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QUESTION

How does cooperation between people take place when no one is explicitly in charge?

Who’s in Charge?

The World’s Need for Shirts

This morning I went out and bought a shirt. There is nothing very unusual in that: across the
world, perhaps 20 million people did the same. What is more remarkable is that I, like most o
f these 20 million, had not informed anybody in advance of what I was intending to do. Yet th
e shirt I bought, although a simple item by the standards of modern technology, represents a
triumph of international cooperation. The cotton was grown in India, from seeds developed in
the United States; the artificial fiber in the thread comes from Portugal and the material in the
dyes from at least six other countries; the collar linings come from Brazil, and the machinery
for the weaving, cutting, and sewing from Germany; the shirt itself was made up in Malaysia.
[…]

Every single one of these people who has been laboring to bring my shirt to me has done so
without knowing or indeed caring anything about me. To make their task even more challeng
ing, they, or people very much like them, have been working at the same time to make shirts
for all of the other 20 million people of widely different sizes, tastes, and incomes, scattered
over six continents, who decided independently of each other to buy shirts at the same time
as I did. And those were just today’s clients. Tomorrow there will be another 20 million – per
haps more.

If there were any single person in overall charge of the task of supplying shirts to the world’s
population, the complexity of the challenge facing them would call to mind the predicament o
f a general fighting a war. […]

In fact there is nobody in charge. The entire vast enterprise of supplying shirts in thousands
and thousands of styles to millions and millions of people takes place without any overall coo
rdination at all. […]

What about the production of the world’s shirts? The goal of this activity cannot be summed
up simply in the phrase “producing shirts.” The quality, the design, the variety of styles, the d
urability of the cloth, and the location of the different people with their different tastes represe
nt a whole array of dimensions along which decisions must be taken on behalf of all the twen
ty million people a day who buy shirts – dimensions that are at least as important as the she
er quantity of shirts produced. There is no agreed-upon goal. […] By comparison with the pa
ssengers in the aircraft, there is also very little direct interconnection between the activities of
all the world’s wearers of shirts, other than that they are all participants in the market for shirt
s. […]
By contrast with the overwhelming nature of the problems that would face an individual put in
charge of global shirt production, each of us can carry out our task of choosing a shirt fairly e
ffectively without outside guidance. A shirt is an item whose quality is more or less visible to i
nspection before it is bought (whatever reservations one may have about the quality of the b
uttons). […]

Large numbers also help us to understand one of the most mysterious features of a system
with no one in charge: its apparent ability to anticipate my desire when I have done nothing t
o communicate that desire to anyone. We may like to think of ourselves as individuals quite
unlike others, but in many respects our behaviour is highly predictable. Partly this is because
of our biology: we have physical needs that are by and large common to other members of o
ur species. Social conventions also play a part: nothing in our biology obliges us to have our
meals when other people are having theirs, but it makes life more pleasant if we do. But final
ly it is the sheer number of us that makes our behavior predictable, for large numbers of peo
ple tend under many conditions to behave in much more regular ways than do any of the par
ticular individuals of which such crowds are composed. Statisticians of the early nineteenth c
entury were fascinated by the fact that even such profoundly personal actions as suicide occ
urred in a sufficiently regular way in large populations as to be predictable within certain limit
s. And our more banal activities of working, dressing, shopping, cooking, and traveling turn o
ut, in the mass, to display a regularity sufficiently striking for whole centers of productive acti
vity to be based upon it. If I had not bought my shirt this morning, somebody rather like me w
ould very probably have bought it within a few days. It is on that conjecture that my shirt-mak
er has built a business.

These four factors – large numbers, great complexity, few direct inter-connections between t
he actions of the different buyers of shirts, and a reasonable ability on the part of ordinary bu
yers to assess the quality of what they are buying – provide the beginning of an answer to ou
r earlier question: why is it a relief to know that no one is in charge of making the world’s shir
ts? One of the great intellectual achievements of modern economics has been to work out ve
ry precisely the circumstances under which decentralized systems of market exchange can p
roduce results that are efficient, in the sense of improving the condition of every individual as
far as possible whenever this can be done without harming someone else. This definition of
efficiency was originally proposed by the Italian economist and sociologist Vilfredo Pareto an
d is now known as Pareto-efficiency. The intellectual achievement of economics in showing
how and when market exchange can achieve Pareto-efficiency is not the same thing as a pr
actical achievement, for as we shall see, all real-life systems of market exchange fail to live u
p to these demanding conditions, sometimes to a disturbing degree. But shirts are a pretty g
ood advertisement for decentralized market exchange. They are also a remarkable reminder
of how much of the pattern of modern life has emerged without ever having been consciousl
y willed by anyone.

