Healthy competition is at the heart of economic development. Ever since the idea was put forward by Adam Smith in the Wealth of Nations, it led to innovations, great technological improvements and lower prices for the consumers.
On the other side, too much competition can have damaging effects on the economy and on individuals, in the long term. In a highly competitive market, companies and people are pushed to constantly lower their prices while delivering more and more value. This is good for the consumer but for the companies it quickly becomes unsustainable because it leads to lower margins, and budget cuts especially in research and employees salaries.
Take for example the car industry, a highly competitive market, where some of the top companies resorted to unethical practices, or lower quality materials in an effort to keep up with the increasing expectations of the markets and governments, in terms of profit, innovation and prices. Or the construction industry which saw a massive drop in 2008, due to high competition and the ridiculously low prices that had to be accepted by the companies wanting to remain in business at all cost. And, probably, for one of the best examples on how extreme competition is bad for business, we can have a look at one of the most competitive markets in the world: the bar’s and restaurants sector. More than 80% of the business in this sector fail in the first 3 years, competition is fierce and a lot of the newcomers drive the price down while serving bigger portions. That means somewhere expenses have to be cut: either on personnel, food quality or health & safety regulations. I’m not saying all restaurants are like this, in fact some owners manage to maintain a good quality of service and a high morale among employees, even when pushed by competition, and they are usually the 20% that remain in business. However, most of the times, extreme competition in the long term can lead to profit loss, reducing cost on R&D and personnel, less innovation, lower quality and at the end businesses closing down and people losing their jobs.
On a personal side, we are always competing with our rivals, our peers, our neighbors or the status quo, and usually this competition makes us achieve more, be more and have more. But when we take competition too serious, it leads also to unethical behavior like lying, cheating, bullying, bribing and all the other nasty things people due in the effort to get in front of others. Another effect of the pressure competition puts on us is overworking, which leads to stress and exhaustion and in a more severe case even to death.
So why do we value competition at all costs? Why, in a time when we talk about moving towards a society of abundance, are we still competing heavily with everyone else, until the point of collapse? I am not suggesting that we should not have any competition, I am simply implying that we would be maybe better off if we follow Aristotle’s advice and strive to achieve the Golden mean, especially in the most important competition of all: our life. If you go to bed 1% better every day, in the long term you will become a great person; If you are always in a rush and want 200% improvements every day, like many of the investors wish for, it might work for a short while but there is a high chance that you will collapse with exhaustion, and lose everything you gained, just like the stock market crashes every 5 to 10 years.
I would love to hear your thoughts on the subject: What are the areas in your life where you are or have been maybe over competitive, and what was the impact of this competition on your health, happiness, family and friends? Where was your tipping point, between healthy and unhealthy competition? Please share your thoughts in the comments section below.
Adam Smith – The Wealth of Nations
Peter Thiel – Zero to One