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

"Life after death" springs eternal in nature, science and the real economy

The death of an old tree leads to a spurt of growth of young saplings; The death of a leading scientist brings new names on stage.

"Science advances one death at a time" - Niels Bohr

By George ILIEV

The death of a tree in a forest opens up the canopy and allows young sapling access to sunlight.

A similar phenomenon has been proven to exist in the various branches of science, according to MIT research (In death, there is life: Big-name scientists may end up stifling progress in their fields, reported by The Economist). It turns out that "the death of a dominant mind in a field liberates others with different points of view to make their cases more freely". This positive effect is not the result of redistribution of research funding that may previously have been monopolised by the famous scientist. It is rather due to the attention of the scientific community that the established authority used to attract ("intellectual oxygen") and possibly the unwillingness of younger scientists to challenge the established authority. This supports a century-old quote by Physics Nobel Prize winner Niels Bohr: "Science advances one death at a time."

Thus, in the forests of science, it is not access to nutrients underground that spurs the outburst of new growth; it is the open space above.

A similar phenomenon exists in macroeconomics and was first observed by US economist Mancur Olson. He explained the post-war economic miracle in West Germany, Italy and Japan with the destruction of ossified socio-economic institutional hierarchies. A sharp institutional break (such as defeat in war and occupation by a foreign power) spurs economic growth by destroying the existing distribution coalitions, i.e. vested interests. But then several decades later, new distribution coalitions will have emerged and, in turn, would need to be reformed or destroyed to let the economy move forward.

The king is dead. Long live the king.