Is competition good?

From Thiel’s Zero To One:

The prob­lem with a com­pet­i­tive busi­ness goes be­yond lack of prof­its. Imag­ine you’re run­ning one of those restau­rants in Moun­tain View. You’re not that differ­ent from dozens of your com­peti­tors, so you’ve got to fight hard to sur­vive. If you offer af­ford­able food with low mar­gins, you can prob­a­bly pay em­ploy­ees only min­i­mum wage. And you’ll need to squeeze out ev­ery effi­ciency: that’s why small restau­rants put Grandma to work at the reg­ister and make the kids wash dishes in the back. Res­tau­rants aren’t much bet­ter even at the very high­est rungs, where re­views and rat­ings like Miche­lin’s star sys­tem en­force a cul­ture of in­tense com­pe­ti­tion that can drive chefs crazy. (French chef and win­ner of three Miche­lin stars Bernard Loiseau was quoted as say­ing, “If I lose a star, I will com­mit suicide.” Miche­lin main­tained his rat­ing, but Loiseau kil­led him­self any­way in 2003 when a com­pet­ing French din­ing guide down­graded his restau­rant.) The com­pet­i­tive ecosys­tem pushes peo­ple to­ward ruth­less­ness or death.

Scott Alexan­der replies:

So mo­nop­o­lies’ ad­van­tages in­clude be­ing bet­ter for em­ploy­ees, more so­cially re­spon­si­ble, and able to en­gage in long-term think­ing. The clas­sic ex­am­ples of this (which I don’t think Thiel brought up) are Bell Labs and Xerox PARC. Two mo­nop­o­lis­tic com­pa­nies with more money than they knew what to do with started su­per-ba­sic-blue-sky re­search cen­ters that ended up cre­at­ing many of the tech­nolo­gies that shaped the mod­ern world
On the other hand, all of the clas­si­cal dis­ad­van­tages of mo­nop­o­lies are still there. Mo­nop­o­lies re­move the pres­sure to do a good job – whether that’s in keep­ing prices low, keep­ing work­ing con­di­tions tol­er­able, or in keep­ing prod­ucts and ser­vice high-qual­ity. They lower the di­ver­sity of an in­dus­try, mak­ing it more likely to get stuck in an evolu­tion­ary blind alley it can’t get out of; they in­crease the risk of merg­ing with gov­ern­ment into a crony cap­i­tal­ism. A wolf sheltered from sur­vival-of-the-fittest for too long be­comes a Chihuahua; Ama­zon sheltered from sur­vival-of-the-fittest for too long be­comes the DMV.

And does a myth­i­cal take on it:

I don’t think this is one of those is­sues that’s go­ing to get de­ci­sively solved in a few para­graphs. Moloch and Slack are the new yin and yang, the new chaos and or­der; their in­ter­play cre­ates the Ten Thou­sand Things. Err too far to­wards com­pe­ti­tion and ev­ery­one works them­selves to death in gar­ment sweat­shops; err too far to­wards monopoly and ev­ery­one sits at a desk filling out forms and back­stab­bing each other un­til the lights slowly go out. It’s only in the col­li­sion zone be­tween the two that any­thing in­ter­est­ing ever hap­pens.

This post will at­tempt to de­ci­sively solve it in a few para­graphs.

You have a restau­rant. It’s a lo­cal monopoly, and you’re run­ning de­cent prof­its. A new restau­rant opens down the street. Some of your cus­tomers are di­verted, so you lower your prices. You can no longer buy that sweet Fer­rari.

You have a restau­rant. It’s a lo­cal monopoly, and you’re run­ning de­cent prof­its. A new restau­rant opens down the street. Some of your cus­tomers are di­verted, so you lower your prices. You have to can­cel most of your dona­tions to AMF.

In the first ex­am­ple, we can be rea­son­ably sure that com­pe­ti­tion in­creased value. In the sec­ond ex­am­ple, we can be rea­son­able sure that com­pe­ti­tion de­creased value.

So here’s a lemma: low com­pe­ti­tion is a good thing iff the in­creased prof­its are spent on some­thing more valuable than dis­tribut­ing it among cus­tomers. Or let’s put it this way: more re­sources to peo­ple that cre­ate above-av­er­age value is good. Let’s call this type of per­son a “good” per­son.

What makes a “good” per­son?

Let’s as­sume that “good­ness” is largely de­pen­dent on in­cen­tives. There might be some resi­d­ual fac­tors like na­ture and habits, but these are gen­er­ally small vari­a­tions on the sta­tus quo that is dic­tated by the in­cen­tive land­scape.