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SAMPLE

Cooperation refers to a situation when a win-win situation is derived from multiple agents w
orking with each other. Given our tendency towards self-interest, we may have expected to
see one agent attempting to take full control of a certain industry. However, it is important t
o remember that in economics, profit maximisation refers to a situation where the marginal
revenue of one additional unit is equal to the marginal cost of it. It is my contention that coo
peration between people when no one is explicitly in charge is formulated mainly through e
xperience which may be achieved through identifying one’s limitations on a global scale.

“The cotton was grown in India, from seeds developed in the United States; the artificial fibe
r in the thread comes from Portugal and the material in the dyes from” + ” The quality, the d
esign, the variety of styles, the durability of the cloth, and the location of the different peopl
e with their different tastes represent a whole array of dimensions along which decisions mu
st be taken on behalf of all the twenty million people a day who buy shirts – dimensions that
are at least as important as the sheer quantity of shirts produced.

– large numbers, great complexity, few direct inter-connections between the actions of the
different buyers of shirts, and a reasonable ability on the part of ordinary buyers to assess th
e quality of what they are buying

We may like to think of ourselves as individuals quite unlike others, but in many respects ou
r behaviour is highly predictable + for large numbers of people tend under many conditions
to behave in much more regular ways than do any of the particular individuals of which suc
h crowds are composed

A shirt is an item whose quality is more or less visible to inspection before it is bought (what
ever reservations one may have about the quality of the buttons) → cooperation; setting the
quality to satisfy their buyers

There is little doubt that every firm desires to become large enough to own the majority of t
he market share or in other words to become a monopoly. This would ensure that they hav
e total control over the prices as well as setting a high barrier to entry inhibiting other firms f
rom taking away their market share. Take for instance the lucrative spice trade dating back t
o nearly a millennium ago. The trade route that ran all the way from East Asia to Europe was
initially dominated by nations such as Portugal and later the Ottoman Empire but they soon
acknowledged their limitations as it would be inefficient for one to transfer all of the goods
back to their nation by themselves. By acknowledging this, the trade route was divided so th
at multiple nations would each take responsibility of one section of this route forming a syst
em much akin to a railway with stations, reaching pareto-efficiency.

Following from the example in the text, the shirt industry is formed from multiple agents ran
ging from cotton being grown in India to fibre in thread coming from Portugal and many mo
re involved in the dye-making process but has no particular individual in charge. Within this i
ndustry, it is evident that there are limitations such as geographical, climate, and cost of ma
nufacturing.

Seeing that all the components of making the shirt cannot originate from one area, the firm
s, if they were to take full control of this industry, would have to take on the burden of trans
porting all the materials globally adding a hefty cost and it is likely that in this case, the mar
ginal cost of producing a shirt would be greater than its marginal revenue. Thus, it is evident
that this market should consist of multiple firms who separately focus on producing material
s, transport, and manufacturing the t-shirts. As we are profit-maximising agents, each firm s
ticking to their role through the multiplier effect stemming from the specialization within th
eir field and cooperating on a global scale ensures the best outcome for all.

Following the study of cooperation in Game theory and taking a more theoretical approach,
we learn that our choices are tailored by our previous experiences and our expectation of fu
ture interactions. For instance, in the prisoner’s dilemma, when playing the game once, one
should not cooperate but when we consider the repeated prisoner’s dilemma game, the indi
vidual’s choice depends strictly on the action of the other player whereby if the other betray
s, I betray and vice versa. As mentioned in the previous paragraph, firms know their limits a
nd in order to maximize their profit in their field, they play a small role within the holistic pr
ocess. Having previously built the relationship of each taking separate responsibility within t
he industry, and given that humans are fairly predictable in what we demand in terms of shi
rts, there is no need to rebuild the division and the structure of the manufacturing process a
s what consists of the shirt or any other goods are fairly static. This means that individuals w
ithin this market no longer question their role and play their part within the process.

In the final analysis, it is clear that cooperation between people when no one is explicitly in c
harge derives fundamentally from acknowledging one’s limitations on a global scale then shi
fting one’s focus towards specializing the resources to maximize one’s profit in their given ci
rcumstances.