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November 16, 2004
Profits are the Reward for Cooperation
Don Boudreaux
Metaphors, similes, and analogies are indispensable communication tools. But as with all else in this human world of ours, they have their shortcomings. One shortcoming is their ease of careless application – the use of a metaphor or analogy that seems appropriate but that is so far off the mark that it distorts understanding rather than promotes it.
Perhaps my pet example of an inappropriate analogy is one in which market competition is described as often consisting of big fish gobbling up little fish. If a local pharmacy or toy store goes out of business after Wal-Mart moves to town, chances are good that you’ll find a cartoon in the local paper with a big fish (labeled “Wal-Mart”) sporting a sinister smile as it opens its mouth to devour a small, cute, innocent fish.
This analogy is completely off the mark. Most obviously, no one is killed by bankruptcy.
Wal-Mart thrives only by satisfying consumers – and doing so in ways that also satisfy suppliers (including its workers). The same is true of every private firm in a market economy. If Wal-Mart satisfies consumers and suppliers more fully than do some other retailers, these other retailers might well lose so many customers that they must close up shop and find other, more valuable uses for their resources.
In one sense, this process is indeed competitive: each firm seeks higher profits by improving, relative to other firms, its ability to satisfy consumers.
But the term "competitive" too often distracts attention from a deeper and more important point about the essence of a market economy. This deeper point is that the market process is one of cooperation. Whenever a firm in the market increases its net worth, it does so by improving its cooperativeness with customers and suppliers. It becomes a better cooperator. It works better, more effectively, with its suppliers. It works better, more effectively, with its customers. The amount of cooperation is extended; the efficacy of cooperation is deepened.
We might truthfully say that profits earned in markets are measures of a firm’s success at cooperating. The better is a firm at cooperating, the higher are its profits.
Hugh Macaulay and I wrote a short article on this topic several years ago. Here’s the link.
Posted by Don Boudreaux in Myths and Fallacies | Permalink
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