What Economists Won't Tell You: Why Competition Works

By Warren Kozak
August 2011 (Vol. 24 No. 5)

Here is one of life’s little mysteries: If you place two four-year-olds in the middle of a block, they will, without prompting, immediately race each other to the corner. Michael Phelps never breaks records when he is in the pool by himself. But line up five other swimmers on the starting blocks next to him and Phelps smashes world times. And when two teenagers are idling at a red light, engines running and no cop in sight, it might be wise to get out of their way.

We see the impact of competition every minute of every day, yet we are not even aware of it because it is so much a part of us. At the same time, few of us realize that the greatest impact of competition on our lives has nothing to do with sports, sibling rivalry, getting your child into an Ivy League school or the Pillsbury Bake-Off.

The greatest consequence of competition has been its impact on the American economy. Competition has electrified it, indeed it has charged it with an unprecedented fire and pushed it past every other nation on earth. It can be as mundane as watching the service improve and the prices fall at your local grocery when a competitor opens up across the street. And it also impacts the highest echelons of American business – Durant and Ford, Lauder and Revson, Macy’s and Gimbels or Jobs and Gates – it was competition that drove all of them to succeed. Even the most recent individual to enter that pantheon, twenty-seven year old Mark Zuckerberg, no accidental billionaire, invented Facebook as if he were in a dead heat with MySpace and every other potential social network site that surfaced with the accelerated growth of the internet in 2004. (Judging from the ongoing lawsuits against Zuckerberg, that particular race is still being run.)

But as critical as competition is in our lives and in the unprecedented success of our country, few of us understand the first thing about it. We don’t know its origins, why it pushes us forward, why some people are more competitive than others or why artificial constraints on competition will stifle an entire population. To explain all this along with how the United States of America used competition to its benefit ahead of practically every other people on the planet, we will focus on two residents of Wisconsin and we will start with a question.

What do Peter Boscha, living on the outskirts of Racine and Yash Wadhwa in the Milwaukee suburb of Glendale have in common with each other and how has competition impacted their lives? Boscha and Wadhwa have never met. They come from completely different worlds. They don’t look or even sound alike, but their stories are eerily similar and so are their outcomes. That’s because they have one very important trait in common.

Peter

Peter Boscha is a tall, handsome man with a friendly bearing and a youthful charm despite the fact that he is almost 80. As he welcomes you into his home, on the outskirts of Racine, it is immediately evident from his accent that he didn’t start here. Peter Boscha was born in the small hamlet of Friesland, Holland, in 1932. His father worked on a nearby farm like most of the men in that northern part of the Netherlands. There were few extras in Peter’s early life, but Peter was born with a desire to succeed. The family had enough to eat when he was growing up and their house was one of the first to have electricity, which by today’s standards does not sound terribly noteworthy, but in rural Holland in 1938, electricity was a great luxury.

That luxury along with everything else in Peter’s life changed dramatically on the morning of May 10, 1940. “I remember the Messerschmitts flying low over our street.” Germany had invaded Holland. Actually, rolled over it is more precise. The Dutch Army was no match for the power of the Third Reich – Holland was merely a way to get to the bigger prizes of Europe – France and England.

“At first, life under the Germans seemed fairly normal,” Peter remembers. “But soon, the grip began to tighten and we saw new laws put in place.” It started with relatively minor decrees and then grew much worse.

Peter’s formal education ended in 1943. “The Germans took over our school and they just kicked us out.” For obvious reasons, this is something that has always stayed with him. “I never went past the sixth grade.”

From the age of 12 on, he worked on the farm, mostly tending tulip bulbs. But throughout the dark days of the war, indeed from his earliest memories, there was one goal that always beckoned – the United States. That may seem odd in this relatively homogenous and isolated part of Holland – that a country thousands of miles away would capture a young boy’s imagination as well as his heart. But as for Peter, as for millions of people around the world, there was something special about America.

“I remember reading a book in school about a black stallion in Wyoming. I can’t explain it, but I always wanted to see that black stallion … and I wanted to drive a double-decker Greyhound bus.”

Those two images can be dismissed as the dreams of a child, but there is something else – something greater. Holland, in Peter’s mind, and especially the tiny town of Friesland seemed terribly limiting and even claustrophobic. That black stallion represented one of America’s great myths – the West – with its wide open spaces, its spirit, and its independence. Perhaps that double-decker bus was part of another American myth – the open road – with its adventure and its limitless possibilities.

When the war ended Peter Boscha was 13 years old, and things had changed in his country. “There was something pent-up in the population.” Perhaps it was the deprivation through the 1930s or the war with its lack of freedom. But there was more to it. All of Europe, in Peter’s mind, seemed to be self limiting. America, on the other hand, seemed to be a place where his imagination could run wild. In the mind of a teenager with only a sixth grade education, it was a place where he had a better chance to compete against others and even thrive. He loved the idea that everything was up to the individual in America. He thought that if a person just worked harder and came up with better ideas than the man next to him, he could come out on top. In his home country, he knew that even with the best ideas, that wouldn’t necessarily translate to success. So Peter began talking to his girlfriend, Linda, about leaving Holland for the United States and the two of them started to turn that dream into a reality.

The path wasn’t smooth or easy. Although Linda had an uncle in the States, Peter could not find a sponsor – someone who agreed to be financially responsible for him. So Linda emigrated first to her uncle’s home in Racine. Peter was able to get only to Canada. Their parents were not pleased. In fact, they never actually told them that this was a permanent move. After Peter’s arrival in Canada, Linda moved to Toronto to be with him and they were married on November 26, 1955. “It was the poorest wedding you ever saw,” Peter says, to which Linda readily nods her head. Still, even though they had made the big transition and left Holland, it was still the United States that was their primary goal. 

