Something in Robert Frank's The Economic Naturalist made a good connection between a couple of ideas for me today.
In giving examples of when the pursuit of selfish interest leads to poor collective results, Frank discussed a certain class of problem that leads not so much to market failure as to a less desirable equilibrium for all than would be possible under mutual agreement (or regulation). As Frank points out, Adam Smith's invisible hand works when decisions are made and outcomes derived based on absolute costs and benefits, but it runs into problems when the benefits derive from relative differences rather than absolute values.
An example in the non-human world is with male elks. These guys compete fiercely for mating rights with the local harem of girlie elks. This competition takes the form of oh-so-male fights with their fearsome antlers. In general, he with the biggest rack wins, and his genes are then passed on to the next generation via his celebratory copulation with his ladies. As a result, males in successive generations have bigger and bigger racks. The main point is that the benefit - lots of good elk sex - accrues to a winner not based on the absolute size of his rack but rather based on its size relative to that of his competitors.
Over many generations, this has led to a state in which male elks have these racks which are good in mating fights but which get tangled in trees etc, making life generally difficult. They'd all be better off if they could just agree to all reduce the size of their antlers by, say 50%, thereby keeping the same relative pecking order but at a more beneficial rack size.
It recalls a term Matt Ridley used as the title of one of his books about evolution - The Red Queen. It is used more often with respect to the evolutionary battles between predators and prey, males and females, hosts and parasites. But I think the central point applies here as well. The allusion is to the character in Alice in Wonderland who has to run at full speed just to stay in one place. A rack that several generations ago would have served to win the harem just doesn't cut it among the current set of competitors. Males in each successive generation need to bring a bigger game than their ancestors, just to have a chance.
Now, the final connection, bringing the concept into the human world and more specifically the labour market, is this. Since in corporate performance management systems things like promotion, pay increases and the awarding of plum assignments are based on workers' standing relative to their colleagues (as opposed to attainment / qualification on some objective scale), a worker keen to get ahead has every incentive to put in that bit of extra effort, to put in those slightly longer hours. And if just one person did so, that person (in a simple world) would get ahead at work and reap the rewards. The thing is, not just one person does it. Everyone sees the relationship between working harder / longer and improved chances to get ahead, so many people go the extra mile.
But if many people are doing so, then the relative advantage that one has over the others disappears. This in turn drives people to turn it up yet another notch, and so on. In the end, we find a working population breaking their backs, as Madeleine Bunting shows in Willing Slaves. This whole exercise is a collectively maladaptive 'race to the bottom' (in quality of life terms). Like for the elk above, a mutual compact or regulation could give rise to the same pecking order but at a different (better) equilibrium point in terms of hours worked. This is what the EU Working Time directive seeks (however imperfectly) to do, but of course Britain has an opt-out clause for that, so the race to the bottom is still very much alive here.
In general, I'm not really that great a fan of a lot of regulation, especially when it comes from Brussels. What I would much prefer is for people to take a step back to properly assess what the costs to them of deriving these status and pay benefits at work are. What, in broader life terms, is the opportunity cost of pouring oneself so completely into work? To what extent are they choking, depleting or neglecting their roles and potential contributions to family, friends, community and their own health?
The final irony is that the benefits themselves are subject to the Red Queen rule of relativity. John gets the big promotion, the pay that goes with it and the cool toys, gadgets and properties that the pay buys. As he sighs contentedly and glances around him, the smile fades from his face as he compares his status to a new stratum of competitors. Someone is still senior to him, making more money than his, living in a bigger house too. His absolute gains have set him apart from one comparator group but simply focused his all-too-human eyes on another. His happiness derives (or fails to derive) from comparison with his new peers. Contentment hovers, ever just beyond his grasp, at the horizon, as he grunts and sweats, legs churning on the treadmill.
Wake up Johnny.
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