In­cen­tives can be in­stru­men­tal and ter­mi­nal, and the ter­mi­nal ones are usu­ally called “needs”. Maslow was a pi­o­neer in this field, but the most up-to-date list of needs that I can find is this 2011 pa­per. It says:

  • There is in­deed an or­der­ing of needs, so that hu­mans tend to take one at the time in an or­der that is roughly the same across peo­ple.

  • The needs iden­ti­fied, in or­der of pri­or­ity:

    • Ba­sic (be­ing able to af­ford food and shelter)

    • Safety (feel­ing safe walk­ing alone, not hav­ing any­thing stolen, not be­ing as­saulted)

    • So­cial (ex­pe­rienc­ing love, hav­ing oth­ers to count on in an emer­gency)

    • Re­spect (feel­ing one is treated with re­spect, be­ing proud of some­thing)

    • Mastery (hav­ing the ex­pe­rience of learn­ing, do­ing what one does best at work)

    • Au­ton­omy (choos­ing how one’s time is spent, ex­pe­rienc­ing free­dom in life)

The idea of hi­er­ar­chi­cal needs is that, as long as you don’t have need i satis­fied, you won’t re­ally care about needs {i+1, …, n}. Some­one who is strug­gling to gain re­spect, won’t care as much about au­ton­omy. Some­one who is try­ing to feed them­selves, won’t care as much about safety.

You have a restau­rant. You’re hardly get­ting by. A new restau­rant opens down the street. Some of your cus­tomers are di­verted. You need to sur­vive, so you lower your cost price by se­cretly dump­ing your ex­cess waste into the river.

Con­versely, even if your needs are satis­fied up to i, you will not be able to al­low things that threaten these needs:

You have a restau­rant. It’s a lo­cal monopoly, and you’re run­ning de­cent prof­its. Many peo­ple in the neigh­bor­hood love and re­spect you for pro­vid­ing them with this ser­vice. You lobby with the lo­cal coun­cil to make sure no one else can open a restau­rant near you.

So an in­cor­rupt­ible per­son is one that has all of their needs met, but doesn’t de­pend on any­thing for it. They can always make the moral choice, be­cause no choices are in­com­pat­i­ble with the foun­da­tion of their well-be­ing.

Which needs lead to al­tru­ism?

Of the needs listed, I imag­ine that “re­spect” is the one that is most im­por­tant for mak­ing peo­ple al­tru­is­tic. It seems to me that re­spect is mostly a mat­ter of fit­ting into the val­ues that your lo­cal cul­ture cel­e­brates. Now this could be own­ing a Fer­rari, or it could be donat­ing to AMF.

A cul­ture can be seen as an agent, with its val­ues be­ing its op­er­at­ing sys­tem. A cul­ture which val­ues al­tru­ism will do bet­ter. This is one way in which al­tru­ism tends to make you bet­ter off: it will make you grav­i­tate to­wards the peo­ple that value it too, sur­round­ing you with al­tru­is­tic peo­ple. This is a Dar­wi­nian pro­cess: al­tru­is­tic cul­tures win, and cul­tures that win grow. Those that are in­vested in it grow along with it. But your in­vest­ment only pays off when you are ac­tu­ally val­ued by the cul­ture. This is, in my model, why peo­ple care about al­tru­ism at all.

When is com­pe­ti­tion good?

You have a restau­rant. It pro­vides you in­come. Peo­ple love and re­spect you for it. Work­ing in the kitchen gives you a sense of mas­tery. You’re free to do it your way. A new restau­rant opens down the street. Without your restau­rant you are as good as dead, so you com­pete to the death. You dump your waste into the river, use the cheap­est in­gre­di­ents that are su­per toxic, put out an­noy­ingly flashy ads for your restau­rant. If all else fails, you are ready to have your op­po­nents kil­led.

You have a restau­rant. It pro­vides you in­come, but you could opt for a ba­sic in­come pro­gramme in­stead. Your lo­cal com­mu­nity has a cul­ture that val­ues un­con­di­tional love. It also cares a lot about con­se­quen­tial­ist util­i­tar­i­anism, and by fit­ting in that be­lief sys­tem you get your re­spect. You get a sense of mas­tery out of your hob­bies. A new restau­rant opens down the street. You find that cus­tomers like it bet­ter. You put some effort into up­grad­ing your ser­vice, but to no avail. You con­grat­u­late the owner and thank them for im­prov­ing upon your work. You set off to find a new job that cre­ates value. The kind of value that your com­mu­nity rec­og­nizes.