“Canada’s structure, government and economy were more like Europe. We had enough of that. We wanted something different.”

Peter Boscha still remembers the date and time of his redemption – it was a Saturday morning, at 11 o’clock. The mailman came to the door with one of the greatest gifts of his life: “The visa to the promised land.” That’s how Peter Boscha still refers to the immigration papers that arrived from the U.S. Consulate.

Linda was equally thrilled.  “I loved America. When we were in Canada, I talked about America all the time. But now we would go as a family.”

After a lifetime full of dreams, the actual entry was pretty anti-climactic. No fanfare and certainly no welcome signs. They drove across the border on a spring morning in 1958, crossing at Port Huron on the way into Detroit. “Stamp, stamp, stamp. That was it,” recalls Peter with a smile. “Then we drove across Michigan to Racine.”

Yash

On the other side of the world and some years later, Yash Wadhwa had the same dream. Yash was born in Delhi, India, after the war. He didn’t suffer through any of the deprivations of the global conflict, although India gained its independence from Great Britain after a long struggle, Yash was immune from that as well. His father was a businessman. Yash was well-educated, getting a bachelor’s degree in civil engineering in Delhi. But throughout his adolescence, Yash’s favorite activity was going to the American library in Delhi. He was not alone. Many young Indians flocked to the library, which was sponsored by the US government.

Yash would read history books about the United States. He remembers the pictures of the presidents up on the wall and would stare at them with awe. Just as it had to Peter Bosch, this far off land seemed to beckon to Yash. “I had such a good impression of the USA – Kennedy was someone we all looked up to, so were the sports stars and movie stars.” And like Peter, Yash recalls that in America, all things seemed possible—a person could become anything he wanted to be. There was nothing America could not do in the 1960s – from its popular culture that fascinated him to landing on the moon. Americans were almost mythic – larger than life.

In the late 1960s, India, under its prime minister, Indira Gandhi, moved closer to the Soviet Union. Rampant corruption, India’s crushing caste system and a multi-layered government bureaucracy stifled business and competition. Even as a teenager, Yash understood that there was something in him that wanted to succeed, but he knew that because of these constraints, he could never achieve his goals in his home country.

Besides the books and the presidential portraits, the American library offered a directory of colleges in the states that accepted foreign students for advanced degrees and offered scholarships. The librarians even helped students fill out the applications for the TOEFL exam – the Test of English as a Foreign Language – which had to be mastered before a student was allowed into the country. This process was not done completely out of charity. It was assumed that the people who would pursue these advantages were the most enterprising individuals in a foreign country – exactly the type of people America wanted.

The similarities continue to pile up. Like Peter, Yash’s parents were not happy about the idea of their son leaving home, but they also understood that the economic system in the United States offered him a better chance to maximize his potential. In 1969, Yash enrolled at the University of Pittsburgh for a degree in civil engineering and environmental engineering, focusing on wastewater, a growing field.

Peter and Yash Flourish in Wisconsin

Both men adapted immediately to their new country, but they held on to important parts of their past. They both married women from their home country – Peter married his girlfriend, Linda, and Yash married Usha from his hometown. With his degrees in engineering, Yash went directly upon graduation to a good job with Larsen Engineers in Rochester, New York, in 1971. He was transferred to Milwaukee eight years later and has been there ever since. After 16 years at Larsen, he moved to another engineering firm, Strand Associates, and is the head of its Milwaukee office and its 150 employees.

Peter Boscha’s journey in the United States was not nearly as smooth but it would prove to be equally successful. He started at rock bottom – his first job was with J.I. Case in Racine, where he hauled dyes and material on the factory floor in the late 1950s. When an opening in the machine shop came up, he asked the foreman to consider him. When the foreman asked if he any experience, the bold young man simply replied: “Give me a chance and if I can’t do it, I’ll leave.” Peter got the job.

After labor unrest and a strike, Peter moved to another factory, Walker-Ford, where they built crankshafts. “It was a very dirty job,” he remembers.

Everything changed when Linda’s cousin needed a partner in his building business and offered Peter the job. When Peter went to his foreman at Walker and told him he was leaving, the foreman didn’t want to lose a good worker and told him he couldn’t go. Peter’s only comment was, “I didn’t come to this country to punch a time clock.” His boss looked at him and then leaned over and whispered: “You’re right … good choice.”

Peter went from working as a framer to subcontracting. All along, he was learning a new trade – building homes. Linda helped him with the management and bookkeeping. Eventually, he took a chance and bought some land on his own, subdivided it, built homes and sold them. He developed a reputation as someone who did excellent work at a fair price and was true to his word. Soon, people were coming to him, including some of the top families in Racine. But real estate and building is subject to the ups and downs of the market. His trajectory was hardly a straight shot to success. In the 1980s, when homes weren’t selling, Peter came close to going under and had to mortgage his own home to pay his debts. But he managed to get through that period and can look back with pride at a life of hard work and success.

Our Genetic Drive
What Peter and Yash were defining, even though they may not have realized it at the time, was a reality that, on one level is astoundingly simple. The United States – more than any other country in history – offers  the chance to express one of the most basic, even primitive human instincts – the chance to compete against others and, most important of all, the chance to win. Even though this concept may sound obvious, amazingly very few nations throughout history have actually offered this common sense equation to humankind. 

