Competition is a universal and extremely powerful force. Long before
we began to record history, man was competing for food, mates, and territory.
Later, we found ourselves competing for jobs, resources, customers, victories
in athletic contests, and awards in many different fields of human endeavor.
Competition in one form or another is inevitable as long as the things
we desire remain scarce, that is, as long as there is not enough for everyone
to have all that he wants.
Sometimes the nature of competition is peaceful, and when that is the
case, the results are beneficial to mankind, even though the immediate
losers may suffer for a time. Sometimes, however, the nature of competition
is violent and then the results are harmful to mankind, usually leaving
even the 'winners' worse off when all the costs are taken into consideration.
As noted, competition is thrust on us by nature. Scarcity is a fundamental
and inescapable fact of life. Whenever two or more people want the same
thing, the necessary consequence is some form of competition to determine
who will have it.
Violent competition is, of course, not virtuous. Nothing good comes from
perfecting the talents for murder and plunder. When I speak of the virtues
of competition, I refer exclusively to peaceful competition -- the kind
that comes about when people must act only in ways that do not violate
the rights of life, liberty, and property, which all human beings possess.
Peacefulcompetition impels each competitor to continually improve his
skills, his efficiency, and the desirability of his product or service.
It is understood by all that sloppiness, carelessness, waste, and indifference
to the desires of others will be punished. Of course, the punishment is
not physical, administered by a malevolent authority, but rather the punishment
of not getting what one wants, or least not as much as one wants, because
people have chosen to deal with others instead.
Everyone knows that competition reigns in the worlds of business, politics,
and sports. The results of competition there are brought to our attention
daily. What most people do not perceive is that competition also exists
(usually, anyway) among non-profit service institutions, and that when
it does, those institutions are affected by it in the same beneficial
way that more obviously competitive institutions are. Nonprofit organizations
are impelled to operate as efficiently as possible lest they lose the
support of their financial backers.
Competition and Charity
Consider private charitable organizations. We have a great many of them
-- dedicated to assisting needy people, to helping fight serious diseases,
to achieving certain environmental goals, to promoting the fine arts,
and so on. They are nonprofit institutions, but that only means that they
must spend all their revenues. The fact that they are not trying to earn
profits for stock-holders, however, does not mean that they are not under
competitive pressure. If a charitable institution earns a reputation for
having lavish offices, high expense accounts and salaries for administrators,
and other expenditures that do not help to achieve its stated goals, contributions
will most likely decline. After all, people do not have unlimited funds
to contribute and will redirect their money to other charities in which
they have more confidence.
Just as sellers of products are competing for a limited number of consumer
dollars, so are the administrators of charities competing for a limited
number of contributor dollars. Poor quality products will probably cause
sales to fall off, and for that reason, business managers are alert to
quality problems and try to prevent them from occurring. It is in their
self-interest to do so. By the same token, administrators of charities
do not want to be perceived as running low-quality organizations. Self-interest
motivates them to try to get the maximum amount of benefit from the dollars
The parallel here is not exact because it is more difficult for contributors
to get good information about how effectively the institutions to which
they contribute are run than it is for consumers to get information on
the quality of the products they purchase. The consumer directly experiences
the products, whereas the contributor seldom directly experiences the
endeavors of the charities he supports. Nevertheless, there is still some
competitive discipline exerted on those who run charities. If they operate
inefficiently, that information may leak out and be publicized. That has
happened often enough that it presumably exercises some influence over
the decisions of the administrators. The possibility of losing contributions
to other organizations leads to greater efficiency in the pursuit of a
But what if charities were guaranteed a steady or expanding flow of revenue
regardless of how well or poorly they perform their missions? The predictable
result would be rising costs and falling efficiency. If there is no looming
penalty for sloth and inefficiency, the human tendency will be to slide
in that direction. We find exactly that in government-run charities, that
is, welfare programs. By all accounts, welfare programs have significantly
higher administrative expenses and are less adept at making sure that
funds are spent effectively than are their private counterparts.
The difference is that while there is a direct link between contributions
and private charities, there is no such link between taxpayers and welfare
bureaucracies. The absence of that link gives the people who run those
institutions the latitude to operate with a high degree of inefficiency
and the luxury of not having to worry about it. Even though it is widely
known that welfare fraud is commonplace, the administrators of welfare
programs do not need to fear that their budgets will shrink because angry
taxpayers decide to take their money elsewhere. They can't. And that makes
the administrators unaccountable and irresponsible.
