Whatsoever therefore is consequent to a time of war, where every man is enemy to every man, the same consequent to the time wherein men live without other security than what their own strength and their own invention shall furnish them withal. In such condition there is no place for industry, because the fruit thereof is uncertain: and consequently no culture of the earth; no navigation, nor use of the commodities that may be imported by sea; no commodious building; no instruments of moving and removing such things as require much force; no knowledge of the face of the earth; no account of time; no arts; no letters; no society; and which is worst of all, continual fear, and danger of violent death; and the life of man, solitary, poor, nasty, brutish, and short.
– Thomas Hobbes, Leviathan
The NFL (National Football League) is socialist. All revenue from television and merchandise is shared perfectly evenly between the teams. On ticket sales, 40% goes to the visiting team, 60% goes to the home team.1)Revenue such as corporate box sales, local sponsorship, etcetera is kept by the home team. The draft and salary cap help ensure that destructive (at least for the owners), spiralling player compensation does not happen. The league has tremendous parity – all teams has been to the Super Bowl except for 4 (Cleveland Browns, Houston Texans, Jacksonville Jaguars and Detroit Lions), and 18 different teams have won it. Many of the recent playoff games have been exhilarating and the NFL – in the opinion of virtually everyone who cares about this violent sport- has been fantastically successful.
The English Premier League, which is arguably the most successful sports property on the planet, in contrast, is capitalist. Teams keep their own revenue. Teams have vastly different amounts of money to spend on transfers (in football, you buy players from other teams, with smaller teams selling their star players to bigger teams to fund operations – the record transfer is £85.3 million for Gareth Bale’s move from Tottenham Hotspurs to Real Madrid).2)“Premier League -List of Winners, worldfootball.net, WorldFootball.
And the end results show this disparity in revenue. In the last 21 years, Manchester United has won the League title 12 times; Chelsea 3 times; Arsenal 3 times; Manchester City 2; and Blackburn Rovers 1.3)Gary Lineker, “Gareth Bale Joins Real Madrid from Spurs in £85m World Record Deal,” BBC, accessed February 12, 2014, BBC Sports
In fact, Chelsea and Manchester City have essentially unlimited resources, as they are owned respectively by Roman Abramovich and Sheikh Mansour Abu Dhabi.
So one major league runs according to socialist principles; one runs according to more capitalist principles. Which one is better? Well, that depends on your criteria. If you value the parity that the socialist principles produce, then the NFL model is attractive. If you follow one the EPL’s football giants (Man U, Chelsea, Arsenal, the previously fading and now resurgent Liverpool and the parvenu Man City) and want them to be able to compete with the other European giants such as Bayern Munich, and Barcelona, then the EPL is preferable.4)And because of (European) football’s relegation rules, there is no limit to the degree of excitement in the EPL even if your team is not one of the top ones.
So what does the contrast between the EPL and the NFL demonstrate?
Everything we do in life has rules.
Whether they are the unwritten rules of high school social life, the well-codified rules of ice hockey (including that wonderful Canadian innovation of legalized fighting on the sports field, or ice in this case), or the transitory rules of fashion driven by this year’s runway in Milan, rules are pervasive.
What are rules for? The function of rules is to reduce competition to specific dimensions. Rules mean we can compete in some ways, and cannot compete in others. The shared revenue and salary cap rules mean that NFL teams cannot compete via vastly outspending other teams. But they can compete using ballet as a training technique.
Here are some of the more intriguing restrictions on dimensions of competition I have come across :
At the Tour de France, athletes are restricted from taking certain substances, even those that are are perfectly legal in other spheres.5)The Tour de France follows the World Anti-Doping Agency (WADA) regulations. This extensive list includes Human Growth Hormone. The National Hockey League however, has been slow to adopt testing for HGH.
In 1626, King Louis XIII of France outlawed duels so as not to keep losing nobility.6)J.A. Lynn, Giant of the Grand Siècle: The French Army, 1610-1715, (Cambridge University Press, 2006).
