Competition and innovation

Part of a healthy economy is innovation, and advocates of exchange economies propose that they are excellent, if not superior to all possible alternatives, at innovation. Here I describe why I think a non-reciprocal gifting economy would hold up well with innovation, noting that a non-reciprocal gifting economy would still have competition, and that competition isn't actually necessary for innovation.

Monopolies are bad, competition is good

A significant claim about exchange economies is that competition is excellent at creating innovation. When two or more companies compete for profits, they need to innovate so that they can either drive down prices (innovating in efficiency) or increase quality (and capture more of the market by making a better product). On the other hand, a monopoly, where one company operates with no competition, is bad for innovation because they can simply raise prices on their captive market while also producing low quality products.

The best way to organise an economy, then, is to ensure that it is an economy that contains a good amount of competition. This isn't actually something that is guaranteed by the "natural" (read: unregulated) market system. The system mostly motivates profits, not competition, and while the search for profits often means competing, it does not universally mean it. That's why there are anti-trust laws, anti-monopoly laws, arbitration on mergers, and anti-price-fixing laws.

But take away the profit-drive, say advocates of competitive markets, and you will take away the engine of competition, leading to a society of complacent people with stagnating productivity. The true success of the liberal market economy is the success of economic competition.

Monopolies are bad in exchange economies

But monopolies are places of low innovation because this is something inherent about monopolies. Rather, this is a consequence of the motivation for profit. Where a business is essential and uncontested, innovation costs money but doesn't yield more profits because the market is already captured. At that point, the desire for more profits can only happen when prices are raised because there is no way to get more customers. (That's not strictly true, of course - there are expansions into new areas, and mergers.) The alternative to raising prices is lowering quality, which is another thing that regularly occurs.

In a non-reciprocal gifting economy there are no prices and no profits, so a business that doesn't have competitors can't raise prices and doesn't have a motivation to lower quality (delivering something of value is why they are in business, rather than gaining profits). The notion of a monopoly as a dampener on innovation is only particularly relevant in an exchange economy.

Non-reciprocal gifting economies still have competition

That said, non-reciprocal gifting economies would still have competition, even if they don't have money and exchanges and profits. If one business supplies a certain good over a certain area uncontested and its quality drops, there is nothing to stop another company stepping in to compete with it. The two companies will compete for resources (and see the next section on economic calculation and distribution to see some of the ways how), where they each need to convince investors to provide them with resources to pursue their product visions. But there is a crucial difference: they are not competing on price. Instead, they are competing directly on product quality and benefits. One business cannot use price to undercut the other, to push the other out of the sector, or buy up all the stock, because consideration of the importance of the two competing products is central to the allocation of resources.

The difference is that the first company won't see the second company as a threat to its profits, but instead as another participant in a conversation about quality, one that takes place through the practice of product delivery.

Innovation happens without competition

In a non-reciprocal gifting economy, innovation would happen even when there is a monopoly. People like to innovate. They innovate in their spare time, they innovate because they like solving problems, getting recognition, doing less work, contributing to society, and so on. People innovate large-scale projects outside of funded work or employment. People innovate games, procedures, medical devices, knowledge accessbility, and more, and they do it both within their workplaces and outside of them.

The reason not to innovate in a monopoly within an exchange economy is that there may be nothing in it for the worker except more work - that is, an innovation doesn't save labour or get the worker onto a more important and beneficial project, but makes more busy work or raises the level of effort of a whole host of staff. Monopoly companies aren't interested in innovation because implementing it can cost money that they don't need to spend to gain or retain customers.

Without the paradox of efficiency, workplaces would likely see more innovation, even in monopolistic situations.

Cooperation is often good

The final point is that competition isn't always good and cooperation isn't always bad. In a competitive environment different companies keep secrets from each other, which can mean that knowledge about good quality product creation is only available to some of the productive workers. In a competitive environment some workers' roles are doubled up because they are repeated across companies. But cooperation can lead to increased efficiency both in product delivery but also in product research and innovation as different minds pool their ideas together.

And this is not necessarily uncommon in exchange economies: innovation has happened through collaboration in the electric vehicle industry, on protocols and baseline software in the tech industry, and to create medicine in the pharmaceutical industry. Cooperation yields excellent results for innovation, even in markets.