The 'Prisoners Dilemma'
Competition, Cooperation or Deception?

Keith Rankin, April 1999

"Mutual cooperation provides mutual advantage, mutual non-cooperation (defection by all) results in mutual disadvantage. So far so good - no dilemma yet. The rub comes when one individual can gain added advantage by inducing another to cooperate without having to cooperate in return." (Marvin Henberg, Retribution)

"Collective action generally has the structure of an n-person Prisoners Dilemma. The returns from individual defection are higher than the returns from mutual cooperation.... Each defects, and everyone is worse off.... The payment of taxes often has the structure of a Prisoners Dilemma, in which the payoff from defection is higher than the payoff from payment. (Margaret Levi, Of Rule and Revenue)

"Where Prisoners Dilemmas and vicious cycles exist, change requires intervention on a social level - from government, unions, professional associations, and other collective organisations." (Juliet Schor, The Overworked American)


The Prisoners Dilemma

The Prisoners Dilemma is a "game" that features in many economics textbooks, but in a way that doesn't reveal its true significance. In its simplest form, it represents two "prisoners" - metaphors for self-interested private persons - who are guilty of some unspecified crime; they face a kind of plea-bargaining situation, and they cannot communicate with each other. The best individual outcome for each prisoner arises if they dob in the other but are not themselves dobbed in. The worst outcome is to be dobbed in, but to not oneself be a dobber-in. The best collective outcome is for neither prisoner to dob in the other; the worst collective outcome for the prisoners is a mutual dobbing.

If the prisoners behave in the way that economic theory assumes people behave, then they will dob in each other, and their worst outcome will prevail. Neither prisoner trusts the other, and neither prisoner believes that the other will trust them. This is an example of a "lose-lose" game.

Actually, it's a bit more subtle than that. The prisoners dilemma serves as a way of praising market forces through faint damnation. The prisoners lose. So what? After all, they are only prisoners, would-be collaborators. Surely, an economist might argue, the public is the winner if the prisoners are the losers? Thus the game is really lose-lose-win.

In economics, the prisoner is an apt metaphor for workers, competing businesses, or rival countries. Competing sellers lose because they cannot trust each other to keep their prices high, as a monopoly seller would. Buyers - the consuming public - are the winners. Indeed, it is the task of the Commerce Commission and anti-trust law to ensure mutual non-cooperation among sellers.

We see the prisoners dilemma in caricature in fantasy stories such as the Lord of the Rings and Xena Warrior Princess. Prisoners are rational but stupid. Two orcs unintentionally kill each other when the hero or heroine ducks. The orcs are prisoners (meaning privates, baddies, losers) whereas the hobbits and the warrior princess symbolise the public interest.

A general lose-lose-win game, in which I am a "prisoner", has the following outcome: I lose, my competitors lose, the public wins. Because the public wins, I might win on balance, if my stake in "the public" is significant. Hence, an accurate identification of the public interest is all important (see my "A Matter of Principal; who is the 'public' that public policy serves?", NZPR February 1999). However, even if we have a genuinely inclusive concept of publicness, the idea that we win by losing remains somewhat worrying. If the public is a small consuming class, and the prisoners are a large working class, then most of us simply lose.

A more realistic form of the prisoners dilemma allows prisoners to have some influence over each other. While this condition increases the chance of mutual cooperation, it allows for a third option, deception. Marvin Henberg, in his 1990 book Retribution, Evil for Evil in Ethics, Law and Literature, considers two types of prisoner: one is stupid but not "evil", the other type is evil but not stupid. Evil prisoners will try to deceive the stupid prisoners into cooperative behaviour, but will themselves renege and defect. This is the "falling out of thieves" scenario, where alliances are always temporary, and the prince of thieves gets all the loot. The prisoners who were taken in will resolve not to trust anyone any more.

The prisoners dilemma faced by workers can be avoided through universal education, mutual trust, a unionised workforce or legislation. Here education must be education and not just training. Educated people are intelligent enough to see the bigger picture - that of collective rather than individual interest - and are capable of understanding that an ethos of mutual trust will enable persons to make contractual decisions knowing that other individuals are also educated and trustworthy. The "invisible handshake", representing mutual trust between individuals who don't know each other, is Tim Hazledine's metaphor for a civilised economic society. (See his 1998 book, Taking New Zealand Seriously; the Economics of Decency).

The best of the early neoclassical economists - like Alfred Marshall - understood the need for education. Living life in the Hobbesian lane - short, nasty and brutish - was understood by Marshall as a manifestation of the prisoners dilemma. A civilised society required something more than individually rational behaviour; it required an intelligent and a morally enlightened outlook. We should pay our taxes because we understand that it is for the collective good; not because we are prisoners who fear the midnight knock on the door by the tax collector.