At Premier League football matches, there are severe penalties for chants that cross the line (racism) – that is, the rules of mental one-upmanship are restricted to certain spheres.7)It has now been decided that Tottenham Hotspurs fans cannot call themselves ‘yids’… that is, not only can you not shout racist chants at the opponent, you cannot even make racist chants against yourself. See Jeremy Wilson and Peter Dominiczak. “David Cameron Embroiled in Race Row Over Tottenham Hotspur ‘Yid” Chant,” The Telegraph, September 17, 2013. Accessed on November 11, 2013. Tottenham Hotspurs
The Geneva Convention binds us – even in the most extreme circumstances of human violence and conflict – to avoid certain human rights violations such as willful killing, torture or inhumane treatment.8)“Geneva Conventions”, Council on Foreign Relations, Geneva Conventions
In contract bridge, it is (obviously) illegal to use non-verbal clues to signal to your partner the content of your hand beyond what your bid is conveying.
In chess, the match is silent, while in basketball opposing fans are able to make any amount of noise to distract the free throw shooter.
In almost all companies, it is hard to envisage getting ahead by whacking the boss to create a vacancy.
According to the World Trade Organization, dumping – that is, selling an item below its cost – is not allowed.9)“Understanding the Wto: The Agreements”, World Trade Organization, Understanding WTO.
In the Olympic marathon or cycling pursuits, you are permitted to strategically hold back, waiting for your moment, while badminton players who deliberately lose to maximize their probability of winning a medal are expelled.10)Taipei Times, “London 2012 Olympics: Ejected PRC badminton star quits”, August 3, 2012, Accessed on November 11, 2013. Taipei Times.
So the issue is not whether there are rules or not. The issue is to determine in which specific dimensions we will allow competition and in which specific dimensions we will not.
Before we explore the question of how to choose between good and bad rules, let us consider the concept of competition for a moment. Nevinomics’ perspective is that properly constructed competition is at the heart of Flourishing – indeed Flourishing is not possible without competition. It pushes us do what we did not think was possible but can also bind us together in ways we could never imagine. The London Marathon is one of the world’s great human events. 34,278 runners (2013) of all abilities – supported by friends, relatives, and strangers – run one of the world’s most gruelling events in athletic gear, gorilla costumes, or wearing only a diaper.11)“It’s Not Too Late to Support a Marathon Fundraising Superstar”, JustGiving, Just Giving. £53 million raised for charity. Seeing what others can do and are capable of inspires us and pushes us to explore what we are able to do ourselves.12)“London Marathon runners continue record-breaking charity haul.” Virgin Money London Marathon, London Marathon Record Crowds
Competition can create purpose, an essential part of Flourishing, though perhaps the Japanese equipment maker Komatsu’s motto – kill Caterpillar – takes competition to a level that should be avoided – or maybe not. Competition requires us to ask questions,13)Dave Pelz developed an empire based on the science of putting with the shaft anchored against the body. The entire endeavour started because he was trying to figure out why Jack Nicklaus always beat him in college golf. to innovate, to devise new ways of doing things, to create cohesiveness and belonging as we tackle the challenge.
And for the individual involved – at whatever level – competing well can be life defining. The amateur golfer who wins the weekend wager may feel as good as the professional… and for most people who reach a certain level of maturity, if they play as well as they can and lose, they still feel good.
Competition also creates resiliency, another essential part of Flourishing. Learning that one can try and lose – and that it’s ok – is an important step to Flourishing. We cannot – indeed do not – want to prevent failures happening to people. We do want that more and more people can cope with the failures and go on to thrive – this is indeed Flourishing.
And, of course, the normal competition we think of in economics – when it works properly – results in better quality, lower priced goods and can force everyone to up their game.
So competition at every level of society and in every human endeavour – in Nevinomics’ view – is part of the foundation of Flourishing.
