Is Competition the enemy of Capitalism?
We live in a world dominated by competition. And we are taught that competition is one of the main drivers of capitalism, which in turn is what helps us thrive and grow richer.
But is it?
Peter Thiel, in his book From Zero to One, argues that competition is far from being the good thing we’ve all been taught, but rather it has the potential to limit innovation. I tend to agree. In a world where any idea gets replicated thousands of times, we barely see new innovation at the rate we should actually see it.
When ideas get replicated it means competition is the one thriving and not progress.
Businesses also tend to get caught up in the competition game rather than the innovation one, resulting in very limited innovations or breakthroughs and many small tweaks and copies of the same concepts.
Thiel categorises these two ways of seeing progress as follows:
- Horizontal progress
- Vertical progress
Horizontal progress encompasses replicating the same models in different areas to gain a competitive advantage. This is, by definition, a competition game. Bringing minor tweaks to already existing products or services is not really progress nor innovation. And disruption has become the new definition of innovation in the world of horizontal progress.
Vertical progress comes from breakthroughs. Innovation. Whole new ways of doing things. Which unfortunately nowadays does not happen very often. Microsoft Word was a vertical progress. iPhone was a vertical progress. PayPal was a vertical progress.
Innovation is typically associated with Startups, and at a certain level we should expect startups to do exactly that: innovate. But instead of thinking about entirely new ways of doing things, most startups tend to pick a concept that has some potential and try to “innovate” around it. Which is not entirely a bad thing. The problem arises when the same startups that have started with an innovation mindset end up in competition wars they will probably never escape.
Tolstoy observed that all happy families are alike, but unhappy families are each unique in their unhappiness. This is the opposite for business. Happy companies create unique monopolies for the circumstances they face. Unhappy businesses all have the same problem: competition.
The problem with competition is that it only does two things:
- it limits innovation
- it erodes profits
By any logical standards it’s obvious that it makes sense to avoid competition, as it is not only bad for business but also for progress.
So what does it all add up to?
In and ideal world, we would turn our attention to real innovation and true new ways of doing things. That sounds like a win-win situation both for companies and humanity. When we try to come up with solutions to the challenges that we face today and the ones we will be facing in the future, that’s when we will start seeing true progress and profits.
But we don’t live in an ideal world, and we have to face the fact that in many cases some will choose the path of least resistance. What is important, however, is that more don’t.
It’s not easy to innovate. But it’s worth it.
