The merits and tyranny of Competition

Animals have no choice but compete but do humans need to? Of course yes but to what extent and how is what I mean. And certainly animals too cooperate to an extent both with members of their own species and also other species.

If I understand Libertarianism correctly, its support for competition and free markets is because such an environment maximizes individual liberty, which is the ultimate end for this school of thought as the name  itself suggests. And so even to the most diehard supporters of free markets, competition is not an end but only an instrument for achieving a higher end. Of course when it fails to do that the people from this school will say that even if free market competition fails to deliver the best outcome that doesn't mean government intervention can do better and might likely do even worse and they end up arguing for competition anyway. For its cousin, the Utilitarians too, competition is an instrument to achieving a higher end but that end is some fuzzy notion of aggregate well being and they would be willing to take away some liberties for the larger social good however they conceive it. 

As for the socialists and communists, well unfortunately, my economics education, was largely neoclassical (evident from my lumping the two together), and did not expose me to as much of it as the former or any of the heterodox schools with the exception of ecological economics and so I am still educating myself. But in my limited understanding competition seems a more difficult theme to integrate into the socialist conception compared to with Libertarianism or Utilitarianism for it is more about the collective. However, I am sure for socialists too it has to be an instrument to a higher end if at all. So competition obviously has a lot going for it but my aim here is to present a few reasons as to why we need to be less sanguine about espousing it carelessly. 

Merits of competition

First and foremost is that the very notion of competition implies fairness. As someone who loves sports, I immediately associate it with competition in sports where everyone plays by the same rules, at least when a million camera's on them

Second is the slightly more sophisticated but in practice more bastardized idea of efficiency. Efficiency is simply about getting the most out of what we put it in - effort, time or resources with the corollary being inefficient implies all sorts of things such as lazy, slow, wasteful and incompetent. In an economic sense, competitive markets are efficient of course given some ideal conditions that dont exist in real world.

Third, competition is about overcoming struggle. It is only when you overcome struggle you get better. And this is intrinsically good in addition to being instrumentally good for learning to overcome future struggles. It is intrinsically good for one's own fulfillment or realization of the purpose of life. While we might all seek pleasure, we also value that which is earned by overcoming hardship more. We dont simply want to live in a pleasure machine like Nozick argued. A similar expression from John Stuart Mill is - "It is better to be a human being dissatisfied than a pig satisfied; better to be Socrates dissatisfied than a fool satisfied. And if the fool, or the pig, is of a different opinion, it is only because they only know their own side of the question.” This is not to say the life of a pig is free of struggle.

Among these attributes of competition, I put fairness and overcoming struggle above efficiency because it is not per se about outcomes or consequences but  seems inherently or intrinsically proper regardless of outcomes. That what is fair or just leads to better longer run consequences is only an instrumental reason for what is right and not the intrinsic reason for why what is fair is what is right. As someone who has been exposed to Vedanta , it is consistent with the philosophy of Nishkama Karma expounded in the Bhagavad Gita.  In fact most people who are consequentialists will prefer that the right outcomes also result from a fair process. This is why we tolerate democratic processes and a legal system based on innocent until proven guilty even when these occasionally seem to throw up unpalatable outcomes. With fairness, the outcome is endogenous while the process is exogenous.

In contrast, under the notion of efficiency, the outcome or end is exogenous while the process is endogenous which means one could resort to any means if the end goal is desirable or virtuous. It is what we seek to achieve efficiently (in the case of economics it is some fuzzy notion of overall welfare, often reduced by the mediocre or selfish, which is not all but most who have been exposed to some economics unfortunately, to something as crude as GDP). For economists, markets foster competition and competition leads to efficiency and efficiency means maximizing overall welfare for efficiency means we bake the biggest pie possible and a bigger pie also means we can have more redistribution.

The downsides of competition

The real world of course is more messy compared to the abstract and theoretical world which is necessary. It is important not to miss the forest for the trees but you cannot also describe a forest without understanding trees. So the merits often tend to be reductionistic and general while the demerits arise from the nuances and complexity of the real world.