Competition and Education
Precisely the same analysis applies to schools. Private schools have
to compete for financial support. Tuition dollars and donations cannot
be taken for granted. If a school does not continue to satisfy parents,
they can and will enroll their children elsewhere. If it pursues educational
or non-educational ends that alumni disapprove of, it will probably experience
a decline in support. That private schools must compete for students and
money motivates the people who run them to put forth an educational 'product'
that is at least reasonably good and often very good.
Competition also motivates private school administrators to search for
ways to improve so they might fare even better in the future. Entrepreneurial
discovery is not unique to profit-seeking businesses. Private school officials
are keenly interested in finding improved ways to deliver their services.
Any improvement may translate into more satisfied customers. But an change
will be carefully considered before it is implemented, and it will be
monitored to see if it works as expected. Failed innovations are quickly
Government-run schools, in contrast, are insulated from the gusty winds
of competition. Because their funding does not come directly from satisfied
parents and willing donors, their administrators need not worry about
adverse consequences of their actions. If students graduate who cannot
read or write, that is no reason for concern the money will flow
anyway. In fact, the worse the performance, the better the chances that
the authorities will be persuaded to increase the school budget to deal
with the educational crisis the administrators created.
Government-school officials have a different view of innovation. Again,
since their revenues do not depend on satisfying parents, the innovations
they introduce will not likely be intended to satisfy them. Instead, innovations
will aim at satisfying those who directly support them, chiefly politicians
and certain special-interest groups. For example, an automatic test-scoring
machine might be popular with the teachers union and therefore an attractive
investment, despite the fact that such devices are apt to lead to tests
with fewer or no essay questions and thus less attention to how well students
write. Trendy curriculum changes such as 'multicultural studies' programs
are another example. They please politicians and special-interest groups,
but mean less class time for learning what used to comprise the core of
education. Many parents disapprove, but why bother with their concerns?
They have no choice but to keep sending in their money.
Competition and Performance
I have discussed charitable organizations and schools, but this analysis
applies, I submit, to all human institutions. Whenever any kind of institution
is freed from the need to compete for revenues, the results we can expect
are wholly undesirable: declining quality, increasing costs, irresponsible
and high-handed management. Competition makes people feel insecure and
that is a good thing. When people feel insecure, they strive to become
more secure and that in turn causes them to do their utmost to serve those
who patronize them. In the end, they reduce scarcity and lift society.
It follows that one of the worst mistakes we can make is to exempt an
institution from competition. Once we do that, once we sever that vital
connection between performance and revenue, we dramatically alter the
incentives that people face. No longer must they focus their energies
and abilities on doing their best to please customers or contributors.
Now revenues and resources can and will be used to make life more comfortable
for the administrators, including ongoing endeavors to preserve the cherished
competition-exempt status. Alertness and efficiency inevitably decline.
Freedom and Competition
Competition is the natural state of affairs. Competing for jobs, promotions,
customers, loans, donors, students, victories, mates, space in magazines,
and many other things is unavoidable. Other people are constantly attempting
to satisfy their desires out of a limited quantity of resources, and that
means that each of us has to assert himself-to compete-to get the things
we want. As long as others are free to pursue their objectives, whether
they are self-interested or altruistic, we will find ourselves having
to compete with them.
The attempt to escape from competition can therefore be accomplished only
by using coercion to prevent others from pursuing their objectives. If
the managers and workers of the U. S. Postal Service want to be free from
competition in the delivery of mail, that can be accomplished only by
threatening legal penalties, which is to say violence, against others
who would like to deliver mail. If the public schools wish to be free
from the competition of educational alternatives, that requires taxing
people who do not want their money going to public schools. If domestic
peanut growers want to be free from the competition of foreign peanut
growers, that requires governmental force to prevent peanut transactions
in excess of the arbitrary import quota set by federal law. It is only
through a willingness to employ violence or the threat of violence, either
personally or under the auspices of the State, that people or institutions
can attempt to escape from the rigors of competition. But in fact, they
merely substitute peaceful competition (the market) for the violent kind
(politics). We must, therefore, choose: do we prefer a world of freedom
and competition or one where the unscrupulous use coercion to stifle or
eliminate economic competition where it benefits them to do so?
Most people understand that it is a good thing for businesses to have
to compete. What I hope more people will appreciate now is that it is
universally a good thing for people and institutions to have to compete.
To eliminate the need to compete is to eliminate a host of beneficial
incentives for optimizing performance and to embrace the dangerous idea
that coercion is acceptable. That is always a bad idea.
Mr. Leef is an adjunct scholar at the Mackinac Center, Midland, Michigan,
and legislative aide to state Senator David Honigman. This article is
from The Freeman, July, 1996. (c) 1996 by Foundation for Economic Education,