As a free-market economist, I talk about competition a lot. Of all the arguments for a market economy, the case for competition is the one that is probably easiest to make when talking to a hostile audience. (And let’s not kid ourselves: these days, every audience is a hostile audience.) It makes much more intuitive sense to most people than, say, the argument that prices are scarcity signals rather than a barometer of “greed”, or that immigrants are not “stealing our jobs” because the number of jobs in an economy is not fixed. Even socialists like competition in sports, so here’s a crazy idea: why not have competition in the provision of goods and services as well?
But the fact that we tend to think of market competition as analogous to a sports competition has its downsides as well. Because the two are really not very alike. Market competition is not an end in itself. The end is the provision of goods and services that people like, and are prepared to pay for. In spectator sports, on the other hand, the competition itself is the final product. We want to watch the competitive process play out.
This has a number of implications. In a sports competition, we want the competitors to be roughly similar in performance capacity, because if it is obvious right from the start who the winner is going to be, the appeal is greatly diminished. This is why we organise sports competitions in such a way that this is not obvious. For example, in sports where physical strength is important, men and women compete in separate leagues; in boxing, there are different weight classes, and so on.
Where competition itself is the end, we also have a strong sense of fair play. We resent participants who enjoy an advantage we consider unearned. We want a level-playing field. That is why the issue of biologically male transgender athletes participating in women’s sports is controversial. Critics argue that being biologically male constitutes an unfair advantage. It also ruins the game, because it makes it easier to predict who the winner is going to be.
But it would be inappropriate to apply this logic to market competition. Suppose a construction company had a workforce that was predominantly female. In construction, physical strength matters at least as much as in, say, swimming. But would you consider it “unfair” that such a company has to compete with construction companies with a predominantly male workforce? Would you argue that the state should create separate markets, so that a women’s construction company only has to compete with other women’s construction companies? Should the government create “a level playing field”?
Of course not. The difference between market competition and sports competition is that in the provision of goods and services such as construction, the competitive process is not, in itself, observable, or enjoyable to watch. It is not part of the final product, and it is the final product which matters to consumers. If men enjoy an obvious advantage in construction, then they are ones who should do it. Whether that is “fair” or not is neither here nor there. Competition between English and Spanish wine growers is not “fair” either. It is not the fault of English wine farmers that England has such horrible weather, and Spanish wine farmers have done nothing to deserve all those extra hours of sunshine they get. If you could somehow turn winegrowing into a spectator sport, then yes, you would probably want English wine growers to compete with other English wine growers, and Spanish wine growers with other Spanish wine growers. But as long as we only care about the final product, the fact that Spain enjoys such an obvious advantage means that winegrowing should mostly happen in Spain, not England.
When one individual, company, business model, region or country outcompetes another one in the market, we do not need to know why exactly that is. We do not need to work out whether that is due to “deserved” or “undeserved” advantages. Trying do so would mean applying the logic of a sports competition to market competition. We could call this the Sports Competition Fallacy.
And it is a fallacy which has real policy implications, in that in inspires actual policies. A contemporary example is the “Digital Sales Tax”. According to its supporters, online retailers enjoy an “unfair” advantage over High Street shops, because the latter have to pay inner-city rents, while the former need no physical premises (besides a warehouse which can be anywhere). A Digital Sales Tax on online retailers would therefore “create a level playing field”. That would be a fair point if competition between High Street and online retailers were a spectator sport which we enjoy watching. But it is not. It is a means to get products to consumers. If online retailers can do that without the need to occupy prime real estate, then that is the way it should be done (unless, of course, consumers value the on-site shopping experience for its own sake).
At the time of writing, US President Donald Trump is also promoting his own version of the Sports Competition Fallacy. He claims that some countries are enjoying “unfair” advantages in trade, either because foreign governments are indirectly subsidising exporters, or because they are imposing higher tariffs on the US than the US is imposing on them. Tariffs, he claims, are therefore a way to restore “fairness” by creating “a level playing field for American workers”. (His Presidential Memorandum on the subject is even called the “Fair and Reciprocal Plan”.)
Again, Trump’s logic would be appropriate if trade were a spectator sport, and if the trade balance were like the final score of a football match. But trade is very much not like that. You will not see fans of “Team USA” standing at the port of New York, cheering on “their” container ships as they leave.
The question of whether the trade practices Trump takes issue with really do confer an advantage on non-US companies is, of course, disputed, but that is a subject for another article. For the sake of the argument, let’s just say that they do, or let’s consider a hypothetical case where that is unambiguously true. Let’s say, a foreign government explicitly subsidises exports to the US, while penalising imports from the US. That would be no more “fair” or “unfair” than differences in climate, geography, wage levels, accidents of history, or any other factor which is outside of the immediate control of economic actors. Is it “fair” that Britain is an island nation with dozens of seaports? Is it “fair” that Britain has North Sea oil and other valuable natural resources? Is it “fair” that Britain was on the right side of the Iron Curtain, and does not have to deal with a Soviet-imposed legacy?
These are the wrong questions. Things should be produced by whoever is, in the eyes of the consumer, best placed to do so, irrespective of why exactly that is. Good economic policies promote consumer welfare, not “fairness”.
