Institute for Research in Economic and Fiscal issues

IREF Europe - Institute for Research in Economic and Fiscal issues

Fiscal competition
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Zero-sum Thinking: Disadvantageous, but gaining Ground

Economists do not regard the world as a zero-sum game, but as a positive sum game in which all voluntary participants in an interaction are winners and no one loses. Hence, people are cooperating voluntarily as buyers and sellers in markets as they are benefiting from both roles. It is not intuitive that markets are not a zero-sum game. Economists obtain this knowledge through their yearlong education. It is therefore not surprising, that non-economists obtain this knowledge less often and tend to perceive the social world in general and markets in particular as zero-sum games. Data from the World Value Survey indicates that citizens in East- and West-Germany are more likely to lean towards zero-sum thinking nowadays than they did in the 1990s. There may be several reasons for that and it may entail negative consequences.

Economists vs. Economic Laymen
First, economists and non-economists differ in their view of the interactions between people in markets as well as of the role played by market prices. Economists regard voluntary interactions between people on markets as positive-sum game from which all participants benefit. Economic laymen, on the other hand, tend to regard them as a zero-sum game with winners and losers. Additionally, from the view of an economist, the usage of prices in markets enables an efficient allocation of resources for production of goods and services, while amateurs perceive prices primarily as a means of distributing wealth.

Non-economists consequently tend to regard the produced amount of goods and services as well as the number of jobs as fixed so that one person can only have more if another person has less. Economists, on the other hand, understand that neither labour input nor the amount of goods and services produced are fixed and efficiency gains and increased productivity can let our production capabilities grow.

Hence, it is not surprising that economists and non-economists are different in their perception of the development of the standards of living and the effects certain factors have on it. Economists are therefore better aware of the increase in the standard of living which has taken place and assume that it will increase further in the future. They also perceive factors such as international trade as drivers of higher standards of living, much more than non-economists do.

Positive Sum Thinking vs. Zero-sum Thinking
Whether interactions in markets are regarded as a positive-sum game or a zero-sum game impacts the perception of participants in interactions as being co-operative partners or competitors.

Zero-sum thinking emphasises the distribution of an amount of wealth, income, goods and services or jobs, perceived as fixed, and motivates a call for political intervention in order to protect the allegedly weaker competitor from the allegedly stronger competitor.

Positive sum thinking, on the other hand, emphasises the proliferation of income, wealth or goods and services through additional opportunities of co-operation and leads to the demand of political actions which make it easier for people to co-operate voluntarily with each other.

Whether people regard interactions in markets and elsewhere as a positive sum game or as a zero-sum game might therefore influence how often individuals find themselves in a positive-sum games. Furthermore, the likely result of this conclusion would be that people are more likely to perceive interactions as a positive sum game, the more often they are actually participating in them.

Zero-sum Thinking in Germany: More popular
A self-reinforcing effect is thus possible and the trend in the answers of Germans from East- and West-Germany to a question of the World Value Survey gives rise to concern.

In the World Value Survey the interviewees get asked how they rate two opinions on a scale from 1 to 10: First, “People can only become rich at the expense of their fellow people”. Second, “Wealth can grow in a way that there will be enough for everyone”. When the interviewees fully agree with the first statement they chose 1. When they fully agree with the second statement they chose 10.

The first opinion can be interpreted as an example for zero-sum thinking. A person can only become rich at the expense of another person. The second opinion can be interpreted as an example for positive sum-thinking. Wealth can be increased in a way that everyone benefits from it.

Germans were asked this question as part of the World Value Survey, conducted every few years, for the first time in 1997. Since then the average of the given answers in East- and West-Germany fell from above 6 to below 6. The decrease was higher for East- than for West-Germany. These results are an indicator that zero-sum thinking is more popular now than in the 1990s.

Zero-sum Thinking: Undesirable independently from its Cause
There may be several reasons for the observed trend. It might be that people find themselves less often in positive-sum games and their answers during the years reflect this development. It could also be that people just perceive the amount of zero-sum games as increasing relatively although they are as common as before or maybe even less common.

Independent from the reasons for the measured increase of zero-sum thinking (and also independent from possible measurement errors), an increase in positive-sum thinking would be desirable as people would then tend more towards demanding political actions as well as taking private actions which increase opportunities for co-operation.

Economists can contribute. Economists are currently primarily known for praising the efficiency resulting from the competition of open markets. However, they are not known for emphasising the co-operation taking place in markets, even though it is omnipresent. Consumers co-operate with companies. Companies co-operate with employees. Employees co-operate with each other. Companies co-operate with other companies as subcontractors and suppliers.

Economists missed out on the opportunity to emphasise that competition in markets is merely a means to an end for bringing the best possible cooperation partners together via the price mechanism. Economists could help making positive-sum thinking more popular. They should emphasise the positive-sum characteristics of transactions in markets by putting the cooperation taking place in markets in the foreground rather than the competition which only helps to bring the best cooperation partners together.

This article is a translation of an original piece published on our German site and available at http://de.irefeurope.org/Nullsummendenken-Unvorteilhaft-aber-auf-dem-Vormarsch,a1198.

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