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A New View of Competition


By admin - Posted on 12 February 2011

Nanook (italics) is talking to Ben From Scout to the Pole, ch. 8.

Competition - faults

“Next item, the concept of COMPETITION. So, tell me what you think the role of competition is in our society.”

“Hmmm . . . Sure. Actually, competition is all over the place. Competition keeps prices low. Competition pushes people to do better. It pushes companies to continually develop new products and to keep lowering prices. It pushes students to work harder in school. It gives athletes an incentive to push themselves to be better than others.”

“OK. Not bad. So, is it a good thing?”

“Good? Hmmm…. I’d say . …. sure. Competition is good.”

“Actually, that’s mostly right. Competition is truly a cornerstone of Capitalism. And, Americans have been brainwashed from day one to believe that competition is the solution to everything. So, you’ve been brainwashed into the fold. The more the merrier. Using single sentence logic, COMPETITION IS GOOD, period! And I’ll be the first to say that the proper application of competition IS one of the KEY TOOLS to keep our entire culture efficient. But! If you question how it’s applied in society in more detail, it’s a house with closets full of skeletons. Let’s look in just a few of those closets.

Competition – too many government bidders

Everyone knows that the government goes through great lengths to get multiple bids for contracts. Seems to make sense, right? In fact, at first glance, it seems the more bids they get, the better. That way they can get a lower bidder. But this is very narrow minded thinking.

Preparing bids for projects takes a lot of effort. That effort costs a lot of money. Let’s say there are 10 bids for one job. One company wins. Ra! Ra! The American way. But what about the 9 other companies who lost. Those 9 other companies have just taken a big financial loss. I’m not saying this just because they didn’t win income in the future. They just lost all the money they invested writing the proposal. Let’s assume that all of these companies are actually competent companies – about the same ability. If these same companies keep going through this process over and over again, and they each win, on average, about 1 out of 10 contracts that they bid on, that means they have to continuously absorb the amount of money they loose to prepare 9 out of 10 contracts.”

“Hmmm …. I never thought of that.

“Well the government has thought of that. So when a contract is won, not only does the government pay for the work listed in the contract, at a fair rate, they also allow huge, , ‘administrative fees’, so that these companies can recover their huge on-going bidding losses.”

“OK. I never thought of that. But I do understand it. But how big can these administrative costs be? So what if they add 10% or 15% to a contract. That seems reasonable.”

“Hah! Ten or fifteen percent. You don’t have a clue. Try 250%. I even saw a contract where the administrative fee was 430%. That is, the administration expenses approved were going to be 4.3 times as much as the total labor cost to do all the work. So, for example, a contract is placed for an engineer to work one year. His salary is going to be $8,000. With benefits, that’s $10,000. But on top of that, there is a $43,000 administrative fee for a total project cost of $53,000.”

“No wonder government contracts are so high.”

“High! You don’t have a clue! If there were more than 10 bidders, the losses would be higher. I remember a case where there were 100 proposals for each award at the National Institutes of Health. That means, society paid 100 times over for the proposal that won in that cycle. Are you just going to go along with that?”

“That’s unbelievable! I understand your argument, but what other choice is there?”

“Come on, Nanook. There are a lot of other choices because there are so many things wrong with the way this is currently being done. And the major reasons for all these wrongs are: a. there are so many squabbling idiots out there who can’t carry more than one thought in their heads at a time, and b. there’s money to be made! This is a system problem. And the goal of optimizing the system in favor of society is lost when individual corporate greed comes up. So where does the government take a position? On the side of society? Not a chance. They come down squarely in the corporate camp. And remember, this is NOT an enlightened camp. The corporations are run by pretty narrow minded people each focused on maximizing their salary. So they don’t care about waste in society or even waste in their own corporations. They are only watching out for number one. And the result is massive waste everywhere.

