Competing for co-operation

In almost every area of social and business life, communication skills are essential. This is recognised by nature and we have evolved a huge repertoire of different instincts, emotions and involuntary muscle movements that help us to communicate with each other both consciously and unconsciously; implicitly and explicitly. Somewhere, buried into our genetic make up, is an inbuilt strategy that makes it instinctive for us to make friends, form groups and to collaborate and co-operate with each other.

Evolutionary biologists have a simple explanation as to why we have evolved sophisticated instinctive strategies to communicate and co-operate: it is that people in a group have a massive advantage over lone individuals in the competition for survival and reproduction. This is why "group forming" instincts and emotions have been preferentially selected for by the evolutionary process.

Evolutionary biologists explain the advantage of groups by extending the concept of fitness (to survive and reproduce) to include the fitness that is imparted by an individual to his or her associates. They call this "inclusive fitness".

When I first came across this in O. E. Wilson's book "Sociobiology", I was confused because the value of inclusive fitness wasn't taken as the increase in fitness given TO an individual BY the group, but, to the increase in fitness given BY the individual TO the group. It seemed that the evolutionary biologist's had got it the wrong way round; surely, I thought, the group must impart increased survival value to the individual.

It was only after further reading that I found out that, in the case of humans, the prime survival unit is not the individual but the group. The pragmatic selection processes of evolution were selecting for groups rather than individuals. This is not an understanding that comes intuitively.

Nature sees the individual as simply a component of the virtual object that is being selected for. The fitness of any individual doesn't count for anything if the combined fitness of the group the individual belongs to is below par. It was a sobering thought: understanding that we are each no more than a statistical part of some virtual whole that nature is more interested in.

Being aware of this subtlety of the inclusive fitness paradigm is a distinct advantage in business because it provides an important Zen-ness: the right mind set to form strategies and make decisions. It alters the emphasis to realise that the game is not about what the group can do for you but what you can do for the group. This provides another of those paradoxes that are counter intuitive: the way to succeed is to give advantage to others.

This mind set is totally appropriate for the Internet and should be the fundamental tenet of all e-commerce and e-business solutions. Not because it is a nice thing to do, but, because it is advantageous. Making a play that increases a bond to a group can be far more valuable than a play that secures a personal advantage.

However, just making these statements is empty rhetoric unless there is some substantial reasoning to back them up. For me, this came while I was working in the City of London writing the correspondence course on investment. It happened as a consequence of a series of discussions I'd had with the head of the investment company who was a keen advocate of sound monetary policy by Government.

His pet hate at that time was Government policies based upon the theories of John Maynard Keynes the brilliant economist who'd been responsible for the Bretton Wood's agreement that resulted in the stabilisation of the economies of Europe after the second world war. To a monetarist, Keynes's views are anathema because they involve deliberately introducing an element of inflation into the economy.

I wasn't at all convinced that this wasn't a bad thing, so, this head of the investment company loaned me a book that was a critique of Keynes's major work "The General Theory of Employment, Interest and Money". I forget the name of the book he gave me, but, what it contained was an excerpt from Keynes's book that provided one of the key concepts upon which Keynes based all his theories. Figure 1, taken from the CD-ROM "How God makes God", shows what I found in that book.

At first I balked at this mathematical arcane language. It seemed beyond the comprehension of normal mortals. But, I was intrigued because here was this great economist giving us one of the fundamental core concepts upon which his thinking was based. So, I decided to persevere and try to find out what it was actually saying.

I divided this description up into small parts and examined each separately, putting them into everyday language. When I'd finished, I was amazed by what I found. It was like digging up a dirty, old blackened stone from the garden, cleaning it, to find it was made of pure gold. This is how the translation turned out:

"Now if for a given number of employees the employer is making a profit (i.e.,the value of what the employees produce is greater than the amount needed to pay them). There is an incentive for the employer to employ more people; if necessary, offering higher wages: competing with other employers to get workers. All the employers will compete with each other to get as many employees as possible by offering higher wages than each other. This they will do until it is no longer profitable to employ any more. (i.e. Employers will keep competing with each other to employ more people until they have driven up the amount they are offering in wages to the point where their total profits start to fall). There comes a point when it does not pay to hire any more workers and at this point wages will be at their highest.

...this is the substance of the Theory of Employment."

In isolation, this seems a rather bland series of statements of the obvious and at first glance it doesn't seem possible that this could form the core paradigm that had produced Keynes's widely acclaimed, major contribution to economic theory. It simply seems to be saying that employers will employ more people if it is profitable to do so and if it is profitable they will compete with each other for employees. Big deal! It seems incredible that such a simple and obvious observation could form the basis of what is regarded as one of the most renown works in the whole history of economics.

Fortunately, at that time, I was extremely interested in game theory and was reading a book by Thomas C. Schelling called "The Strategy of Conflict" (1960). Schelling had become famous as one of the main advisors to Dr. Henry Kissinger during the Cuban missile crisis where the American government had played out a nail biting game scenario with the Russians to stop them building missile sites in Cuba.

The essence of Schelling's book was that international conflicts should be put into a game theory framework, such that promises, threats and counter threats could be described in the form of a pay-off matrix. The idea was that every unfavorable move possible to an opponent could be countered by making that move less attractive to the opponent than some other alternative that would be tolerably acceptable.

His basic proposition was that you could influence the way people acted through changing the pay-off matrix of the outcomes of actions. Schelling observed that the adjustment to the pay-offs, as seen by an opponent, could be adjusted through two tactics: promise and threat. By making a promise of some reward, if an opponent did something you wanted them to do, they would be more inclined to do it. Similarly, a threat - that something unpleasant would happen to an opponent if they did something you didn't want them to do - could be used to influence them not to do it.

Schelling's strategy was to devise ways in which it could be arranged that there was a pay off matrix that could provide a solution that would be suitable for both sides: a compromise where the outcome was not necessarily the best for either side but provided an acceptable second best solution for each.

The eureka moment for me came when I made a connection between the core paradigm of Keynes and the game theory approach advocated by Schelling. I'd read somewhere about Keynses' interest in game theory. Suddenly, I could see what Keynes had been explaining. He wasn't stating the obvious at all. He was saying that business was a game and the game wasn't focussed on the obvious ( i.e., competing for money), it was focussed on getting employees. The paradigm shift therefore is not to see business as a game of conflict for money but a game of competition for co-operation.

If a profitable situation arises, employers would be in a win-win situation, but, only if they can get employees. Employees were also in a win-win situation because employers would be in competition with each other and have to pay them more and more in order to win their co-operation.

Keynes' insight was to see that by creating enough profitable situations (by increasing the money supply), labour would be at a premium and employers would be forced to bid up the amount they'd have to pay their employees to attract and keep them. With full employment and employees achieving maximum earnings the economy was bound to be buoyant.

Here then is another counter intuitive paradox: Business is a game where you compete for co-operation. Employers are not in a competitive situation with their employees, they are in a competition with each other to acquire co-operators. Employees are the objects of desire and are keenly sought after and competed for wherever a profitable situation emerges.