The invisible right hand and the invisible left hand

In 1776, Adam Smith published his work, The Wealth of Nations, within which he detailed the actions of “the invisible hand” of economics.

The basic concept of Smith's invisible hand is that; when self-interested parties compete against one another, rather than there being one winner and one loser, benefit often results not only for both parties, but also for the broader society.

The actions of Smith's invisible hand are easily observed. As a simple example of this, let's say, while desperately trying to make a dollar, I invent something useful; a cup. Having invented this magical item, I then sell as many cups as possible at the highest price that I can get.

Let's say that it costs me $1 for every cup that I sell, but that I sell them for $20 each, and I quickly become exceedingly rich. Far from ripping off my customers, however, from their perspective they are getting a great deal. Instead of walking down to the creek five times a day for a drink, now they only have to go there once a day to fill up their cup. The $20 that they spent may be saving them $5 worth of time every day.

We can also see that because each of the cup owners now only has to go to the creek once a day, a significant amount of previously unavailable energy has been freed up, which can of course be applied to other useful purposes. Extending the example still further, someone from the next village might see what I am doing and set up another cup selling business. This might mean that in order to gain customers, I have to drop the price of my cups to a measly $3.

Since its release, the profound and simple logic of Smith's invisible hand has switched on the “lightbulbs of the mind” of generations of apparently deep thinkers and economic policy makers.

Leading directly to the idea that free competition between self-interested parties is the engine of a healthy economy, Smith's invisible hand has provided something of a social conscience for free market capitalism. It is the single most important concept that has driven the laissez-faire agenda over the last few centuries, and which continues to drive laissez-faire economic's most recent manifestation, neo-liberalism.

Unfortunately, in describing the positive results that spring from self-interested parties competing with one another, it turns out that Smith’s invisible hand only gives us half the story. Smith has left out of his theory the simple concept that there are times when we co-operate together, and that positive economic outcomes can also be derived from this co-operation.

It appears that we may actually be looking at two invisible hands!

Looking at these two invisible hands, we can call the positive effects of competition the “invisible right hand”, and the positive effects of co-operation “the invisible left hand”.

Like the invisible right hand, the actions of the invisible left hand are also easily observed. Let’s say that two backyard gardeners, instead of each owning a wheelbarrow independently, decide to share the use of a single wheelbarrow. While it may cost each of them $5 worth of time to negotiate the usage of the wheelbarrow, each has saved $40 on the purchase cost. What's more, because the resources are being used efficiently, there are now more resources available for use by the rest of us.

If they were to look only at the actions of this invisible left hand, someone might be forgiven for thinking that, instead of competition between self-interested parties, it is actually co-operation within a mutually supportive community that is the engine of a healthy economy. Such is apparently the thinking behind communism.

While we can recognise an important truth in both the invisible right and invisible left hands however, it is not one or the other that is true, but both. The invisible left and the invisible right hands exist together, with co-operation and competition therefore providing a dual driver behind the processes of economics.

So what does this mean for us? In short, as the Buddha said; to be happy, we are going to have to learn to walk on the middle road. We’ve got to try to get the best out of both competition and co-operation.

Positivity can result for us, both as individuals and as a society, through the processes of both competition and co-operation. If either is expressed in the extreme, however, it will be negative. What we need is balance.

If either competition or co-operation is allowed to dominate, it will do so not only at the expense of the wealth generating capabilities of the other. It will also begin to chew away at both our personal freedoms and the cohesiveness of our communities. This can be readily seen by looking back over the history of experiments with both laissez-faire and communist policies, where negative outcomes tend to increase in direct proportion to how extreme, in either direction, the policies are.

Looking at our current economic system, we can recognise much that is co-operative. On the small scale for example, many of us live with our families and/or friends, sharing resources and working together to maintain the house, etc. On the larger scale, we can of course look at the payment of taxes in exchange for the provision of infrastructure and the organisation of social processes by governments.

While there is co-operation, however, it is the competitive economic processes that are more prevalent. Most of us own or work in private businesses, source the majority of our requirements from private businesses, etc. This prevalence of the competitive can of course be understood in the context of the political struggle between the capitalist and socialist ideals and the subsequent decline of socialism.

Intruding into this picture, we are faced with the fact that our world is getting smaller and smaller; we are becoming a global community, increasingly interacting and managing our common interests on a global scale. We are also increasingly pushing against the boundaries of our planetary ecosystem. Our shrinking world is therefore effectively presenting us with the challenge of having to create a democratic, ecologically sustainable global human society.

Bringing balance to the processes of our global economy will be central to our being able to rise to meet this challenge. To bring about this balance, without sacrificing the efficiencies that are available to us from the competitive aspect of the economy, we will need to encourage development within the co-operative aspect of the economy.

Close to homes, this will involve mechanisms that encourage the rebuilding of interdependent relationships on the neighbourhood and village scales. This will enable us to co-operate together in the production of some foodstuffs and other resources as well as to share in the use of various resources, for example (and I know that this will be hard for some of you to take) swimming pools and cars. Encouraging interdependent relationships at the local levels of our society will also support the development of locally focused, private businesses.

Increasing employment opportunities close to our homes, reducing our reliance on transport, encouraging a vibrant interactive culture close to our homes, encouraging efficiency in resource use: in these ways, mechanisms that promote interdependent co-operative/competitive local communities have the capacity to considerably reduce our use of resources while at the same time maintaining or increasing our quality of life.

On the broader levels of society, we will need to track away from our current emphasis on privatisation and move towards having significant investment by governments in the productive assets of the society. These assets can then be managed on behalf of the people, with any loss or profit shared by all of the people.

A strong co-operative aspect to the broad-scale processes for the production and distribution of goods and services will also provide an important buffer against any slow down in economic activity, providing employment and maintaining a turnover in the economy. This will help us move away therefore from our current destructive addiction to economic growth.