Both racing and capitalism involve competition and this generates winners and losers. Winners are, of course, supposed to be rewarded for the victories while losers are expected to reflect on their defeat and try harder next time. When planning a road race or managing capitalism, those in charge must address the nature and division of the rewards for the competition. In the case of a road race, this requires the race director to work out the prizes and decide such things as whether there will be age group awards and, if so, how deep the awards will go. In the case of capitalism, those in charge decide how the laws and polices will divide up the rewards.
While there are many ways to approach the division of the rewards, there are two broad approaches. One is to have a top-heavy reward system that yields the rewards to a few winners. In the case of a road race, this will typically involve all the prizes going to the top three runners or even just the first-place finisher. In the case of capitalism, this will typically involve most of the rewards going to the very top winners with the leftovers divided up among the many losers.
Another approach, broadly speaking, is to spread the rewards more broadly among a larger base of winners. For example, many races have age group awards in addition to the overall awards. Most races also have male and female groups as well, which further divides the prizes of victory. In the case of capitalism, this approach would give less to the top winners and divide more among the lesser winners. For example, under such an approach successful small businesses and successful middle and lower class individuals would get more of the rewards. This would, of course, mean less for those at the top of the pyramid, such as the biggest corporations and the individual billionaires.
One argument often advanced in favor of the top-heavy systems of capitalism is to contend that a broader division of the rewards would be some sort of socialism that would destroy competition. But, this is not the case. A broader reward system would still be competitive capitalism, it would just have a broader division of the rewards. Returning to the race analogy, a race that has a broader division of prizes is no less a race than one that offers prizes only to the first-place finishers. Competition remains, the difference is that there will be more winners and fewer losers.
It could, of course, still be argued that having a broader division of rewards would reduce competition and make things worse. In the case of a race, the idea is that runners would think â€œwhy should I train or race as hard as before to try to win the whole race when I can now get a prize for being third in my age group?â€ In the case of capitalism, people would presumably say â€œwhy should I work as hard as before to try to be the biggest winner when I can now get decent rewards for just being moderately successful?â€
While I will not claim that no one thinks that way, most runners still train hard and race hard regardless of what sort of division of prizes the race offers. The same would seem to hold true of capitalismâ€”people would still work hard and compete even when there was no massive prize for a few and little for everyone else. In fact, people who know they have little or no chance at the biggest prize would presumably compete somewhat harder if they knew that there was a broader division of the rewards and their efforts could pay off with prizes. Also, in the case of capitalism, people already work hard for small prizes when they know they have no chance of ever getting the biggest prize. As such, unless they are delusional or irrational they are not motivated by having a top-heavy reward system. Survival provides an adequate motivation.
At this point, one might want to bring up the example of races that have participation awardsâ€”that everyone gets a medal just for showing up. The economic analog would be a form of socialism or communism in which everyone gets the same reward regardless of effort. This, many would argue, would be terrible and unfair.
In the case of races, runners still compete even if everyone gets the same prize (be it the same medal or nothing at all). Because, of course, many people just love to compete for the sake of competition or for reasons that have nothing to do with prizes. It would hardly be a stretch to think that this view also extends into the economic realmâ€”especially since there are people, such as open source developers and community volunteers, who work hard for no prizes. But, there is certainly a reasonable case to be made that people need to win prizes to be really motivated to do anything.
I must admit that while I will still run hard in such a race, I still have a love for competing for prizes. As such, I prefer races that offer competition-based rewards. I am, however, grudgingly tolerant of participation medalsâ€”after all, someone who shows up and does the whole race has accomplished something meaningful even if they did not win. Naturally enough, a race can have both participation medals and prizes for winning. In the case of an economy, this would be a competitive system that offered better rewards to the winners, but also provided those who are actively participating in the economy with at least minimal reward. One area in which this analogy breaks down is that the economy has people who cannot participate (the very old, the very young, the ill and so on) and it would be a far more serious matter for these people to get nothing than it is for people who do not finish the race to not get their participation medals.
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