Competition is innate in human beings. It comes naturally to us because it is in all of us. We are descended from hunter-gatherers who understood that if their tribe did not get the wooly mammoth before the other tribe on the opposite side of the hill, they would not eat and they would die. On an even more basic level, males have always competed for what they considered to be the most desirable females. When you see rams charging other rams for the female, you are seeing a variation on the human theme. Darwin saw competition as a critical part of human evolution. It is fixed in our DNA. We are highly competitive animals.

Dr. Patricia Tidwell, a psychoanalyst who has studied competition, believes that while this instinct is certainly inside all of us, it is also learned. “It’s definitely innate,” says Dr. Tidwell, “but a person’s family of origin can have a huge impact on how they deal with that innate behavior.” For instance, if a family says competition is a bad thing and continues to portray it in negative terms, it will undermine that person later in life when it would be natural and beneficial to compete against others. Conversely, if a child is not a very competitive person by nature – and some people are not, there is a spectrum – and their families are extremely competitive, that can cause problems later as well, according Dr. Tidwell.

It is ever present and we experience it throughout our lives. Whether it is on the playground, or comparing test scores in junior high school or in basketball tournaments or getting the golden cheerleader or star quarterback as your date to the prom, these are lessons we learn early and ones that continue to play out through adulthood in work, business, and personal relationships.

“Competition is a very powerful force,” says Dr. Tidwell. But what shocks her is that given its importance, there have been relatively few studies on it. “I think that’s because a lot of people, including therapists, are uncomfortable talking about it.”

Competition causes us to perform better but it also gets us in the game. “It forces human beings to learn how to win and it ultimately makes people successful,” says Dr. Tidwell. As a recent full page newspaper ad for Sprint reads, “Competition is the steady hand at our back, pushing us to faster, better, smarter, simpler, lighter, thinner, cooler.” Sprint should know – if it weren’t for the landmark court decision in 1984 that broke up the Bell Telephone monopoly allowing many other phone companies to rise up and compete against each other, there would be no Sprint today.

People often confuse competition with aggression. They are not the same. Competition is a motivating factor. And although aggression is something that can get us up in the morning, there is a dark side to it. “Aggression gets us moving, but on the far end of the spectrum, it can be quite destructive,” observes Dr. Tidwell. “It can cause people to kill one another.”

And therein lay the confusion. Some people mistakenly believe it is destructive to get ahead of someone either in a race or in business or in life. It is not. Numerous analysts have treated patients who can’t win a race, who can’t get their bills out to get paid or who commit any number of self-destructive acts because of this confusion.

Competition and Immigration

What motivates people like Peter and Yash to pick up and leave their homes and all that is familiar for a new, faraway land where they don’t know the language or anything else?

According to Dr. Tidwell, the first and perhaps most important reason is a problem. If things were great back in their home country, they would never have left in the first place. “The very first people who came to America did so because they weren’t able to do what they wanted to do back there.” 

For some, it was religion, and America, like no other country before, offered people the freedom and the right to practice whatever religion they desired without fear. For some, it was opportunity. But the opportunities open to new Americans were not handed out at Ellis Island or wherever the port of arrival happened to be. These new immigrants would have to learn everything from a new currency to the laws and business practices before they could succeed. And up until the end of the 20th century, there were very few government or even private institutions to help them along the way. They had to do this on their own.

Peter understood that with a sixth grade education, his chances at success in Holland in the 1940s were negligible. For Yash, even with an engineering degree, India in 1965 stifled competition and success.

But only a certain type of individual is willing and able to emigrate. That is a person with an adventurous streak and a competitive personality. And while these individuals understand that in America, their chances of success are simply better than anywhere else in the world, they also know there is a catch. Success will be completely up to them.

There is always a risk involved in any form of competition. The immigrant who comes to America is taking the chance that using one’s life’s savings to come here along with all the hard work – could end in failure. But entering into any competition, a person takes the chance of losing. Everyone balances the risk/reward factor and decides if it is worth the risk. “If you are highly risk adverse,” says Dr. Tidwell, “you are not going to be a good competitor.” There is a better than even chance that the risk-adverse person would not have emigrated from Holland, India or anywhere else.

Peter Boscha and Yash Wadhwa are simply a tiny part of one of history’s greatest waves of humanity – tens-of-millions who came to America from every country on earth.  Both were attracted by the idea that if they pushed themselves harder to succeed, they could achieve a greatness here that was never possible in postwar Holland or in India in the 1960s.

There was a clear reason for this.  Europe in the late 1940s and ’50s was moving toward a form of socialism that disallowed a completely free-market economy. In India, it was the caste system and bureaucracy that destroyed initiative. Yash correctly points out that India in the last 15 years has moved to a more competitive, open market economy and it is already starting to see the benefits. More young people today are staying in India and opening up businesses to compete against each other and the more established, old-guard businesses. It is not by accident that India has seen a dramatic rise in its GDP during this period and that the country is quickly rising to a dominant position in Asia.