But competition along the wrong dimensions leads to disastrous outcomes for economies, societies, and Flourishing. War is the obvious example, and my own first-hand experience in Kinshasa recently underscored for me the terrible price in human suffering of unbound violence as an immense country (with ongoing violence problems) tries to rebuild itself from scratch. But even in less extreme cases, the consequences can be severe:
Investment banks competing for RoE, size, and prestige on Wall Street cause the Great Financial Crisis.
Attempts to differentiate a CV cause a massive bubble in postgraduate studies that are not adding appreciably to the stock of human capital or productivity.
Competition in social status in Nigeria leads to overspending on weddings, funerals and other events and leads to financial hardship in a poor country but with – as far I can see – few compensating benefits.
Competition between US healthcare insurers creates perverse incentives and hardships, as they retroactively cancel insurance if they can demonstrate that the insured made some minor omission on the original insurance application.
China’s manufacturers do not obey developed nations’ environmental rules, thereby becoming the manufacturing centre of the world, but at the price of massively polluted rivers and air (and, of course, it is not only the Chinese that suffer but ultimately all of us as it is the same air and water).
So getting the right dimensions of competition to work well is crucial.
But what does ‘work well’ mean, here? Principle 1 of Nevinomics states that economics is an empirical discipline and Principle 4 states that the objective is to maximize Flourishing.
I am going to introduce the term optimized competition to describe what Nevinomics is looking for – a set of rules to reduce the dimensions of competition in a way that works demonstrably to increase Flourishing.
In fact, even as we begin to explore the rules, it becomes obvious that optimized competition is 99% cooperation and 1% competition – almost all dimensions of competition are ruled out to focus on the few that will be allowed. Consider, again, the NFL football game and reflect on how many dimensions of cooperation are required for one game, including:14)And in the EPL (or really all European football/soccer), they agree on where the visiting fans will sit as, sadly, the dimensions of cooperation in football do not yet extend to opposing fans being able to sit side-by-side without violence.
Rules around draft, remuneration, ownership
Venue and time, decided well in advance
How to share practice time at the stadium the day before the game
How many tickets would be allotted to the visiting team
How the host city will organize traffic and other key services to coincide with the game
Even the peanut and hot dog vendors are given their assigned sections and fistacuffs are not allowed to settle disputes.
At the end of the day, the competition is reduced to a field of 120 yards by 53-and-a-third yards with precisely 11 players from each team on it at a time, operating under incredibly complex and strict rules.
This is a lot of cooperation for a little competition … but done properly these competition-reducing rules create a fantastic outcome for the fans, for the teams, and for the players.
Nevinomics would like to see Optimized Competition as a core concept used in policy debates. Once we realize society is in the business of finding the best rules15)The reduction in violence in human society is, in the end, a result of acceptance of more and more competition-reducing rules that restrict how we compete with each other. See Stephen Pinker, The Better Angels of our Nature: Why violence has declined? to reduce the dimensions of competition in a given situation, we can move beyond the sterile debate about capitalism vs. socialism, or whether markets are free. Nevinomics’ view is that the economic concept of free markets is simply nonsense and will not stand up to any degree of rigorous examination. The economics professor who vigorously defends the free markets is more appreciative of rules (that is, government intervention) when they prevent physically stronger people from taking his wallet or car.
So this issue is not rules or no rules. The issue is rather what rules can be shown to maximize Flourishing.
In subsequent Nevinomics articles, we will explore the concept of Optimized Competition in more detail but would like to close this article with a few observations:
When you start to view society’s challenges in this way, it is obvious how essential government and public policy are to the success of a society and maximizing Flourishing. The competition-reducing rules will determine outcomes and countries that make better rules will do better.
In almost all developed countries, despite the illusion of conflicts over the rules, there is pretty broad consensus on the sectors where competition-reducing rules are most obviously required – medicine, telecommunications, housing/zoning, food, and utilities are examples.
