Cooperation to Replace Сompetition

‘Values, Institutions and Trust’ is the title of this year’s April Conference plenary session featuring a paper by Victor Polterovich. For the first time, the conference's plenary sessions will be held in a new format as discussions of the written texts of the papers prepared by the researchers.

Professor Polterovich, member of the XVII April International Conference Programme Committee, Academician, Head of Laboratory of the RAS Central Economics and Mathematics Institute (CEMI), and Deputy Director of the Moscow School of Economics at Lomonosov MSU.

— Professor Polterovich, in your opinion, what topics will become the focus of discussion at the Values, Institutions and Trust plenary?

— I would suggest discussing the issue of how any institutional reform should take into account the civic culture of the respective societies. Many people do not see a problem with privatising a group of public companies, introducing a funded pension plan or entrusting the administration of research institutions to a separate agency; once the decision is made, the relevant law needs to be adopted – and that’s it! What is wrong with that? In fact, reforms designed in this manner – often known as 'shock therapy' – almost never achieve their goal. Privatised companies perform worse than non-privatised, the funded portion of pensions has to be frozen, while the agency ostensibly created to free academics from red tape floods them with even more paperwork. Such failures may result from ignoring technological, resource-related, institutional or cultural limitations. The role of the latter is the subject of my paper.

Imagine an authoritarian state where a group of people seeking to introduce democracy have finally come to power. In all likelihood, this group will be composed mainly of people living in the country's capital who are well-educated, affluent and who place a high value on freedoms of expression, assembly, choice of residence, and the right to influence public policy. On the other hand, members of this elite group have probably inherited some of the cultural traits characteristic of an authoritarian society and above all its paternalism: they believe that they know more about the public interest than the public itself and are therefore entitled to take radical decisions. Free elections are introduced, multiple political parties emerge, and a parliament is formed. However, most citizens are poor and struggle to get enough food; they tend not to think much about the future, are disinterested in politics, apathetic and easy to manipulate. In this situation, voters can easily fall victim to a certain section of the country's elites prone to demagoguery, defying the law and engaging in intrigue and bribery. As a result, corruption thrives, elected 'democratic' governments cannot cope with managing the economy, and a recession begins. A country may be able to overcome these challenges, but more often than not, countries are forced to tighten their regime or even return to the old system; in any event, it comes at an enormous cost.

You may be surprised, but I have actually just described U.S. political history in the 19th century in a very condensed form. However, similar developments have occurred in many countries around the world.

The question is, what would be a rational strategy for those seeking to build a democratic society under such circumstances? It is a complex and so far unresolved problem which, along with other related matters, would be interesting to discuss at the session.

—  According to the abstract of your paper, the evolution of modern developed societies leads to a decrease in the significance of institutions of authority and competitive mechanisms; instead, the role of positive collaboration increases, accompanied by tolerance, altruism, etc. Which areas of collaboration – in society in general or between institutions – are you speaking about?

— I examine the evolution of institutions in the areas of intergovernmental, economic and political interactions. For centuries, war as the most drastic form of competition – except, perhaps, cannibalism – was considered a 'natural' type of interaction between countries; Kant wrote about it in 1795, calling nations to 'eternal peace'. In 1909, there were just 37 intergovernmental organisations in existence; today, many thousands of them exist, and the the total number of international organisations is close to 70,000. They facilitate cooperation in all important spheres of human activity and settle disputes which would have probably led to wars in the past. The European Union, having brought together countries previously warring for centuries, is a remarkable example of international cooperation. Today the E.U. is going through certain difficulties, but I am sure that the subtle mechanisms of balancing various interests will help the Europeans overcome them.

Economic competition is not as expensive as war, but here, too, the costs have been high in the recent past. In economic competition, many of the outputs produced by those who have lost the battle remain unused, thousands of enterprises go bankrupt each year; failure to address externalities and very short planning horizons lead to ineffective decisions; competitive systems are unstable in terms of market power and often generate unreasonable transaction costs due to price wars, excessive marketing, etc., as well as the psychological costs to the competitors.

However, development can bring about changes in civic culture, followed by changes in economic mechanisms. Bankruptcy cases which relatively recently could have resulted in incarceration are increasingly settled by mutual agreement between debtors and creditors. Trade collusion still punishable by prison in certain countries is increasingly recognised in developed societies as a form of cooperation beneficial to the public. Cooperation becomes naturally integrated in competition, sometimes irrespective of the parties' intent. It is not accidental that in many cities, jewellery stores are located in the same street. Two American scholars coined the word 'coopetition' in 1996 to describe a combination of competition and cooperation.

Mechanisms of cooperation are increasingly replacing not only those of competition, but also the functions of government which until recently seemed to be the only possible regulator of competition. In particular, business associations are now assuming regulatory functions.

— What can you say about the situation in Russia in this context?  

— Of course, the said evolution of institutions is mainly manifested in highly developed societies. In Russia, fair competition is is often lacking. However, the role of cooperation is growing here as well. Understanding the patterns of development can help us pass faster through stages that Western countries have already encountered.

— Do you believe that increasing cooperation can help combat economic inequality?

— Definitely. It is no accident that inequality is relatively low in the Nordic countries, where the mechanisms of economic and political cooperation are particularly well developed.

Marina Selina