Cezanne, Einstein, and Neil Armstrong

Throughout history, there have been particular periods when thriving competition pushed people to do greater work. The Impressionists in the late 19th century learned from each other but they were also competing with each other. They were competing for patrons, for adulation, and for reviews. The physicists in Germany and Hungary at the beginning of the 20th century were doing their own research, but they were all looking over their shoulders at each other and everyone was watching Professor Einstein. Had there been one national film board in the United States in the 1920s, it would have, no doubt, produced some great films. But by having numerous studios run by cut-throat competitors like Louis B. Mayer, Samuel Goldwyn and Joseph P. Kennedy, Hollywood entered its golden age and we all benefited. Every major city had multiple newspapers competing for stories, advertising, and readers, which forced them to produce stories faster and better. And Neil Armstrong probably would still have landed on the moon if we had not been in a flat-out race against the Soviets, but there is a good chance it would have been later than 1969 if the Soviets had, instead, focused their attention on refrigerators and consumer goods for their population. (There might also still be a Soviet Union today if they had done that.)

But strangely, as human beings evolved and tribal societies matured into nation states, almost none of these man-created entities allowed for this very strong innate force to manifest itself in its natural way. In fact, they did the opposite. Barriers were set up through royalty, caste systems and variations on authoritarian rule – some benign, most not – that subverted free enterprise and competition. Throughout history, impediments were constantly erected that prevented human beings from competing against each other on a level field. Thus, their natural potential could never be achieved.

The first person to formally recognize this and integrate it into an economic theory was an 18th century Scotsman named Adam Smith.  First in a series of lectures, Smith blended the two components – competition and economics – and in so doing, he had a profound impact on the future of the world. Smith’s lectures at Edinburgh were the framework for his book The Wealth of Nations, published in 1776. More than 200 years later, it is considered to be the first modern book on economic theory and, arguably, the book with the greatest impact on the future.

“The most important substantive proposition in all of economics, was Smith’s foundation of resource allocation,” according to George Stigler, who won the Nobel Prize in economics in 1982. Smith said that the people who command the resources – be it labor or capital or raw materials – will use them more profitably and more efficiently because of competition. And that, in turn, will bring about an equal rate of return, or equilibrium.
John D. Rockefeller, long seen as one of America’s great “robber-barons,” proved Stigler’s point in the late 19th century.  When Rockefeller “controlled 90 percent of the global market, petroleum products reached their absolute lowest relative prices,” writes Christoper Levenick in Philanthropy Magazine. Rockefeller’s philosophy: “We are refining oil for the poor man and he must have it good and cheap.” 1

“Almost entirely because of [another robber baron, Andrew Carnegie], the price per ton of steel rails dropped from $160 in 1875 to $17 in 1898.”2 writes Levenick. So much for the “robber” in robber baron.

Another Nobel laureate, Paul Samuelson, thought that Smith’s understanding of the basic principles of supply and demand when applied to wages and costs were ahead of their time and ahead of the “general equilibrium” model, which actually came much later. Samuelson believed Smith was also more realistic when considering price increases, invention and capital accumulation – read that the human component – than the theories of Karl Marx, who saw supply and labor in more rigid terms that did not account for the human variable. In other words, give human beings the chance to compete, which comes naturally to them, and they will create bold industries. Stifle that competition and creativity, as Marx did, and a nation’s work ethic will atrophy. The classic proof of this is the Soviet Union, where despite an educated population and a wealth of natural resources, the standard of living for the ordinary citizen hovered near rock bottom.

Look at the timing. The Wealth of Nations was published at the dawn of the Industrial Revolution and it argued that competition in a free market system actually served society best because it was simply more productive. And by being more productive, everyone from the man who lived in the largest house in town to the man on the bottom rung benefited from a thriving economy.

In that same year on the other side of the Atlantic, a small group of men gathered together in Philadelphia  took Smith’s concept of competition one step further, setting up an experiment called the United States as a democracy with a free market economy.
The Founding Fathers wanted to separate the United States from its European origins in as many ways as possible. So they decided that in this new land, one’s chances in life would not depend on who one’s father happened to be. This sounds almost mundane today because we have grown so used to the concept that it has simply become part of our national story. But back in 1776, you have to realize just what a radical idea this happened to be. At that time, if you were born in Europe or Asia or Africa – indeed anywhere else on earth – your life was charted on the day you were born. But not in the United States. This seemingly minor decision turned out to be not just good for the individual, but all of society benefited because it opened up the talent pool to a much wider number of individuals.

Primogeniture was tossed out the window, and that opened up everyone and everything to compete through hard work and innovation. It is for this reason alone that the United States gained some of its most profound and beloved leaders – men who came from extremely modest backgrounds. For every Roosevelt and Kennedy and Rockefeller that entered politics, there are many more Lincolns, Clintons, Ryans and Obamas. Harry Truman and Dwight Eisenhower were born on working farms. A perfect example of this is the man who, ironically, laid down the framework for our economic system, our first Secretary of the Treasury – Alexander Hamilton. Here was a man born to a prostitute, abandoned by his father in the Caribbean and left to his own very formidable devices. Hamilton rose through the ranks of the Continental Army, was noticed by Washington for his brilliance and daring and was given huge responsibilities in the new government. Hamilton had one of the greatest impacts on the future economy of the United States and he accomplished all of this without lineage – just shear merit.3

In Europe and elsewhere, the first-born son received everything, a dynamic that can stifle competition and drive. What America often gained were sons two, three and four who had little else except, perhaps, the will and motivation to show their fathers and eldest brothers that they were better. Once again, competition.

Competition and Learning

In the course of researching this article, I asked various experts what the impact of competition has been on the US economy. To more or less the same extent, they all agreed with Dr. Tidwell’s very succinct definition. “It made it the dominant economy in the world. Period.”  But she pointed out something that was equally important, “It’s not just that it is encouraged [in the United States], but that it is celebrated.”

