In economics, perfect competition is hailed as an ideal. It is a situation where a large number of firms each produce a similar product, and so consumers can get what they want at the lowest possible cost.
The cult of competition starts early. At certain elite high schools in Sydney, student exam scores are publicly displayed so that every student can see where they rank against each other. This information is then used to stream students into classes. Top ranked students study with other top ranked students, and bottom ranked students study with other bottom ranked students.
If the true goal were education, then it would seem reasonable for each class to contain a mix of strong and weak students so that the strong students could gain even higher mastery by teaching the weaker students. Instead, the streaming process places all of the weakest students together. Exams are less about erudition than about classification.
While elite high schools may not be providing an optimal learning environment, they are teaching their students a crucial life lesson. We are social animals, and your relative position often matters greatly. The schools will of course defend their system by pointing out, quite rightly, that ranking students encourages them to compete, and competition pushes students to achieve higher levels of performance.
Whether ranking students makes them perform better is an open question, but it certainly serves the interests of schools. Firstly, it allows schools to hothouse the best students, thereby increasing the chance that they will get into the best universities. This always forms a key pillar of an elite school’s marketing campaign to prospective parents. Secondly, it puts the students into a competitive mindset, which is just what they will need to fight for and secure the highest paying jobs. High incomes are of course necessary so that graduates can afford the school’s astronomical school fees and provide the school with generous donations in future.
“Competition” is a notion beloved by headmasters, economists, and government policy makers. In other words, by the very people who themselves do not face competitive market forces.
Would a rose by any other name smell as sweet?
Another word for “competitive” is “uncooperative”. The brutal ranking system used in our education systems pits one student against another, and makes it dangerous to help a friend gain a greater understanding of the material. Unless of course you are so gifted as to be well above your friend in the competitive ladder, or so foolish as to not be able to perceive the cutthroat game into which you have been placed. Only geniuses and fools can afford to be benevolent in a school system designed to pit child against child.
This may all be true, but these are just issues for teachers and elite high schools. How is this relevant to issues in the business world like profit, market share, and market dominance?
Well, it is common for people from all spheres of life to believe that the ends can justify the means. Certain elite high schools believe this, which leads them to hot-house students in order to get them into the most prestigious universities. Uber, the global ride-hailing firm, also believes this, which has led the firm to engage in some very questionable behaviour over the past 8 years.
Founded in 2009, Uber has followed an aggressive growth strategy which might best be described as “ask for forgiveness not permission“. The firm has expanded quickly, entering new markets in many cases before regulations were in place. This has attracted protests from taxi drivers. However, Uber’s approach has been applauded by many economists who have argued that existing laws are often unfair since they protect complacent rent-seeking taxi monopolies that profit at the expense of consumers. Unrestrained competition, after all, is the temple where economists worship.
Uber’s belief that the end justifies the means appears to be an ingrained part of its culture, and not limited to its aggressive growth strategy. In the past, Uber employees have reportedly ordered and cancelled thousands of rides with Lyft, a rival ride-hailing firm. An executive publicly suggested digging up dirt on journalists who criticised the company. Uber implemented surge pricing during various emergencies including Hurricane Sandy in 2012, the Sydney hostage crisis in 2014, and the London Bridge attack in 2017. Uber also started using a tool called Greyball in 2014 to allow its drivers to avoid giving lifts to regulators and law enforcement officers in areas where Uber is illegal.
While “success at any cost” may sound like a start-up mantra to live by, a key problem with this type of culture is that it encourages self-serving behaviour which is both reckless and irresponsible. In 2014, U.S. Senator Al Franken, Chairman of the United States Senate Judiciary Subcommittee on Privacy, Technology and the Law, stated that Uber has a “troubling disregard for customer privacy“. The following year, Uber acknowledged that driver names and license plate information of roughly 50,000 drivers had been exposed.
Waymo, the self-driving car subsidiary of Alphabet, is currently suing Uber for the alleged theft of trade secrets and patent infringement. Court documents filed this week have revealed that Kalanick was aware that Anthony Levandowski, founder of self-driving truck company Otto, was in possession of data from Google before Uber purchased Otto for $680 million.
As if all of this weren’t enough, in February Susan J. Fowler, an ex-Uber engineer, publicly claimed that she was sexually harassed while working at the company. Uber hired former Attorney General Eric Holder to look into the claims, and in June more than 20 people were fired. Last week, CEO Travis Kalanick was finally ensnared in the continuous series of scandals and resigned following demands from investors.
The problem with a culture that supports warlike competition and uncooperative behaviour is that there is no easy solution. Where people are causing harm to others through extremely self-serving behaviour, the punishment may need to be severe. In extreme cases, even the Roman Catholic Church will resort to excommunication rather than communication and forgiveness. Benjamin Edelman, Associate Professor at Harvard Business School, appears to agree with this line of thinking, and this week argued that Uber has been operating beyond the law from day one, and needs to be closed down.
Will it come to that?
While Uber lost almost $1 billion in 2016 it has raised around $15 billion from investors. As a result, it most likely still has a huge war chest. However, combine Uber’s lack of profitability with its seriously problematic corporate culture, which may take many years to change, and it seems that Uber’s troubles look set to continue for a long time to come.
In the near term, it is a promising sign that Uber has decided to adopt all of the recommendations from former Attorney General Eric Holder’s investigation. The key recommendations are extensive including a reallocation of responsibilities of the CEO, use of performance reviews for senior management, an increase in the number of independent board members, an improved human resources system, creation of a robust and effective complaint process, and redrafting the company’s cultural values.
Uber’s bold always be hustlin’ culture has produced rapid growth, but has also attracted scandals, enemies, protests, and disgust. Now would be a good time for it to adopt a more cooperative, friendly (and law abiding) approach.