Competition: capitalism’s irrational engine

22 February 2023
April Holcombe

Why do we compete so much? Every year, tens of thousands of year 12 students have their academic merit precisely graded from top to bottom with an Australian Tertiary Admission Rank. We compete for our livelihoods—for jobs, housing and promotions. Companies compete in the economy for market share. Countries compete for global influence. The outcome of these competitions determines the fate of everyone in the world. Frequently, competition leads to war.

Since our lives are peppered with a million little contests for reward, it can appear that economic and military competition arise from the same essential human drive as in board games and swimming carnivals. After all, there are even contests for who can grow the most gigantic pumpkin (Stefano Cutrupi, 1,225kg) and who can eat the most hot dogs (Joey Chestnut, 63 in 60 seconds).

Darwin’s theory of evolution by natural selection—“survival of the fittest”—is still often raised as scientific proof that our nature is hardwired to see all others as rivals whom we must out-compete. Yet this is wrong. Capitalism has existed for only a few hundred years; humanity, on the other hand, has survived for more than 200,000. Competition was not a feature of society at all for most of that time, whereas it is now the central dynamic. The economic competition at the heart of capitalism breeds endless other forms—not the other way around.

This competitive drive is hurling us towards senseless civilisational destruction. It seems as if, despite knowing what is happening, we are powerless to stop it. Why? The answer lies within our market society.

Markets are an unplanned, chaotic scramble by private players to make as much profit as quickly as possible; almost all goods and services provided in our capitalist system are produced for a market. If something won’t make profit on a market, capitalists won’t invest in it—even if it is essential, useful or enjoyable for human life. The madness of capitalism is that some of the most profitable industries are the most destructive to our society: fossil fuels, military hardware, financial speculation.

In the idealised market system, anyone with enough money can set up a business and produce goods or provide a service to sell to others. If that business can make a profit that rich people deem a worthy return on their investment, the owners will be able to expand operations and make themselves rich as well. If their business makes low or unreliable profits, it will most likely go under or be taken over by a larger competitor.

Capitalists cannot simply mind each other’s business. “I don’t understand how anyone could have a billion dollars and feel like they need more”, is a common and sensible refrain from people the world over. Yet the greed of the world’s richest people is not a quirk of personality: it’s the logical consequence of producing for profit. They cannot quietly work in their corner of the marketplace, making only as much money as they deem sufficient for their own tastes. Capitalists are constantly fighting to stay ahead of the pack—so that investors are attracted by the high rate of return, and so that the business has the money to continue expanding and thus crowd out its rivals.

The effect of this competition over the longer term is to thin out the playing field. More profitable businesses get bigger. Bigger companies can afford more advanced machinery, can open more stores and can produce at vast scales that flood the market. They can then buy other companies and absorb them (as Google did with YouTube) or drive their rivals to the wall (as Facebook did to MySpace). The “mom-and-pop” grocers, butchers and bakers can’t compete with the convenience, prices and reach of Coles and Woolworths.

As smaller businesses are knocked out, a tighter and tighter circle of the super-rich come to control the national economy. Most industries in a country are dominated by three or four major corporations. Worldwide, there are fewer than 750 corporations that between them account for 80 percent of all business wealth. Silicon microchips, one of global capitalism’s most essential goods, have taken this to a whole new level. Building a single fabrication plant can cost US$20 billion. No surprise then, that a single company in Taiwan, TSMC, produces 55 percent of all the world’s microchips, and up to 90 percent of the most cutting-edge versions.

Contrary to the “wealth trickles down” slogan of the free marketeers, a gigantic flood of our social wealth is accelerating upwards. That is why, over the last four years, two-thirds of all wealth produced in the world has gone to the richest 1 percent, according to estimates from Oxfam International. And the wealth of the world’s billionaires is increasing by US$2.7 billion a day.

One percent sounds like a tiny minority—and it is. Yet in Australia, that is still roughly 250,000 people. After mining magnates Gina Rinehart and Twiggy Forrest, media mogul James Packer, Gerry Harvey of Harvey Norman and Andrew Pratt the cardboard box billionaire, that leaves 249,995 capitalists whom none of us have ever heard of. This army of shareholders, directors, CEOs and executives constantly press big business forward.