So which came first? Was it the free market system that allowed Americans to become competitive or is there something in the national character? Dr. Ken Levin is a psychiatrist on the faculty of Harvard Medical School. Dr. Levin, like the others, believes competition is absolutely primal “because the search for acknowledgment, approval and reward is primal.” But Dr. Levin believes that the real significance of competition “goes beyond the psychology of competition and encompasses the entire psychology of learning.”

For example, we all learn how to do the most rudimentary chores at a young age, usually from a parent or some other elder. Let’s say it’s something as basic as washing a shirt. We never question the procedure and continue to wash our shirts the way we were taught year after year. But one day, later in life, perhaps in college or in the Army, we observe someone else washing a shirt in a much smarter way. “When one is exposed to someone else’s more efficient solution, then one may not only adopt that better way but be spurred on to entertain the possibility of still better solutions – a sequence that doesn’t strictly entail competition but does touch on learning and innovative thinking.” Dr. Levin admits that isn’t the only route to innovation but it is definitely a major one – perhaps the major one.

As an example, Dr. Tidwell tells of the man who sees someone else create widget number one. “He sees it and instead of just seeing a widget, he envisions an even better widget that can be made better and faster and cheaper. Basically, he thinks he can do it better and he wants his widget to beat the other guy’s widget.”

“Competition draws on people’s creativity,” observes Dr. Tidwell, “and that’s how things improve. Otherwise everything would remain the same, there would be no advancement in human beings. “Successful people figure out ways to win and that is another example of how competition is directly tied to innovation,” says Dr. Tidwell, and she gives us Macy’s and Gimbels as an example.

Two of New York’s most famous department stores, Macy’s and Gimbels, were situated right across the street for each other. Mr. Gimbel knew that having Macy’s across the street would force him to improve everything about his store. Mr. Macy understood the same rule. “It was really the ideal location,” says Dr. Tidwell. “If [Macy’s or Gimbels] had opened up on the other side of town, the store would have not have succeeded.”

Material rewards clearly spur competition in a capitalist economy. Dr. Levin says that runners will typically reach better times and break records when running against others. Part of the reason for this is that there is a definite goal and reward – the goal is winning, which brings the reward – recognition and adulation. This, in turn, brings great personal gratification. In the American economic system, creating a more durable, more popular and more successful product can certainly bring that same self satisfying recognition – the knowledge that you alone dreamed up, built, and marketed this applauded car or computer or widget. But it will also bring a huge added benefit in America – greater monetary success. And monetary success can change one’s life in a very positive way.

Competing against others – whether in amateur athletics or in business – also adds to learning by providing exposure to what is possible which, in turn, drives innovation forward. “Competition and learning are intertwined,” according to Dr. Levin.

This is exactly how Peter Bosch moved from learning how to frame a house to the intricate business of buying land, subdividing it, dealing with town ordinances, building quality homes at affordable prices and selling them. Along the way, he also employed dozens of carpenters, plumbers and roofers.  Yash Wadhwa had to figure out a way to beat other engineering firms bidding for contracts by providing it for less, but still giving a quality product. “Competition,” says Yash, “is everything. It is what causes us to do a better job for less.”

“In a capitalist economy,” says Dr. Levin, “with an essentially even playing field, building a better mousetrap is rewarded and this drives competition and innovation. The innovation drives additional innovation—all of which redounds to the benefit of the consumer and the economy more broadly.”

The positive side of this equation can be seen in the evolution from the A&P in the early 1900s to Kohls grocery chain following World War II to Costco and Sam’s Club today. Practically every small town in Wisconsin had an A&P on its Main Street for the first half of the 20th century and in most of these towns, it had a monopoly. When an Eastern European immigrant by the name of Max Kohl came to Wisconsin in the early part of the century, he introduced a more modern, better lit and larger store that was more pleasant to shop in. Produce, bakery and meats were fresher and better presented. Soon, Kohl’s surpassed the A&P. Today, borrowing on that theme, stores like Costco and Sam’s Club offer customers even larger stores, greater quantity and lower prices. In today’s challenging economy, that is what many customers desire. But all of these stores watched each other to improve and innovate. Throughout it all, the chief beneficiary has been the customer, although the heirs of George Huntington Hartford(A&P), Max Kohl and Sam Walton did pretty well also.

The Tin Lizzie, Jack Benny, and the Tonight Show

One of the most notable examples of an American industrialist who was completely fixated on creativity, ingenuity and competition was Henry Ford. After several failures in his initial attempts to create an automobile company, Ford finally opened the Ford Motor Company on June 16, 1903. Five years later, he introduced its chief product, the Model T.
Ford was fixated on constant innovation – not necessarily with the Model T itself, which he never changed – not even its color – but innovation in the production of the Model T. Ford realized that by building it smarter and faster, he could bring down the cost, thus attracting more people to buy it.

Ford never stopped working at this, even after his initial success. The assembly line of production was created with an eye on moving the parts to the line in an increasingly speedier fashion. He created the 5 dollar work day, which doubled the previous daily wage of $2.36. People thought he was crazy, but he did this for two reasons. First, he realized that if he was able to keep good workers, he would actually save money training replacement workers, and secondly, by bringing his workers into the middle class, he would soon have more potential buyers of his product. Eventually, the other car makers raised their salaries to match Ford because they didn’t want to lose top workers. Here we see Adam Smith’s theories working out exactly as planned and a generation of workers rising to the middle class.