But, let’s not go down this rat hole here. My original point was that simply thinking COMPETITIVE BIDDING IS GOOD, is Single Sentence Logic. It’s a much more complex issue than that. AND, a lot of issues in society are just that complex. If the people, as citizens, don’t have the ability to understand complex issues, or they are too lazy to investigate the issues, then the government is going to pull the wool over their eyes every time, and the corporate leaders are going to run off with their lunch.”

“OK. But don’t leave me just hanging here. Tell me at least one better way to do this.”

“OK. Let’s ask some questions. What’s wrong with letting these companies do a lot of proposals if, in the end, they get paid for it?”

“Well, staying with your 1 in 10 example, and you said all the companies were competent, at least engineering wise I guess, then all the creativity in the 9 loser proposals gets lost.”

“Perfect. That’s one example. So, how could you fix that?”

“I guess you’d want to make all that creativity available to the winner to use. But boy, what a can of worms. If everyone knew that was going to happen ahead of time, they wouldn’t put any of their real clever ideas in the proposals.”

“Come on Nanook. Don’t give up so easily. Why wouldn’t they want to give up their great ideas?”

“Why wouldn’t they want to give up their great ideas? What kind of stupid question is that?”

“Come on Nanook. Humor me. Why?”

“Because they’re running a company. Great ideas are the key to them making money.”

“But you didn’t say they should just give the ideas away. You just said they should be made available to the winner.”

“Hmmmm…. So, for example, the winner gets to see all the creative ideas, and gets to use them, but they have to pay the originator to use them.”

“Now, that wasn’t so hard, was it? So, why hasn’t society done something like that? Let’s look at how human psychology leads into this.

Win-win

Have you ever heard the idea called the ‘win-win’ approach?”

“Sure. So, now I see where you’re going with that. Now the, quote, ‘losers’ turn into winners. They don’t get the whole pie, but they actually DO get paid for their creativity.”

“Correct. And the more of that, that goes on, the less the government has to give everyone in ‘administrative fees’. But my major point is, the delivered product finally ends up better because it uses the best ideas of 10 companies instead of just one.”

“Well, doesn’t this sort of happen anyway? I mean, a lot of aircraft have parts from many companies.”

“Sure, but the process ought to be made formal and applied to the whole range of government contracts and grants.”

“OK. Fair enough. There’s a lot of improvement that can be done.”

“Bingo! But don’t just get stuck thinking this is a one issue solution. There’s a broad principle I laid on you. Did you get it?”

“YES SIR. I sure did. SYSTEM THINKING for one. Minimizing waste to the whole society, I guess, is another.”

Efficiency

“Bingo! EFFICIENCY! Start remembering those major principles. Some competition is good. With our current system, too much is bad and the waste grows in proportion to the number of losing competitors. And this same approach doesn’t only apply to the government. It should apply to every part of our society.”

“OK. I can understand how it might work with big government contracts. But how would it work with universities. These guys are as secretive as can be. Publish or perish and all that.”

“Another can of worms, for sure. But who are we blaming for this, the Martians? This is a problem of our own making. And it isn’t getting solved because greed, ignorance and corruption are in charge. No one is looking at the SYSTEM ISSUES.”

“But, no one has ever, really, done that, have they? I mean, no one ever actually SET UP a society. Every thing we see sort of just happened on its own. It evolved from some more primitive model.”

“Oh yeah? Did you ever hear of a thing called the Constitution of the United States? Wasn’t that a new beginning? Clear the decks and let’s get it right from square one?”

“Hmmm … I must be getting hungry again. How about jamming a few boots down my throat!”

Cooperation – too many bidders – commercial

“You’re OK Nanook. Do you see how simple it is to overlook stuff. I’m not saying it’s an easy process. But we can do a whole lot better than we are. When there are too-many-bidders, competition fails in the commercial world just like it does in the government world. This happens when greed drives too many companies to rush in to grab part of a new market.”

“But isn’t this the way competition is supposed to work? New companies come in with better products and drive the other ones out of business. That’s how capitalism is supposed to work, right?”

“Single Sentence Logic! And what happens to the workers in the companies that fail?”

