Art And Science of Leadership Custom Edition for VC Online Book

Subtitle: The Birth of a New Science. Economics has been, de facto, the study of competition for about half a century (since it became clear to any objective observer that communism didn't work the way Marx claimed it would). How much was really learned? According to the author of this book, James Case, very little, and not so much for lack of evidence as because of an unwillingness to see what was in front of them. Case's argument essentially asserts that most of modern economics is, literally, pseudo-science.

Case does a fairly effective job of showing that in fact, a number of quite well-designed studies have been made of how humans behave in competitive situations, and they have produced quite intriguing results. The "problem" is, that none of them have had the desired outcome.

What they have shown, instead, is that humans are irrational, and tend to ape one another's behavior in ways that compound their errors. Bidders at an auction tend to spend more for the item auctioned than they should, stock price fluctuations have little to do with the underlying value of the companies they represent ownership of, markets spend orders of magnitude more on advertising than any even semi-rational allocation of resources would call for, and purveyors of financial instruments (among many others) do better when their customers are unable to compare one product with another because they are too complicated to understand.

Orthodox economic theory would disagree with all of this. Case makes the excellent point that just as Intelligent Design is considered a pseudo-science, because the conclusion is taken as given, and only the means of asserting it is changed with the evidence, orthodox economics has operated in nearly as zealous of a manner, looking to assert that markets composed of a mass of irrational, poorly educated consumers who do not have the resources to think about their own long term best interest if they knew it, will be efficient and optimal.

This is hogwash, and any unbiased thinker who considers the matter for any amount of time will know it. The market valued Elvis Presley far more than Ludwig von Mises, and this was not due to government intervention. The market values Britney Spears more than Lawrence Lessig, Madonna more than Ron Paul, and boy bands more than solar cells. The market thinks it's a good idea for us to outsource our manufacturing to other continents, and to quote despair.com, "A company willing to go to the ends of the earth for its employees, will find it can hire them for about 10% of the cost of Americans." The market is crap at valuing things appropriately, and Wall Street is worse.

The flaw in "Competition" lies in the last chapter, where it looks at what to do instead. The brilliance of the rest of the book, in puncturing illusions and myths of a rational market, consumer, and corporation, suddenly disappears as it asserts a rational politics, voter, and legislature. Why is the analysis of Prisoner's Dilemnas, Tree Games, Backwards Induction, and Reward Matrices suddenly abandoned when it comes time to analyze the probable impact of introducing government into the market?

Case's basic point is correct: we could be applying the scientific method (including double-blind experiments) to human interactions, and it is politics, and fear of what we may discover, that is preventing us from doing so. Replacing a naive faith in markets with a naive faith in government intervention in markets, however, is an enormous letdown for the conclusion to a book which marshaled such intellectual firepower in the first 16 of its 17 chapters. In the meantime, we will have to make do with reading the leftist critiques of the Right, and rightist critiques of the Left, to form a makeshift and jerry-rigged substitute for the science of competition which we really need. In that sense, "Competition" is half of a great book.