“Competition,” said Ford, “is the keen cutting edge of business, always shaving away at costs.”  He proved this by lowering the price of the Model T because his constant production innovations lowered costs. In 1908, a Model T cost $825. Eight years later, in 1916 the price dropped to $360. That year, Ford sold 472,000 Motel Ts. Two years later, in 1918, half of all the cars in America were Model T Fords.

But Henry Ford never had a monopoly, and he was keenly aware of that fact. Not far away, in the same city, five years after Ford started his company, William Durant began the consolidation of General Motors, which would include the Buick, Olds, Chevrolet, Cadillac and Pontiac lines.  Durant not only competed against Ford, but he set up this colossus of a company with divisions that competed against each other. To this day, the heads of these companies measure their success not by what they earn but how many more cars they are selling than the other companies. Once again, always looking over their shoulder.

Throughout the 20th century, we have witnessed these business competitions that look more like personal turf fights. David Sarnoff started NBC as a way to sell more radios for RCA, the company he ran from 1930 to 1970. In those same years and just a few blocks down Sixth Avenue in New York City, William Paley, founded CBS in 1928. These two men were from similar backgrounds. Sarnoff was an immigrant from Eastern Europe.

Paley was the son of immigrants from that same area. At nearly the same time both men created network radio in the late 1920s followed by network television right after World War II. Together, Paley and Sarnoff had an enormous impact on the cultural diets of practically every American. They were both millionaires. They both had tremendous power and reach. But throughout their entire careers, they pushed their companies for better shows, greater talent, and more innovation in order to have what they considered the real prize – to be called the No. 1 network. It has been said that one year when CBS had been way ahead of NBC with almost every show in the top ten, Paley slammed down the newspaper on his desk one morning and exclaimed, “That damned NBC still has one show in the top ten.” Nine shows at the top were not enough for him.

Back in Wisconsin, Yash Wadhwa understood immediately that is competition that drives the American economy. “I have to deal with so many different contracts,” observes Yash, “and I know I won’t get the deals unless my ideas are more innovative and usually less expensive than the others.

“So,” in Yash’s estimation, “Competition brings out three important points. It brings greater quality to the market. It provides better service. And it brings down the price.”

The Failed Experiment

The antithetical concept in practice and reality to the free market system of the United States was the Marxist economy of the Soviet Union from 1917 to 1991. Throughout the Cold War, the US and the USSR competed against each other on the world stage for dominance. But it was clear from the start for anyone who visited the USSR and saw the housing, the food stores or simply the general mood of its citizens, there never really was any competition. No one in their right mind would suggest that life was better in the Soviet Union and no one preferred products made by the Soviets to those made in the US during that period. One telling note was that the USSR, the largest country on earth with tremendous natural resources, was continually forced to buy grain from the US.
But the seeds of this disaster were sown long before Lenin and the Bolsheviks took power in 1917. The Communists merely exploited a population that saw the state as an alien force that kept the general population from realizing their potential. This goes all the way back to Catherine the Great, according to Dr. Anne Hamilton who teaches political science at the University of Wisconsin-Whitewater.

“There is a whole host of imagery that recurs in Russian cultural texts depicting the state as evil, corrupt, alien, and inefficient.” But Dr. Hamilton points out that the people, oddly, did not see their leaders that way and separated them from what they saw as an oppressive, ever-growing bureaucracy. They saw this “state” as getting between the people and their leader. This also accounts for the odd historic need of Russians to have all-powerful leaders from Catherine to Peter the Great to Stalin, no matter how insane their decrees might become.

“What followed from this was the idea that it was okay to steal from the state, because it was the immoral alien oppressor” notes Dr. Hamilton. “Along with this was the absence of private property, under the tsars and under communism. The nobles, the peasants, and the bureaucracy all worked for the tsars. Moreover, there was never a sense that what you might achieve through your own work was necessarily yours to keep.  There was never the ‘rule of law’ that is key to fairness in a system.”

Oddly, there was one form of competition that did exist in the Soviet Union as it does in most totalitarian systems, according to Dr. Levin. “But it [was] directed towards acquiring and sustaining a position in, or approval of, the ruling elites; not towards winning rewards from the general population by offering them better products at better prices. In socialist/communist systems, innovation largely dies because it is not rewarded and there is not capitalist competition to drive it.”

Often jokes and humor will expose a country’s personality. There is an old story that goes something like this – a Russian and an American are sitting on a city bus when a guy in a sports car goes roaring past them. The Russian looks out and mutters:  “Someday, he’ll be riding on the bus with us.” The American looks out the window and says: “Someday, my son will be driving a car like that.” It’s been said that a Russian would rather see the man next to him fail than succeed himself.

On the other hand, fifty years of communism could not stifle a natural entrepreneurial streak in the Chinese. Ten years after the death of Mao Tse-tung, Deng Xio Ping began opening up the tiniest crack in that country’s Marxist ideology. In the mid-1980s, the first tiny stalls that were run by individuals – something that would have been punishable by death during the days of Mao – began to appear on city streets. These stalls became stores and the stores became factories, and skyscrapers began to dot the sky. The World Bank now predicts that the Chinese economy could surpass the U.S. economy as the largest in the world in just five years.

I lived in China in the mid-1980s. One of the many things I found, frankly, foreign to my experience, was that on every truck that I saw carrying goods, there were always three men in the cab and three men sitting high atop whatever it was they were hauling. It didn’t matter if it was scrap iron or vegetables. This was China’s way of producing zero unemployment back then. For the men on top of the truck, the best chance of advancement they could attain was getting to ride in the cab someday. They were obviously bored and listless and probably didn’t put in their best effort because it simply didn’t matter – they would get the same small salary and benefits no matter what they did. Another time, I went to a department store to buy a bicycle. The saleslady, who seemed annoyed that I even came in, took a bike from a long row and carelessly knocked them all over like dominoes. The she just walked away. I asked a Chinese colleague why he thought she did that. “Perhaps,” he said, “it is because they are not hers.”