1. Competition is not fair when there are inequities to begin with. If you are born less lucky (in a poor household or a household that is less than desirable)  

2. Competition is not efficient if conditions are not right. Asymmetric information, unpriced bads (like pollution) and goods (like knowledge production), monopolies, etc. If such conditions are not rectified then unfettered competition will not produce the best outcomes

3. As to what is worth competing for is something that individuals and society needs to determine for themselves. This requires wisdom, experience, judgement, developing one's own ethics and morals 

4. There is little empirical evidence that the greatest of advances that have been made technologically or socially would not have resulted without people competing to succeed and certainly a lot of it can be put down to curiosity (for inventions and discoveries prior to 20th century) and in recent times the biggest ones are due to public investment.

5. Markets are rarely competitive at least for the most important things that matter in life - health care (we know what coke cola costs before you buy but no one can tell what a bandaid will cost in a hospital), education (if your parents aren't wealthy enough to rent let alone buy a home in a good school district, your life prospects get cut even before the umbilical cord is severed upon your emergence), safety (last I checked we depend on publicly funded police and fire services), being able to travel (dont see any real competition - cars don't really compete with air travel which does not compete with ships), energy (your electricity supplier is a local monopoly and oil markets are not) and certainly not housing (havent you heard the cliche no two homes are same!). For everything else there is the mathematically elegant world that one is taught in Economics 101.

6. Everyone is trying to escape it. But the ultimate indictment is that no one wants to keep competing all the time. Even when not doing anything unfair to not compete, people are trying to escape or eliminate it. When you combine this with the fact that not all people may have the same resources to compete it is de facto not competition. In sport, successful sportsmen are able to hire more help - trainers, coaching, equipment, diet etc. In education, people hire tutors. In research, they get access to better equipment and data and design costlier experiments. In business, there is branding. Even in Academia which I know a little bit about people are trying to differentiate themselves which actually avoid competing or at least intended to convey they are not in competition or there is no competition. 

We need to value people overcoming struggle more than overcoming competition. If you work very hard at acing tests you will while someone else might not ace the test but have overcome far greater challenges. But how do we observe that accurately beyond depending on what people claim to have overcome or binning people into buckets based on certain social or demographic identity

Ethical dilemma of paying more than the going rate

Most people want corporations and businesses to pay more to their employees especially the blue collar workers.  We think such businesses are being socially responsible. However what about consumers voluntarily paying more for goods and services? An example in the US context is tipping but here I am talking about paying a higher price by not haggling with a shop keeper or a service provider. How much harm does one who can afford to pay more end up causing unintentionally when they pay more than they need to? Here I want to distinguish people paying more because they dont like to engage in bargaining because it is not their nature from those that pay because they feel they dont want to bargain with a poorer individual. My focus is on the latter. 

Every time I visit India and go shopping, where prices are rarely non-negotiable in any setting other than large retail grocery chains and online portals, I agonize over whether I should haggle. I avoid large chains and try to buy from smaller establishments for a variety of reasons. One is they are right on the sidewalk and dont have to walk into a large store or wait for long. It is much easier to do that in India than in the US for a variety of reasons. Smaller establishments seem much more in number and you dont have to take more effort to search and locate them. The most recent was for a slipper that was Rs 400 (about $5). If I were to haggle like a local, I could have got it for a 15 to 20% discount. I agonized over whether by not haggling I  am creating expectations where the shop keeper refuses to sell at a discount which then raises costs for the locals or whether I am doing the right thing like we do here in the US where we tip and make up for what we feel are paltry wages from employers although the latter is not a perfect analogy for haggling with self-employed person is different from tipping a wage worker. I dont think there are many who would pay more to the proprietor of a business voluntarily.

Another situation that I get conflicted over is when taking an autorickshaw in places where they dont use a fixed fare per km. But here I there are two alternatives - one is a Uber-like solution or take public transport when possible which comes with non-monetary cost but also some unique benefits. The issue with Uber is that what has happened is a lot of autorickshaws now refuse to serve outside the platform or ask for a huge premium which is making it hard for senior citizens who might not be comfortable with smartphones like my dad. I was befuddled by this because platforms take a huge chunk as commission from the fare we pay but the reason the drivers are rational is either that they get incentives for doing more rides even if it is lower earning per ride and so they feel they dont need each and every ride outside the platform.  The one other thing ridehailing does is it is increasing taxi use because once you have decided to use the smartphone, a taxi is just a click away and of course taxis which is more pollution intensive and crosses greater congestion by virtue of being a bigger vehicle and is operated by younger and slightly better off individuals compared to those that operate autorickshaws. My solution here is to take public transport as much as possible. 