“Oh! I see what you mean. Maybe they can get unemployment for awhile, until they find another job with the better company?”

“And, what happens when the competition isn’t in the same town? What if a new more efficient lumber mill opens up in another town?”

“Hmmm… I see what you mean. Then the town collapses.”

“Bingo! Too bad about all those peon workers. But there is another, much more sinister catastrophe that happens way too often. What would you do if your company was being squeezed out of a market?”

“I’d find out why and do a better job.”

“Right. But most people aren’t like you. What if, instead of doing better, a company tries everything they know and are still failing? Don’t you think they might get desperate? Don’t you think they might decides to go to the dark side? What if they start cheating on their accounting, lying about their quality, robbing their suppliers. Then what?”

“Well, I guess they eventually get caught.”

“Eventually, maybe. But what happens in the mean time? What if they’re paying off the police and the courts? What happens when the company that is operating in illegal ways brings their prices down? What happens to the other companies in the area?”

“Ah! I see where you’re headed. The good companies have to match that. And if it’s illegal methods that give the first company a big lead, then the other companies, who will probably figure out what’s going on, will also have to go to the dark side to survive. I mean, because they can’t go to the authorities who are part of the scam.”

“Bingo! So, you’ve got a strange problem here. If the legal system is part of the problem, which I claim is always the case, then all it takes is one rotten apple to bring the whole industry down.”

“And I’m guessing you’re implying that this happens more than people want to admit?”

“Hello! Las Vegas? Organized crime? The unions? But it also explains the demise of major industries – banking scandals, investment scandals, the collapse of medical care, the sell-out of the universities.”

Cooperative competition

“What? What do you think is wrong with the universities?”

“This is another all day discussion. But let me just comment on the competitive part. I want to introduce you to a new concept. I call it COOPERATIVE COMPETITION.”

“Cooperative competition? Sounds like an oxymoron to me.”

“Right. So, here’s an example. Two runners are, quote, ‘competing’ in the Olympics. Are they actually competing?”

“OK. OK. I can’t help smiling. This is genius. Sure, they are competing. Each wants to win the gold medal. But there’s a whole second issue going on. In such an event, I’m going to run my best when I’ve got someone else right on my heels pushing me. So, in a way, my competitor is actually my best supporter.”

“Bingo! Yes, you are ‘competitors’ in some form. But you are also cooperating. And, in this case, there’s an easy rule to understand why. In this case, the true challenge for both of you is NOT beating the other guy. It’s not the Gold Medal. The challenge is the CLOCK, or the yardstick, or an accuracy measure. It is something outside of you that creates a WIN-WIN situation if you support each other.”

“So, if you call this Cooperative Competition, what do you call the other kind.”

“I call it PREDATORY COMPETITION. With a predatory system, one person can only win if another is hurt or destroyed.”

“But this seems to be the way most of our society is structured.”

“BINGO! And when is society going to figure this out?”

“Hmmm . . . but . . . well . . . . ugh . . . .”

“Having a hard time with those boots in your mouth, are you? Look, Nanook. Again, I’m not saying this is easy. But current society is selling out to greed, corruption, religion and superstition. We’re going back to the dark ages. We’re turning our back on logic and reason. Think GREEKS! That was the most shining philosophical and social revolution in the history of man. Humans haven’t lost the ability to have great thoughts like the Greeks did. We are just selling out.”

“OK. But, it seems . . . I mean . . . so, how can we all cooperate without also becoming socialist?”

“Alright. I won’t pick on you this time. To really understand this, a person has to study it some so the language becomes intuitive. Your question isn’t actually so hard if you go back to the Olympic model. And by Olympic model, I’m not talking about all those subjective events that have been added on, like ice dancing. Stay with things that are measurable. Also stay, for now, with things that seek to break new ground.”

“OK. What about the phone company. The government ought to break that monopoly up and let lots of others compete. So, how do we make that parallel to the Olympics?”

