Competition Is Over-Rated In Capitalism

One of the biggest criticisms I have heard from the anti-capitalist crowd (which I was once a part of in my younger years) against capitalism is that it is all about competition. Capitalism has no room for cooperation, or so we are told in the countless business and marketing books and courses (The Art of War) which focus primarily about how to beat the competition.

Yet, this is a gross misunderstanding made by both anti-capitalists and pro-capitalists. Capitalism is not about valuing competition over cooperation. It is about having freedom to decide how to engage in the marketplace, either employing competition or cooperation or typically some fluid combination of both.

Capitalism is the only system where voluntary economic cooperation can exist. Collectivist societies will place extensive social pressures on its members to “play nice”. This will determine what you are allowed to produce, who you are allowed to buy from, and who you are allowed to sell to. In a collectivist society you might not be allowed to sell your product to a particular region because they are not part of your social or ethnic group. The essence of being collectivist and having a common identity also means that there will be some kind of exclusion, since most collectivism is based on ethnic, familial, or religious identification.

Along comes capitalism which turns the old equation on its head because each person is now allowed to choose for him/herself the extent that cooperation and/or competition is practiced. It does not place a value of one over the other. But because most humans are social creatures, capitalism is based on far more cooperation and trust than competition.

One example is a story that a friend told me. He works for a major courier company and told me how the largest courier companies have cooperative agreements with each other to divide up geographic territories to save costs and create efficiency. While some may say that this is an example of collusion, I would argue that it is an example of cooperation. These companies have decided that competition is not in everyone’s collective best interest.

A personal favorite example is where software firms have successfully established themselves by giving away their product for free. They are not even competing on the basis of price, but instead by providing a relationship through the use of their product. It is because capitalism allows people the freedom to choose how to conduct themselves, the Open-Source concept is alive and well.

Another example of this cooperation and trust taking place is that the basis of marketplace transaction is contract law. Companies will compete with each other but they do so by pursuing the most lucrative contracts, with investors, customers, and suppliers. The essence of any contract is about trust, partnership, and cooperation. The company who successfully cultivates the most successful relationships becomes the market leader. Unlike warfare where opponents actually battle directly with each other, capitalism diffuses this direct conflict by having the would-be competitors to play to their own strengths.

This happens because full-frontal, outright competition (like price wars) is exhausting and harms profitability. Instead, companies will participate in “monopolistic competition” where they each tries to carve out an economic niche (just like a species does in an ecological one) to survive and ultimately grow. Companies spend billions of dollars to figure out ways to distinguish themselves so they can find ways to not directly compete with others.

In this way, Capitalism emulates the flexibility of an ecological system, tolerating diversity, allowing both competition and cooperation to co-exist and at times be partners in a fluid dance. Capitalism may get all of its press from hyped-up gladiatorial competition, but this distorted image ignores the immense cooperation that has allowed it to exist and thrive.