Competition: The Classical View

The process of competition is generally presented as a benign force; a force that, when unimpeded, leads to full employment, an efficient and equitable allocation of consumables and other good things. Market competition is likened to an auction where everyone comes away with something that they want: a kind of win-win game.

That's not quite the way the classical economists saw it. By classical economists, we mean in particular David Ricardo and Thomas Malthus, who wrote their major works in the quarter-century from 1798, when Malthus published the 1st edition of his Essay on the Principle of Population. Following their analysis of competition, economics came to be known as the "dismal science".

(Karl Marx was also a classical economist. Described by Paul Samuelson as an important sociologist and a "minor post-Ricardian economist", Marx blended the classical paradigm of social economy with the historicist philosophy of Hegel.)

The classical project was to determine the distribution of income between the three great classes of the post-feudal world; thus the project from the outset was a blending of sociology and economics. It was the "marginalist revolution" in economics in the 1870s that dumped the sociological component of classical political economy.

Ricardian economics is particularly important in the history of economics because of the considerable degree of abstraction used in his (Ricardo's) analysis. The three great classes were the owners of fixed assets (the landlords), the owners of circulating capital (the capitalists) and the owners of labour (the workers). (Circulating capital means inventory items such as seed corn, livestock, and trade goods.) In classical social economy, the landlords are assumed to derive all of their income from leasing their assets to capitalists; the capitalists pay rent, hire wage workers and sell their produce for profit; the workers sell their labour. The modern equivalent of a Ricardian capitalist is a subcontractor; quite a small fish. Each class was regarded as homogeneous, meaning that one labourer was identical to another, and one capitalist was identical to each other capitalist.

The wage workers were the most numerous class; something that is only true of capitalism. They were subject to the full forces of competition; meaning that they were prisoners of the market economy. As Malthus had suggested, workers' numbers were regulated by mortality, fertility, and subsistence. Workers always tended to oversupply, so they could only subsist by competing with each other for the limited fund of resources that capitalists were willing or able to advance. Workers could only avoid their prescribed fate if they cooperatively decided to supply less labour to the market than the capitalists wanted. Then and only then would capitalists be forced to raise wages to above-subsistence levels.

Capitalists, like workers, were in involuntary competition against each other. The landlords creamed off their profits as rent. The only reason why capitalists did not share the fate of workers is that they were relatively scarce, compared to workers. (In pre-capitalist times, the petit-bourgeois forerunners of the capitalists - the peasants and the artisans - were the most numerous class, so were almost always poor.)

Capitalists competed against each other by investing more and consuming less. The by-products of this accumulation of capital were economic growth and falling profits. Only the landlords benefited from the growth arising from capitalists' investment. The logical outcome was the "stationary state" which came about when capitalists were all on the same breadline as the workers, and all consumption beyond the necessaries of survival was done by the landlord class. In Marx's hopeful variation, the stationary state was unstable, meaning that it would either implode or explode, with the losers becoming the winners.

Capitalists, like labourers, were prisoners of the market economy, making themselves collectively worse off while trying to make themselves individually better off. For them, competition was a lose-lose prisoners dilemma. But it wasn't simply a lose-lose game. The winners were the public class, the consuming class, the landlord gentry. In the classical model, the gentry sleepwalked to victory; they collected the increased rents as their hard-working subordinates shot themselves in their collective feet.

The capitalist economy in nineteenth century Britain didn't quite pan out as the classical economists expected, for a number of reasons beyond the scope of this essay. Many people wore more than one hat (eg freehold farmers were both capitalists and landlords, so what they lost as capitalists they gained with interest as landlords). The working classes were not homogeneous. Some workers - the "aristocracy of labour" - escaped the breadline because they could do things that most other workers could not.

Beyond all that, a lot of creativity and intelligence was applied by the many "prisoners" with attitude. Workers refused to compete against each other; they formed unions. Capitalists, likewise, joined societies and formed cartels. Together, we developed new concepts of publicness; concepts that gave us democracy, a social wage, a welfare state and laws that set and enforced an effective poverty line that was well above starvation level. We chose not to be prisoners. But it was hard work, easily undone.

Modern economic development took place because the growth process worked in practice quite differently to the way virtually everyone (including Marx) expected it to work. Thus the much higher living standards of the 20th century are a win-win-lose inversion (with, ironically, the demise of the classical landlord class) of what should in theory have been a lose-lose-win process.


International Rivalry: The Mercantilist ("shark") View

In international political economy, it is nation states who are the prisoners. In the liberal model, each nation loses in its role as a seller, but wins in its public role as a consumer of internationally produced goods. The Ricardian principle of "comparative advantage" (which projects the lose-lose-win model onto the international stage) implies that the public winnings not only exceed the private losses, but that every nation gets its due share of those winnings.