There should, in the interest of liberty, be a general bias to the smallest, simplest set of rules appropriate for the issues at hand. Having fewer rules also minimizes the costs of designing, monitoring, and enforcing rules.16)We can point to the US tax code as an example where we can definitely say the rules have not been optimized.
Perhaps the most interesting and challenging aspect of competition-reducing rules is the long-term dynamic that is created by the rules. As Nevinomics constantly stresses, Systems Thinking is required. One example – under the US capitalist orthodoxy of creative destruction,17)A term coined by Joseph Schumpeter in his work entitled “Capitalism, Socialism and Democracy” (1942) to denote a “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.” it makes sense to hire and fire workers very quickly. This is defended as being most economically efficient, and the rules are designed ultimately to lead to higher GDP per capita which, of course, is important for Flourishing. The challenge, however, is that over time this approach affects the relationship between workers and companies, erodes loyalty, and may reduce productivity (not to mention increases stress, which itself is a negative). So, for me, the jury is still out whether the current rules of the US labour market help or hinder the economy and Flourishing.
Footnotes [ + ]
|1.||↑||Revenue such as corporate box sales, local sponsorship, etcetera is kept by the home team.|
|2.||↑||“Premier League -List of Winners, worldfootball.net, WorldFootball.|
|3.||↑||Gary Lineker, “Gareth Bale Joins Real Madrid from Spurs in £85m World Record Deal,” BBC, accessed February 12, 2014, BBC Sports|
|4.||↑||And because of (European) football’s relegation rules, there is no limit to the degree of excitement in the EPL even if your team is not one of the top ones.|
|5.||↑||The Tour de France follows the World Anti-Doping Agency (WADA) regulations. This extensive list includes Human Growth Hormone. The National Hockey League however, has been slow to adopt testing for HGH.|
|6.||↑||J.A. Lynn, Giant of the Grand Siècle: The French Army, 1610-1715, (Cambridge University Press, 2006).|
|7.||↑||It has now been decided that Tottenham Hotspurs fans cannot call themselves ‘yids’… that is, not only can you not shout racist chants at the opponent, you cannot even make racist chants against yourself. See Jeremy Wilson and Peter Dominiczak. “David Cameron Embroiled in Race Row Over Tottenham Hotspur ‘Yid” Chant,” The Telegraph, September 17, 2013. Accessed on November 11, 2013. Tottenham Hotspurs|
|8.||↑||“Geneva Conventions”, Council on Foreign Relations, Geneva Conventions|
|9.||↑||“Understanding the Wto: The Agreements”, World Trade Organization, Understanding WTO.|
|10.||↑||Taipei Times, “London 2012 Olympics: Ejected PRC badminton star quits”, August 3, 2012, Accessed on November 11, 2013. Taipei Times.|
|11.||↑||“It’s Not Too Late to Support a Marathon Fundraising Superstar”, JustGiving, Just Giving.|
|12.||↑||“London Marathon runners continue record-breaking charity haul.” Virgin Money London Marathon, London Marathon Record Crowds|
|13.||↑||Dave Pelz developed an empire based on the science of putting with the shaft anchored against the body. The entire endeavour started because he was trying to figure out why Jack Nicklaus always beat him in college golf.|
|14.||↑||And in the EPL (or really all European football/soccer), they agree on where the visiting fans will sit as, sadly, the dimensions of cooperation in football do not yet extend to opposing fans being able to sit side-by-side without violence.|
|15.||↑||The reduction in violence in human society is, in the end, a result of acceptance of more and more competition-reducing rules that restrict how we compete with each other. See Stephen Pinker, The Better Angels of our Nature: Why violence has declined?|
|16.||↑||We can point to the US tax code as an example where we can definitely say the rules have not been optimized.|
|17.||↑||A term coined by Joseph Schumpeter in his work entitled “Capitalism, Socialism and Democracy” (1942) to denote a “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.”|