“The first approach is to actually look at how the Olympics is structured. For example, no one thinks much about the infrastructure. The track they run on, the pools they swim in etc. Those are always state-of-the-art. But no companies are living or dying building those. So, with the phone company, they probably ought to divide the cutting edge challenges from the basics. Let one part of the industry take care of the copper wire and telephone poles. Let another group of companies make the components. But let the universities and other industry companies, compete to develop new products.

Competition - predatory - need for limits

So, let me summarize this. When predatory competition is allowed to run without restraint, it has fallen into an authoritarian, single winner evolutionary model focusing on business interests. The goal is to make a few business owners very wealthy. It is NOT focused on optimizing the value for the society. If we were doing that, the only underlying goal would be to stimulate enough initiative to develop new products at a healthy rate.

Patents

“Keep going. The universities and industry developers will still try to eat each other alive.”

“Correct. But there’s nothing wrong with that, as long as there is a mechanism to make sure they are rewarded for making new breakthroughs rather than killing off a competitor. And, in fact, there is such a mechanism. It’s called the patent system. With patents, once you make a breakthrough, you are rewarded for that breakthrough for a specified period of time – currently 17 years. Someone else can use your invention, but they have to pay you for it.”

“I see what you mean. This is tough. But I haven’t spent much time thinking about it either.”

“Unfortunately, while the concept of a patent system in the world has a lot of merit, the implementation has a lot of major flaws. For example, just a small improvement might create a new product feature that people really want. So company B produces a new product that has the new feature. But, company A’s product had many good features as well. The new product can’t use them because of patent protection and the old product can’t be revised to use the new improvement for the same reason. So the consumer always get’s caught in the crossfire and get’s screwed with a sub-optimal overall product.”

“So, you’re saying, the patent system is implemented in such a way that it creates this deficiency?”

“Bingo! So this needs to be fixed. The Japanese actually handle this much better than we do. While they have patents, their general approach does not block companies from using other peoples inventions. What they do require is that companies who use a patented idea compensate the inventor company. So, all the players are going to benefit by every new improvement. The inventor company gets a royalty; the production company sells products; AND the consumer gets the best overall value. WIN – WIN – WIN. And the KEY principle here is what?”

“Hmmm. . . Oh yeah. VALUE! Just like in the stock market discussion.”

“BINGO! You’re OK Nanook. VALUE. Always design the overall system to reward VALUE CONTRIBUTION rather than domination. There is so much we are losing by blindly applying the predatory approach. Consider the whole way we handle politics. Each political party supposedly selects the BEST candidates AND the BEST resolutions to current social problems. We then hold an election focused on just 4 people, two sets of Presidential candidates. The results come in, often pretty close to 50:50, which means the public believes the two sides are about equal. There’s only a slight difference. Then what happens? We only use half of the best. We throw the other half of the best people away and half of the best solutions as well. ‘To the victors go the spoils!’ Sure. And the public gets screwed.

Bankruptcy – upper class rewards

But the greatest tragedy of all is in general commerce. Most people don’t understand the basic principles of how capitalism is supposed to work. One of the basic principles in the free market is that good companies are supposed to grow and succeed, while lousy companies are supposed to shrink and FAIL. What do you think about that?”

“I don’t know. I guess it makes sense.”

“ Think, man! Use your head!”

“Hmmmm . . . “

“OK. I’ll give you a hint. Think SYSTEMS. Think about all the parts.”

“Hmmmm . . . OK. Every company that fails is made up of lots of people. They can’t all be bad. In fact, from stories I heard from Bill, MOST of the people in companies are good people. The reason companies fail is because of poor management.”

“Right. So, what happens to all the working people?”

“OK. OK. You’ve made your point. In the current system, I can easily guess. The management of the failing companies scarf off most of the cash. So they get a big reward. The workers and stock holders get blown to the wind.”

“BINGO! Justice in action. And what determines how all this happens?”

“Hmmmm … I guess, the free market.”

