Humans, companies and trees race to the top - with some unintended consequences

CorporateNature No 152

By George ELIOT

1. COMPETITION LEADS TO A "RACE TO THE TOP"

Free market competition in capitalism creates a "race to the top" just like trees in a forest race to outgrow their neighbours and reach the top of the canopy, in order to maximise each individual tree's access to sunlight. This is clearly a very resource-intensive and energy-intensive process: 

- humans have to constantly develop new skills;

- companies have to innovate and iterate their products and services;

- and trees need to grow heavy trunks to reach higher and higher.

2. CARTELS CAN LIMIT COMPETITION TEMPORARILY

Trees are unable to strike a deal to limit the height of every tree in the forest, thus leaving everything to natural competition. While humans and companies could agree such a deal amongst themselves but it would result in a temporary and unstable equilibrium (as the video below about baggage carousel crowds and competing trees shows): everybody would have a strong incentive to break the pact. Furthermore, anti-monopoly laws forbid such cartel agreements in the corporate world.

3. GOVERNMENTS CAN LIMIT COMPETITION PERMANENTLY

One key stakeholder that can actually impose such levelling rules is the government. For example, the Chinese Government banned private for-profit tutoring of school subjects for school-age children in July 2021, thus putting a cap on the competitive pressure on parents (and students) to constantly upskill their children.

4. HOW "RACE TO THE TOP" BECOMES "RACE TO THE BOTTOM"

Why do we often see unbridled capitalism as a "race to the bottom" when it should in principle be a "race to the top"? Most human and natural systems function as a "winner-takes-all" game in the immediate enviroment of the winning person, company or tree. So while the successful individuals race to the top, they cast a shadow on those left behind, thus relegating them to the second or third division - which can be seen as pushing them towards the bottom. As a result, in the perception of an external observer, the big pool of players who are "pushed to the bottom" cannot outweigh the smaller pool of winning players who race to the top.

Why Trees Are Taller Than They Need To Be

To make your startup a success, do not plant trees in the Arctic!

Lack of market kills companies; Lack of sunshine kills trees.
By George ILIEV

Millions of small companies and organisations lead a meagre existence: corner shops in the age of the supermarket, startups that grow old without making it big, charities with a handful of employees, street sellers making $3 a day. These are like the stunted trees (known as krummholz) that grow above the treeline in the Arctic and in high mountains.

The treeline separates the areas suitable for tree growth (with an average annual temperature of over 5 °C) from the areas too cold for trees (below 5 °C). Yet, it is not a sharp line but rather a band that may stretch up to 150 km wide in the forest-tundra transition zone in northern Canada. This is the zone where trees fade into krummholz.


Stunted trees cannot grow tall for one of two reasons:
1) lack of sufficient solar radiation and warmth, in the polar areas and high up in the mountains;
2) lack of rain in the transition zone around deserts.

In a similar way, many companies and organisations never make it big for two analogous reasons:
1) lack of a market for their products or services;
2) lack of investment.

"The Number 1 company-killer is lack of market," says US investor Marc Andreessen. Companies that only have a micro-market (e.g. a mom-and-pop store that caters to two streets) resemble the stunted trees that can only survive high in the mountains in a tiny ecological niche, usually sheltered by a rock.

 

If stunted trees are micro-companies, bonsai trees are our hobbies

The bonsai tree is an exceptional member of the stunted tree category. These miniature trees exist in this form because we, humans, want them to be like this and intentionally deny them nutrients.

In the human world of businesses and organisations, the bonsai trees are not companies. They are our hobbies. They are rarely meant to be businesses: they are the blogs that do not profit from advertisement or the flower gardens maintained for pleasure rather than for commercial use.

Sometimes bonsai trees and krummholz get confused in the startup world. Both arise from a personal passion and never make it big. However, there is a crucial difference. The bonsai is never meant to grow big: you don't need a 10 ha flower garden in your back yard. While a flower-growing business that produces cactus leaves to put in flower bunches is clearly making the wrong product for the wrong market and is unlikely to sell much for Valentine's Day (though it might be more successful in sales for April Fools' Day). A hobby can be pursued independently of the external environment because its practice is made possible by cross-subsidising, while a startup always has to start from a market need and can only draw resources from its market.

Humans have one advantage over trees. We pick where to plant them, while the trees have no choice where they happen to be. So, if you want to grow your tree tall, do not plant it in the Arctic. And if you want your company to succeed, find a market first.

Shakespeare might have used this last sentence to wish success to all budding entrepreneurs with the following piece of advice: "Neither a stunted tree, not a bonsai be!"