The alternative mercantilist view is based both on an intellectual fallacy (that winning means exporting more than your rivals) and deceptively selling a losing strategy to rival nations' policymakers. The key word that underpins the shark view is "competitiveness" (or "competitive advantage"). John Major, former Prime Minister of Great Britain, clumsily presented the mercantilist view like this in 1995:

"We are dealing with competitiveness.... Unless we compete and beat the French and the Germans and the Japanese, the Pacific Basin Countries, the United States, we will have huge unemployment, structural unemployment, and dramatically falling living standards" [BBC Panorama, 5 April 1995].

Major wanted New Zealand rather than Great Britain to have "huge unemployment, structural unemployment, and dramatically falling living standards". Little had changed at the top in Britain, since Alfred Marshall was asked to devise ways in which the United Kingdom could run a fiscal policy based on making foreigners bear the burden of the taxes that funded the British government. (See Marshall's 1908 Memorandum.)

Rival nations often claim to support global free trade. But, when their actual policies are based on gaining a competitive advantage at the expense of their trade rivals, they are looking for win-lose and not win-win outcomes. Deceptive strategies are all a part of the game of making other nations lose. (From a mercantilist point of view, lose-lose is a better outcome than lose-win.) Deception often means appealing to others on matters of principle, but not abiding by that principle. One of the most frequently exhorted principles for this purpose is that of multilateral free trade.

The United States is in the business of selling free trade. They have been using the free trade principle to demand that the European Union buy all its bananas from Central America, and not buy some at higher prices from Caribbean countries such as St. Lucia and Jamaica (BBC World's Money Programme, 11 February 1999). This bullying - which includes threatening to destroy the Welsh cashmere sweater industry! - is not really about free trade but about assisting transnational companies like Chiquita to destroy their small non-corporate rivals. In the same week, the United States International Trade Commission was seeking to protect American sheep farmers from cheap New Zealand imports of lamb. Getting everyone else to practice free trade while you protect yourself is a perfect example of the deceptive prisoners dilemma strategy.

New Zealand's economic relations with the rest of the world - to be promoted at APEC - are a strange form of mercantilism. We, as a seller to international markets, are promoting a mutual defection scenario; free-trade with each country using low wage and tax policies to undercut each other. Under this scenario, the winning "public" is the international financial community which mines the world for high return investment opportunities. The countries that defect - eg by cutting taxes to create an illusion of competitiveness - win the favour of international investors, forcing their rivals to defect too.

What is especially worrying about our "happy to lose so long as the other guy loses" strategy is that it may now be an act of treason to subvert this naïve form of participation in the international economy. As the Green Party noted in relation to the New Zealand Security Intelligence Amendment Bill ("What is a 'Thing'?", NZPR February 1999):

"There are no definitions in the [Crimes] Act for 'international well-being' or 'economic well-being'. These words were added in 1996 to extend the definition of security to include 'the making of a contribution to New Zealand's international well-being or economic well-being'."

It is clear from the general pattern of rhetoric in New Zealand relating to the primary importance of "competitiveness" (and from the officially sanctioned invasion of Aziz Choudry's home) that the intent of the 1996 amendment is to make it difficult for people to question the commitment to competitiveness as an all-embracing goal of New Zealand's public policy.

The central argument for the regulation of trade is to combat the international prisoners dilemma problem. The Great Depression was the lose-lose outcome of just such an international "game". It led indirectly to the Nazi holocaust because many people equated Jewry with the international financial community that represented a winning interest. (Indeed many people did become more wealthy during the 1930s' depression, although few if any nations benefited.) The depression ended when national governments finally stopped trying to out-deflate each other, and moved to regulate, protect and rebuild their national economies. Intelligence eventually prevailed, to the mutual benefit of all nations, but the human cost had been very high.



If every country tries to improve its competitiveness by trying to encourage its people to be more creative and more productive, that's fine. No country becomes worse off. That is a form of implicit cooperation. The problem only arises when some countries try to make others worse off, by defection or deception. Cutting taxes for no reason other than to attract capital that would otherwise go elsewhere is an example of defecting; of undermining the social wage of other countries (and therefore of all countries) that is critical to their social and economic development.

Likewise, if we as individuals start conforming to the kinds of distrusting behaviour postulated by the rationalist models, then the gloomy theoretical outcomes that arise from unfettered competition can still happen. The massive growth of inequality in New Zealand, Great Britain, the United States and many other countries are very suggestive of a return to a Ricardian growth process. This is particularly so, in light of recent statistics that show that the biggest losers are the middle income groups. In the Ricardian model, as the economy grows, the poor stay poor and everyone else except the lords becomes poor.

We broke out of that kind of growth process in the past through unforeseen social and technical innovations. That's what we have to do again; to switch to a non-Ricardian non-Malthusian sustainable growth path. We have to avoid behaving as "prisoners" do. We win, through mutual trust and mutual protection, by not submitting to the divide and rule game. The interests of the dividers and rulers is not the public interest.


© 1999 New Zealand Political Review

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