“Buzzzzz! I’m so sorry Mr. Nanook. That’s the wrong answer. That’s what everyone is told. That’s the party line. That’s part of the brainwashing. The real truth of the matter is that every detail of what happens to both the management and the blown away workers and the stockholders is controlled by U.S. law.”

“Hmmmm . . . I guess that’s so. So, why isn’t the law constructed to make this more fair?”

“Why indeed? Think back to what we talked about. Think back to what I told you about the government contracts, the universities and the lawyers.”

“OK! OK! Our government is corrupt and is constructed to permit and support more corruption. All the laws are set up to protect and reward the upper class, even when they do a very bad job at running things.”

“That’s the gist of it. There’s a book written by Robert Ringer called Winning Through Intimidation. The way he describes this is as follows:”

“Successful men rarely know the reasons for their success, even though they always think they know. They repeat the standard myths as a conditioned-response.”

“And most of these successful men come from wealthy families and go through prestigious universities. The system is set up to protect them.

Now I’m not saying that there are NO laws in place to address any of these problems. Over time, there have been some broad thinking people who have made strides forward. For example, related to the workers, there is something called unemployment insurance and there are government employment agencies. But these are both just token activities to act as smoke screens so the public won’t demanding real protection.”

“Like what for example?”

Unemployment insurance

“For example, there are no laws that force companies to guarantee pension plans. So, if a company is about to go bankrupt, it can raid its pension money to pay off the executives. People who have worked for years with a promise of getting a retirement pension get nothing. Also, the unemployment benefits are nonsense. They don’t begin to cover what people need and they only last 12 weeks.”

“Well, I don’t know much about that stuff, but it seems like 12 weeks would be enough to get a new job.”

“It does? Come on. Think SYSTEM. Look at the parts.”

“OK. OK. I guess my first question would be to ask does 12 weeks always makes sense?”

“Very good.”

“I guess, it would make sense for a simple job in a community that had lots of job openings. But what about small towns? What if a mill or a mine closes up and that’s the only job in town? I’d guess that in a case like that, those people would need a lot more than just a few weeks of minimum wage. In fact, they may need help moving to another town.”

“Now you’re getting it. This is the kind of thinking that Karl Marx and others observed a hundred years ago. But despite popular myths, the U.S. constitution was not written to provide social justice. Sure, the politicians will tell you it was. They’re the foxes guarding the hen house. The Constitution was actually constructed to protect the upper classes from the masses. Freedom for the masses was an afterthought. As you know, the whole Bill of Rights was added to the Constitution later with great protest and tribulation.”

“So, now it sounds like you’re going back to making an argument for socialism.”

“Absolutely not! What I’m telling you, and what we’re discussing right now, is that Capitalism, and especially how Capitalism is practiced in the U.S. is as bogus as Communism is implemented in Russia. It’s a big fraud. The Communists came into power riding on the coat tails of the Communist Manifesto, and then proceeded to implement Communism in a way that would make Karl Marx roll in his grave. The same is going on in this country. Capitalism is being implemented by a corrupt government to protect the wealthy. And the foxes will do everything they can to keep the wool over the eyes of the public. And remember, this is not an organized conspiracy. It’s driven by individual greed.

But more important, even if Capitalism were implemented in a pure form, it wouldn’t work. Let me read you a paragraph from another book. Let’s see . . . where is it . . . . OK. This is from Eric Hoffer’s Passionate State of Mind. Page 44:”

“Society is not conscious or educated about the real rules. Rules are not built into the law from a system standpoint to allow soft failure. We need protection from ruthlessness at the point of failure. Companies are supposed to fail. Management is supposed to accept failure with honor.”

“And that’s the big challenge the world faces. Bankruptcy is part of a process. We aren’t taught that in school. Why? Primarily because the lawyers don’t want others on their turf, especially the public. They don’t want it to be understood and handled in a streamlined fashion. But more importantly, NO ONE has developed the whole Capitalist social model into an equitable and workable form. We have to move away from the current Capitalist model.”