietntific American has become a safe haven for all sorts of socio-lunatics who think that the Cuba and North Korea are paradises. To hell with competition, to hell with innovation, to hell with excellency!!! The best is to standardize everything.

    The best social model is that of bees and ants, right?

    You should read Harrison Bergeron…

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  8. 8. EMNeuralei 9:30 pm 10/23/2012

    Harrison Bergeron isn’t about socialism so much as authoritarianism keeping the public in line. No one stands out, no one can think well enough to protest (see Brave New World). Socialists don’t want people to become boring clones of each other, believe it or not, but to have basic needs met and equal opportunity as well a voice in democracy. You bring up bees, where reproduction is very limited to the colony “elite” and there is a sterile cast — I think you got things backward.

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  9. 9. Chad.English 9:20 pm 10/28/2012

    This is an excellent introductory article to the topic. It’s unfortunate some of the commenters do not understand and think this is an anti-competition article (or somehow pro-communist). That is “all or nothing” thinking.

    Rather, it is regulated markets that produce the better outcomes than unregulated ones. (That is assuming the costs and payoffs of the regulations are aligned with the goals of the market. Bad regulations produce bad results too.) People often confuse control of the rules of a market with control of the production within the market. It is the latter that is the basis of communism, not the former.

    I’ve written extensively on this subject, particularly in a four-part series that includes real-world examples of when competition goes wrong, the Prisoner’s Dilemma, comparative advantage, and re-framing problems from competitive viewpoints to achieve improved innovation policies and greater efficiency. Part I on the Prisoners Dilemma is here: http://adnausi.ca/post/4530203969 and there are links to the rest at the bottom. I invite anyone who doesn’t “get it” to read through that before suggesting Jag is anti-competition.

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