If You Like Collaboration, You Will Love Free Markets

It is a common sentiment that markets are competitive. Those who want to succeed in a market society must constantly strive to be better than others – by any means necessary. To some, this process is so competitive that it becomes socially corrosive. Fierce competition, we hear, undermines many other values we hold dear, such as societal trust or interpersonal relationships. Especially the US-version, with weaker safety nets and greater inequality, is thus termed “cutthroat capitalism”.

Clearly, we do not want to live in a cutthroat-society. The antidote to competition, then, is cooperation. Instead of competing in the market, people should find ways to benefit each other through collaborative networks. Organizations aiming to improve societal well-being position themselves as counter-models, offering a cooperation-based model. In a similar vein, academic studies investigate how cooperative approaches to problem-solving are more effective than competitive ones. “Cooperative learning” is a key notion in educational research, promising to improve “student achievement, motivation for learning, intergroup relations, critical and creative thinking and problem-solving, and a host of other well-researched outcomes.” The path to a better life for everyone lies in collaboration, not in the kind of competition we seemingly find in markets.

But only looking at competition does not reveal the full story of free markets. Markets surely are competitive. As the economist and philosopher Friedrich von Hayek noted, however, their competitive aspects are necessary for a flourishing society, because competition helps us find out who the best players in the market are. One might think that the world can be improved if the best and brightest cooperative – but how do we choose the best and brightest if not through competition?

Beyond that, competition is only one aspect of markets. In fact, it is not even their most important: the main feature is actually cooperation. Markets feature competition which determines who the best and brightest are. But what are they competing about? If stores lower their prices, they are competing with others stores – and they are competing for the chance to cooperate with a consumer. Thus, the economist Paul Rubin wrote: “Cooperation is the heart of economics; competition is a tool for obtaining better cooperation.”

Actors in free markets compete with each other, but they do so to figure out who is best at cooperating. As Rubin points out, people produce goods and services and trade these for other goods and services. What we often forget is that both the production and trade are acts of cooperation. I am not competing with my supermarket: I am cooperating with it. By going to the supermarket, I am saving time I would’ve spent growing my own food or driving to local farmers. In turn I pay the supermarket for the goods. Through this act of cooperation, we are both better off. The supermarkets compete with each other, but they compete for the chance to cooperate with me.

Why do we often overlook this part of free markets? The answer may lie in our evolutionary history.

Why We Often Think Badly Of Free Markets

Humans have certain intuitions hard-wired into our brains. This is not to say that our thinking is determined by them, but that we have a tendency to believe some ideas over others. These so-called “folk intuitions” offer practical shortcuts to address complex issues and they evolved because they helped our ancestors survive. For instance, the tendency to believe in supernatural entities, such as ghosts or spirits, may be caused by an “agency-detector”. That is, humans tend to detect agents behind most phenomena. To the ancients, thunder and lightning were the works of gods. Today, many people still feel the work of spirits behind natural phenomena. This tendency evolved because our ancestors who suspected a hungry predator behind a moving bush had a better chance to survive humanity’s early days than those who thought that no agent was behind the movement. Our agency-detector is still active and may explain, for instance, why we feel that robots that look like us are conscious.

We possess similarly evolved intuitions about economic processes. These “folk-economic” beliefs emerged in the early days of humanity, when we lived in small tribes and they are adapted to such an environment. As a result, we are good at detecting when someone receives more from a trade than they provide – a skill that helped our ancestors survive by not letting them fall for bad trades. But as Pascal Boyer and Michael Bang Petersen note, these intuitions may mislead us in the modern market economy. They may, for instance, explain why people fall for Donald Trump’s trade policy, where he states that other countries are ripping off the United States because the United States imports more from them and they do from the United States. Such an intuition is useful in tribal societies where productivity cannot grow. It is, however, not applicable in a modern market economy where comparative advantages and free trade can benefit all parties involved, even those that import more – after all, by importing more, American consumers benefit from cheaper goods. Episodes like this point to a gap in our intuitive understanding of modern market economies. As Rubin noted in an article on “Folk Economics”, we neglect opportunity costs or the productive value of capital, simply because our ancestors did not have to engage with them. This also explains why the Marxist Labor Theory of Value feels intuitively correct: our ancestors only had labor as a productive factor, not capital. Thus, we tend to think that only labor creates value.

These intuitions are reinforced by our daily interactions with markets. In our everyday-lives, we tend to interact with the market as consumers and thus, we have no firsthand experience with the productive benefits it brings. We experience how we buy tomatoes at the supermarket, while they never buy tomatoes from us. The opportunity costs we avoid are not directly felt. We also see how prices rise (our agency-detector makes us think that they rise because of greed), while we do not see the thousands of processes that determine the price of goods. These beliefs are not idiosyncratic, but systematic. People without formal training in economics tend to think alike in these matters – and in ways that differ from the beliefs of economists. This is also not self-serving bias. Rich people think more closely to a poorer layperson than to an economist.

The Great Cooperative Engine

Because of this, markets have a bad reputation outside of economic circles. In a time of crises, with rising prices and lowering living standards for many, it is tempting to see the fault in free markets. But we must not forget that markets are one of the most successful vehicle to reduce poverty and improve living standards all over the world. The spread of free markets has lifted everyone, even the world’s poorest. This is not to say that they are doing perfectly. But we would be foolish to ignore the broad prosperity that markets have brought.

Importantly, markets achieve this by encouraging collaboration. Competition is needed to find the best collaborators, but the true increase in wealth happens once people work together. This has implications for some of the most pressing problems of our times. Rubin notes: Why are some people poor? A focus on the competitive story reveals that they are poor because they were out-competed, and perhaps their wealth was expropriated by the rich (after all, it is intuitive to believe that wealth on one side must necessarily cause poverty on the other side). But people are not poor only because others are rich. In fact, as Rubin argues, people poor because they have little or nothing worthwhile to sell—no capital, no marketable skills. This means that the poor are poor because they are unable to enter into cooperative relationships with others.

The greatest success of markets lies in their cooperative nature. If people are allowed to freely trade goods and services – a textbook example of cooperation – prosperity usually follows. But this is also where their greatest shortcoming lies. While markets have connected billions of people and allowed them to cooperate, they have not reached everyone. Too many have been neglected because, while markets reward those who have something to sell, they ignore those who have little or nothing. Those who rightfully criticize how much poverty remains in the world should not blame competitive markets for this situation. They should rather ensure that markets include everyone. The goal, then, must be to invest in people’s education and skills, so that they can cooperate with others. Then, free markets can also lift them out of poverty.