That was a vivid example of the impact of communism on China. Things, of course, have changed.  Those men on top of the truck and the saleslady have more opportunity and, perhaps even more importantly, a reason to work harder. There are material benefits coming into the country that just weren’t available to 99.9 percent of the population in 1985. Only the ruling elites had them. Rewards produce goals, and goals push achievement.

Much of this is exactly what Peter Bosch and Yash Wadhwa were running from. Peter saw Europe moving into a more fixed socialist economy, and Yash found the Indian bureaucracy smothering and counter-productive. It was America’s free market that gave them the best chance. In each case, societal traits were vastly different, but the end result was the same – a better chance to compete.

True Grit

If one looks at the elements that make for a success, a competitive personality is only part of it. One psychologist at the University of Pennsylvania, Dr. Angela Duckworth, made a fascinating study looking at, of all things, the National Spelling Bee and discovered something that turned a lot of old theories on their heads. Many of us believe that although everything was in place that was necessary for the Fords, Edisons, Krocs and Levi Strausses to rise to the top here in America, we also believe that these individuals were blessed with some natural talent that others did not possess. As writer, Jonah Lehrer puts it, we believe that: “Einstein had the physics gene, Beethoven had the symphony gene, and Tiger Woods, at least until his car crash, had the golf swing gene.”

But Dr. Duckworth found that there is yet one more gene that is crucial in practically every American success story that may not be celebrated or even taught. We’ll call it the “stick-to-it” gene or what Dr. Duckworth calls, simply, grit. She discovered this grit while looking at the finalists in the National Spelling Bee. And what she found was an inner part of a personality that caused a child to forego immediate pleasure – whether it was playing with friends, watching TV, or reading Harry Potter – and, instead, sit down and do the grunt work that it takes to learn the definitions of thousands of words. The finalists in the Spelling Bee spent thousands of hours by themselves, writing out words and their definitions and going over them again and again. There is nothing possibly fun about this except, perhaps, holding on to the dream of someday standing on the stage and hearing the applause after they have defeated the opposition. And of course, along with the victory comes personal satisfaction, admiration of peers and the acknowledgement of parents.

This fits in with a famous experiment done by psychologist Walter Mischel back in 1960s. Dr. Mischel put four-year-olds in a room with a marshmallow (or some treat) and told them that they could eat it after he left the room. But if they waited until he got back and didn’t eat it, they would get two. In follow-up studies, Mischel found that the four-year-olds who were able to figure out ways to wait and avoid eating the treat were more likely to succeed in school, get better grades and have higher incomes. The idea of delayed gratification fits in with the same abilities to maintain a focus on work until the task is complete. People who possess this ability or Dr. Duckworth’s stick-to-it gene – grit – have the will to delay any gratification until their goals are met.

Peter Bosch showed his grit as he moved up through a series of difficult and dirty jobs until he figured out a way to create a successful business on his own. Yash Wadhwa did the same. And I think it’s a safe assumption that had Peter and Yash been offered the marshmallow at the age of four, they would have held out for two.

Henry Ford was fixated on – obsessed with may be a better way to put it – first creating a horseless carriage and then getting the entire country to accept his concept as the proper mode of transportation. Thomas Edison had a cot in his lab where he would take short naps because he spent so much time there. As we saw in the film The Social Network, Mark Zuckerberg was still applying the algorithms at 4 and 5 in the morning when his fellow students at Harvard were drinking, sleeping, or doing something else.

Yes, all of these people were as competitive as a major- league athlete, but like the most successful athletes, they were willing to put in the hundreds and thousands of hours on the basketball court or the baseball diamond or hitting tennis balls in order to compete on a national and international level.

Generosity of Spirit

There is another side to the American success story that is so consistent that it cannot be ignored. Both Peter Boscha and Yash Wadhwa are deeply religious men who have been extremely generous with their success. Peter has been active in his Lutheran Church since he arrived in Racine in the 1950s. Every Wednesday, he devotes half of his day going to Racine’s juvenile incarceration center to talk to the young men who are there and try to instill in them a reason to live a better life. Yash is a lay leader in the Hindu Temple near his home and has been active on civic boards for many years.

Most people forget that more than 15 years before Adam Smith published The Wealth of Nations, he wrote The Theory of Moral Sentiments in 1759. In it, Smith looked at ethics, virtue, propriety and benevolence. Wealth was not the end goal of the capitalist system. Instead, money was seen as a kind of stewardship to be given back in a responsible fashion.
The plain and undeniable fact is that the greatest fortunes in this country have produced the greatest philanthropists. The Rockefeller, Ford, Bradley, Carnegie, Hershey, Pillsbury and now the Gates Foundation along with thousands of others, have helped people and society in untold ways. Ironically, many of those who have had their lives irrevocably changed for the better by the work of these philanthropists – often the same capitalists who are vilified by those on the far left and far right – never even knew where the money came from.