So is one being miserly when haggling with a much poorer individual or are they being socially responsible? Is one causing more harm than good even when quietly (and not loudly like most do by announcing the good they did) trying to help a few by paying more voluntarily?  Just because I can pay and feel good about myself am I not raising costs for others? To be clear this is inevitable in a world of scarcity where every decision has a bearing on others or something else. It is just that we dont and cannot perceive the effect of our actions unless you are large buyer or seller.  But the point is not one of empirical reality but a normative one just like God is not an empirical reality but the notion holds enormous sway over people. Are you playing God when you try to do good, specifically when engaging in a commercial transaction?

Some thoughts on solar (in the US context) - interview for MoneyGeek.com

I really enjoyed responding to the questions below and was pleasantly surprised my full responses were posted as such online. This is more fun because most times I spend 30 minutes talking to a reporter and get mentioned  at most once if at all and they generally miss the most important or insightful thing I thought I had to say. This format is a lot more exciting for me and honest from a reader's perspective. The full article as part of which my responses were posted is here - Electricity Bill Got You Down? Solar Panels in Your State Might Not Be as Expensive as You Think

Considering the federal incentives for solar technology in the recent Inflation Reduction Act, why have some states not added additional state-level incentives to make solar panel usage even more enticing?

Firstly, I am not sure which states you are referring to specifically. If you see the Database of State Incentives for Renewables & Efficiency®, it suggests almost every state has a few incentives, and I think most of these predate the IRA 2022. That said, in general, it is easier to hazard a guess why a policy was enacted than why it wasn't. If it wasn't, it most likely means there wasn't enough lobbying, which, in turn, might be because the industry is still in its infancy in that state or it isn't a huge market, which begs the question of why. And the answer to that could be less solar potential or because of cheap electricity.

My observation and hypothesis are that electricity prices are growing at a faster rate in states where solar and wind are penetrating the fastest. This needs to be tested, but rates have shot up in the last several years when renewables have also expanded aggressively. So I am not entirely convinced renewable electricity has lowered energy prices, even if it is cheaper to produce at certain times of the day and in certain locations.

In California, my average electricity price from Southern California Edison after adding all costs (fixed + gen + delivery) is in excess of $0.29 per kW-hr. And despite this high price of electricity, the payback on the solar panel is 10 years for me after the 30% tax credit on upfront cost and generous net metering that cannot be sustained in the long run without raising costs for non-PV owners. This is also too slow for the middle class, let alone lower-income homeowners. For the wealthy, it is not about cost savings for those who choose to install.

How can solar panels help the average homeowner to save money?

I am not entirely convinced we need to aggressively push solar on rooftops. Despite tax credits and net metering, the payback period for most people is probably long (eight to 10 years for me) but still less than the expected life of 20+ years. Utility-scale solar, I think, is a better investment of taxpayer subsidies instead of individual rooftops. Yes, rooftop solar provides some social benefits, and to that extent, we need to help private homeowners install them. But it is so expensive that despite what policymakers do, it is wealthier people who are going to afford it. There are also issues with the quality of the roof, etc., which poor households might need help with. Should we help lower-income homeowners install? I am not too sure, for they could be better helped in other ways to provide them with what they need, more like ensuring their electricity rate is low up to a certain minimum level for monthly use for basic needs and ensuring they have reliable access.

What are some of the barriers to the broader adoption of solar technologies?

In my opinion, it is that despite all the hoopla in the U.S., it is hard to take most of our fellow countrymen seriously when they complain about energy costs, for despite all this, energy costs are quite low as a fraction of monthly budgets, and any increase could be accommodated by being prudent in what one spends on. Energy costs are a small fraction of homeownership for people who can afford a home, and if so, is the money better spent elsewhere? We need to help people buy more efficient products and get them to use less energy rather than help them fuel their inefficient use in cleaner but costly ways.

Despite all this, I am a big believer that we need a lot more solar and wind and a lot less coal. Just not sure if it needs to be rooftops of the wealthy or the poor! Lastly, today one cannot also ignore inflation, which has increased panel and installation costs and financing costs because of rising interest rates.