Courses

Social Cooperation: Why Thieves Hate Free Markets

Speakers
Aeon J. Skoble,

Release Date
January 27, 2012

Topic

Basic Economics
Description

Many believe that market economies create a dog eat dog environment full of human conflict and struggle. To Prof. Aeon Skoble, the competition in markets does not create conflict, but rather, encourages people to cooperate with one another for mutual benefit.

For instance, suppose a thief steals a suit from Macy’s. If Macy’s knew who the thief was, one could argue that Macy’s has an incentive to keep this information from their competitors. By withholding information about the thief, it would make it much less likely that thief would get caught while robbing Macy’s competitors. However, in the real world, competitors share information about theft with one another, creating a valuable information network. Competitors share information because it is in all of their mutual interest to crack down on theft. If a business chooses to ignore the information network, they lose out on valuable information.
The example above is just one of many examples where competitors have a strong incentive to cooperate with one another. In a certain way, we’re all merchants who trade with one another. We all individually depend on networks of reputation and trust to own a car, own a home, and have a job. In a world of competition and scarcity, we are not only capable of cooperating with one another, but we frequently do.
These voluntary systems of social cooperation, often called organic or spontaneous orders, are not planned from the top down by enlightened rulers. Rather, they emerge overtime as individuals interact with one another. These spontaneous orders are all around us, and include important things like language, fashion, internet memes, prices in a market, and law.
Going back to the suit thief, it may very well be the case that some individuals abstain from crime because of the threat of jail. However, it is also very likely that crime is prevented through networks of trust and reputation. The next time you hear that the problems that society faces can only be solved by applying force from the top down, you are right to be skeptical. Peaceful and voluntary mechanisms that encourage and facilitate cooperation are all around us.

Social Cooperation: Why Thieves Hate Free Markets
I know how to get a free suit. All I have to do is go to Macy’s, get a suit, charge it, and then when the bill comes, rip it up. Ethical issues aside, you see the main problem with this approach is that I can only do it once. The next time I go to Macy’s, they’ll know, because they made a note of it last time, that I rob suits and they won’t give me another one. But I have a clever idea. I’ll go to Penney’s and get a free suit there. Hang on, when I try to get my free suit from Penny’s they won’t give me one either. Macy’s has told them that I’m a suit thief. That’s odd. One view of the marketplace is that it’s a dog eat dog world of hostile competitors. The philosopher Thomas Hobbes saw the whole world that way.
Since Macy’s and Penney’s are competitors, you might expect that Macy’s would hope that I would rob Penny’s next. That would even things out. But they don’t. In fact, they share information about thieves. They have figured out that in the long run it’s in their mutual best interests to help each other crack down on theft. That’s more important to them than short-term getting even. If they didn’t share what they know, they would be cut off from a tremendous information network about theft. So helping the other guy isn’t contrary to their self interest at all. Despite their being competitors, they have a strong incentive to be cooperative.
Even more interesting is that they came up with this system on their own. It wasn’t a grand design by enlightened rulers, a top-down plan. Rather it was a bottom-up system that evolved organically by the merchants as they figured out how to manage their affairs.
Long before the advent of the department store, merchants realized that cooperation among competitors was an absolute necessity. So many mechanisms in their world depend on trust and reputation issues. Not just in their world though, in mine and yours. When I first told you my plan for getting a free suit, you might have objected that I ought to be afraid of being jailed. And that seems to require a government with a top-down plan.
But even if the fear of jail were taken out of equation, I would still have good reason to pay my bill. The same networks of trust and reputation that the merchants depend on are things that I depend on as well, to have a job, a home, a car; to be able to buy plane tickets or go to a restaurant. In an important way, we are all merchants. We all trade with each other. Not only are we capable of cooperating, we generally do.
Society is full of these organic or spontaneous orders. Everything from language to fashion. From Internet memes to prices in a market. The basic concepts of Anglo-American common law, as well as the international merchant law, evolved in a similar fashion, the result of people’s attempts to work out the most mutually beneficial ways of living and working together. So when people tell you that society can’t solve its problems without force applied from the top down, you’re right to be skeptical. Mechanisms that facilitate and are based on social cooperation are all around us.


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