Christopher Levenick, in Philanthropy Magazine points out the most over-used term to describe the giants of industry in the late 19th century as “robber-barons” came from an avowed Marxist, Matthew Josephson, in his 1934 book, The Robber Barons. Levenick explains in his article, “Seven Myths about the Great Philanthropists,” that the real robber barons were medieval nobleman who charged tolls on Europe’s waterways. They produced nothing.4

Instead, men like Carnegie, Hershey, and Rockefeller created tens of thousands of jobs, raised wealth not just for themselves, and then gave much of their fortunes away – quite the opposite of the original robber barons. A religious leader once said he believed the United States has been blessed by God because it has been so generous. I don’t know if this man knew the statistics, but the second half of his statement is certainly true. There are no greater contributors to charity in the world than Americans.

America’s Future

So how do competition, grit, Adam Smith, Henry Ford … really all of this... fit into a generation of ADD kids, iPhones, millions of illegal immigrants, trillion-dollar deficits, the rising number of government employees and the diminishing number of workers actually making things to pay for it all?

From the beginning of our nation to this day, Americans, in truth, did not always have a particularly easy road. It was just that in comparison to everywhere else, the road may have appeared to be a downhill coast. It is only from the mid-20th century onward that Americans without a college degree gained a standard of living that offered them their own home, a vacation and the promise of sending their own children to college.

Harry Truman once remarked that his job as president was, in many ways, far easier than when he was a young man working on his family’s farm. Even in the White House, Truman said his greatest fear at night was imagining his father calling from downstairs at 4 in the morning to get up and start plowing. Here was the leader of the post-war free world, who faced down first Germany and Japan and then Joseph Stalin, yet he woke up worrying about running a horse-drawn plow and his father’s wrath.

A little more than 50 years ago, economist John Kenneth Galbraith wrote a book called The Affluent Society. The 1958 best-seller looked at the atypical period right after World War II when the American colossus ruled the global economy. The truth is that affluence was relatively new and unique, and Galbraith reminded us that it was certainly not part of our national story from the beginning. There have always been downturns in the economy, with the longest one lasting the entire decade of the 1930s, still within the living memory of some of the readers of this article. Many hours were spent doing the most rudimentary tasks like trying to stay warm in winter, finding food to eat, and hauling water for drinking and washing. So Galbraith wondered how, in this new era, Adam Smith’s theories would translate into America’s new-found wealth and leisure time. All good questions.

But Galbraith could not predict, indeed no one could, the vast expansion of that wealth over the next four decades. Nor could he or anyone else have predicted the explosion in technology that changed the look of our cities, our government, and ourselves. We are still coming to grips with its impact.

Certainty is the enemy of competition. It was clear in the failure of the Soviet Union and most of the communist governments in the 20th century that sought to dominate the world economy. In retrospect, it seems pre-ordained, but throughout most of that century, there was a real question as to which system would prevail. What was clear was that people would not work as hard when guaranteed an income. Without any incentive, they simply would not. “Why bother,” asks Dr. Tidwell, “if I get the same amount whether I work or not.”

Why indeed?  But two decades after the fall of the Soviet Union and its Eastern European satellites, some of those same practices have taken hold here in the United States. Union protection of jobs, teachers with tenure – jobs for life – and state workers with free pensions work very differently than their neighbors who have to compete in the private sector.

Teachers, bus drivers, fire fighters, and police officers are a very necessary and treasured part of our society. We cannot function without them. But it is doubtful that the drive of a Henry Ford can be found within many in those ranks – the constant push for greater efficiency is just not there when a human being knows that his job will be there tomorrow no matter what. That “hand at your back” mentioned in the Sprint ad just isn’t there.

So just as Galbraith could not predict our present situation from the vantage point of 1958, it is equally impossible for anyone today to know what lies ahead for America and its workforce over the next 50 years.

But we do know this. There have been critical junctures throughout this country’s history that changed everything thereafter. The Civil War, the Industrial Revolution, the Great Depression, and World War II were four such periods. And we are living through one today. One decade into this new century, Americans are no longer just competing with other Americans, they are in a flat-out sprint with billions of highly motivated human beings around the world who, for the first time, see the possibility of bettering their own lives. So we stand at this divide and we hear the voices from our present and out past. If there is a force that could stifle competition and destroy what made this country productive, it comes from within. And it could come from something as simple as the parent who wants to protect his child from the hurt of failure, not understanding that failure can be one of the best lessons in life. Ford failed before he produced the Model T.Edison failed again and again. There are many more failures in the ranks of great success stories than there are those who succeeded on the first try.

There are also the naysayers who compare America to Rome and simplify it all with a shrug, saying all empires fall sooner or later. And there are leaders from our past – men like Lincoln, Roosevelt, and Reagan who had boundless optimism about this country, its potential, and its future.

I choose to look at my neighbors and people like Peter Boscha and Yash Wadhwa who heard this call in distant lands many years ago. And I will quote an Englishman during the darkest days of World War II, when that country was fighting alone and it took more than a faint heart to get up in the morning: “Give us the tools,” Churchill told America, “and we will finish the job.”  America still has the most amazing tool box ever assembled. It has a Constitution now in its 236th year and as fresh and strong as it was on its first day. It has a rule of law – not perfect – but as close as human beings have come to getting it right. It has spirit and charm and the awesome ability to renew and reinvent itself. And it has a competitive advantage that is still the envy the world.

Endnotes

1 Christopher Levenick, Philanthropy Magazine, Winter 2011, page 12
2 IBID
3  Richard Brookhiser, Alexander Hamilton, American, Free Press, 2000
4 Christopher Levenick, Philanthropy Magazine ,“Seven Myths about the Great Philanthropists”, Winter 2011, page 11

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