The overall competition may be driven by the big businesses, but this doesn’t mean that small businesses are playing a nicer game. Small businesses love to say, “We’re like a family here”. So does the Sicilian mafia. But because small business profit margins are often slim, and the owners don’t usually have deep financial reserves, the difference between a good and bad year is bankruptcy. Up to 60 percent of all small businesses in Australia fail in the first three years. To keep their heads above water, they must maximise output and reduce expenses. Small business owners are therefore some of the most cutthroat employers, as any worker at a local restaurant or cafe can tell you. In fact, a 2018 FairWork investigation found that 80 percent of all restaurants on Sydney and Melbourne’s busy streets were illegally underpaying their staff—and getting away with it.

Competition does not take place only between businesses. As individuals, no matter who we are, we have to compete in the marketplace. The current madness of Sydney’s rental market is a perfect example. At each property inspection, dozens of people are lining up with the desperate hope of getting a place to live. This should be a basic human right. People feel the pressure to outbid everyone else there by making a private offer higher than the listing. Meanwhile, 150,000 properties remain empty in the city, used as overpriced Airbnbs, or just kept empty to drive up scarcity and artificially inflate prices.

It’s the same for most necessities. To buy the things we need, we first need money. Most of us don’t have anything we can sell except our ability to work. So we have to go to a capitalist, big or small, who wants workers and offer our services to get the money we need to survive. Here there’s competition as well. A boss won’t hire Andy for $30 an hour if he can get Bilal to work for $25 an hour. If Carlotta offers herself for $22 an hour, then she’ll probably get the job. It’s a race to the bottom between the workers.

Supporters of capitalism say it goes both ways. Workers are free to join or leave any job of their own volition, they say. And if another boss offers better wages, they can poach that worker. But there is an obvious imbalance in the market economy. Workers are held to ransom by the fact that they risk starvation, homelessness, destitution if they do not sell themselves to someone. As workers, we can theoretically choose our boss, but we can’t choose not to have one. Bosses, on the other hand, have the advantage of capital on their side. They have assets and goods that they can sell to make money—assets and goods produced by the workers they hire. Even in the best of economic circumstances, there are always enough desperate unemployed workers to choose from and to compete for a job.

We can see the long-term effects of this endless drive to exploit workers harder. In 1975, a time that was, we are constantly told by politicians and the press, the economic “bad old days”, around 58 percent of all income produced in Australia went to workers’ wages. Nowadays, however, workers receive a record low of just 44 percent of all income created. This is because, as bosses have attacked trade unions (part of whose job is to reduce competition and increase cooperation among workers), workers have lost a lot of their collective power and been forced to act as individuals in the economy.

Capitalism is a global system. Economic competition spills over national borders—and it doesn’t remain purely “economic”. This is why modern history has been wracked by destructive and large-scale conflict: the colonial scramble for Africa, two world wars, the Cold War and the intensifying conflicts of the 21st century. The capitalist system of nation-states competing to give their corporations the strongest position in the world economy has led to an arms race that has been going on for more than a hundred years. Today, US$2 trillion is spent every year on militaries around the world, a fraction of which could provide clean drinking water to everyone on the planet.

The competition at the heart of capitalism is said to be essential for innovation and efficiency. There is no doubt that competition has driven vast technological changes over the last few centuries. Companies and states have tried to get an advantage over their rivals by finding faster and cheaper ways to produce more advanced goods and services, and greater quantities of them.

Yet the goal of this innovation has not been to improve the lives of working people. That is why labour-saving technologies such as automation and computers haven’t much shortened the working day, despite massively increasing economic output. Also, innovation is inhibited by being in the service of profit. Many goods, for example, are “innovatively” designed to break down or become obsolete so that people have to buy another in a relatively short time. And instead of sharing the results of research and development, private companies—whether in pharmaceuticals, computing or green energy—jealously conceal their findings and patent their inventions to prevent them being replicated or improved on.

Pooling human knowledge and science together would allow us to make qualitative steps forward: think of the rapid progress made in developing COVID-19 vaccines on the rare occasion that more collaboration occurred between the world’s most advanced medical research institutes. Yet in the end, the profit motive of competition was allowed to reign again: a handful of companies made billions and have since slowed the research into better vaccines.

In short, competition is not “natural”; it is naturalised because it is at the heart of how capitalism operates. The world would be a better place, and life would be much easier for workers, if cooperation were put at the heart of how we live and organise society.

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