Prisoners in a Race to the Bottom

We often hear the phrase “race to the bottom” about many different things. Perhaps so much that we have become cynical about it ever being possible to change. We see it play out in customer service, politics, entertainment, and broader society. It feels as inevitable as it is frustrating, leading to the drastic cultural pushback we are now seeing. More on that later.

The race to the bottom is really the practical application of economic game theory. What is best for everyone isn’t best for the decision makers, and so we have a prisoners dilemma of sorts. A scenario where doing the best thing has a cost and risk that incentivizes each participant to act in a way that is worse for everyone, but better for themselves.

In this classic game theory scenario, two prisoners are being interrogated separately. If neither confess to the crime they are accused of, there is not enough evidence to assure conviction and both get a lenient plea deal. But if they confess and agree to testify against the other, they can go free as long as the other prisoner does not also confess. If both confess then they face a significant amount of jail time. And if the other confesses while one denies guilt, they will face a much greater consequence, like life in jail.

I always assumed for some reason that both prisoners were guilty. If neither confess they mostly get away with their crime, or if they testify against the other and get immunity then they completely escape the consequences of their wrongdoing. If both confess then they get what they deserve, and the threat is that they get a harsher sentence if the other pins it all on them. But what if both are innocent? It doesn’t change the stakes at all, so they are both incentivized to confess to something they didn’t do, trying to pin it on the other prisoner.

Assuming they are innocent makes this much more interesting and relevant to this moment in society. Because we are seeing this played out right now in cancel culture. Not all cancel culture, as some are clear situations where the accused person cannot defend against the harsh but fair consequences they face for their actions.

But more often than not, we don’t know who is innocent or guilty. We might take sides or strongly sympathize with one over the other, but in reality we can only see an unacceptable outcome. We do not know with certainty whom justice requires punishing. Did the company know and help cover up, or was the company a victim of the perpetrator as well? Was the person who did the wrong thing pressured into doing it, or were they selfishly acting in their own best interest?

One situation that comes to mind is a financial firm that had impossibly high quotas and rewarded behavior that turned out to be fraudulent. Those who committed the fraud said they had no choice if they wanted to keep their job, while the company said they were acting on their own against company policy to collect bonuses and incentives.

Another less recent example involved an athletic apparel company that had offshored manufacturing labor for cost savings, and their offshore supplier subcontracted some of the work to another firm who used child labor. It was exposed that underpaid kids were making these premium items in sweat shops, an absolute disaster for the brand. The offshore supplier said they were doing what was expected of them, while the brand said they had no knowledge of this subcontracting. 

I just became aware of another even older example, upon hearing the history of an Atlanta brickyard recently considered for development. Apparently the brick company that operated there used prison labor to lower their costs. But because it was prison labor the cost was cheap, workers were expendable, and pressure to extract work from them was high. Competing firms were pressured to match impossibly low prices, driving down the amount they could pay non-prison laborers. The work was so physically demanding and the labor was so cheap, workers were injured and died at alarming rates. Many fear the site may still hide evidence of this mistreatment and abuse.

What all of these have in common is a company claiming they just did what they had to do to remain competitive in the market. Competing firms were outperforming them on price or productivity, so they had to relentlessly drive down cost and drive up productivity to stay competitive. Eventually there was no more value to extract, but their culture still demanded more. Those operating within that culture felt they had no choice but to do what in hindsight was clearly wrong.

Back to the dilemma the two prisoners were facing. Perhaps they were guilty, perhaps not, but they are the ones now staring down the consequences of an unacceptable outcome. Cancel culture is saying I don’t care who is to blame, our trust was betrayed. The social contract was violated. You profited from abusing prison labor, subcontracting labor to kids working in sweatshops, opening financial accounts fraudulently in customers’ names. Someone must be punished for the outcome, otherwise it will keep happening.

This is both a new level of accountability for businesses and those they choose to employ or do business with, and also a new degree of consequence for being party to an unacceptable violation of social responsibility. Said another way, the competitive pressure is greater than it has ever been, and the consequences are swifter and more severe than ever before when that pressure leads to bad outcomes.

In this race to the bottom, we are finding out that we are actually in a bottomless pit. There is always someone willing to cut another corner, take advantage of a new vulnerable workforce and stoop to a new low to get a cost advantage. Temporarily. Until someone else stoops lower. 

Meanwhile, customer expectations of corporate social responsibility are getting higher. Customers are demanding transparency, accountability, and sustainability. And when those expectations are not met they are prosecuting with their pocketbook for the kind of behavior they will neither tolerate nor reward. Honestly, I would rather pay a little more for my shoes than perpetuate child labor. I would rather pay more for my house than live surrounded by bricks prisoners were exploited to make. I would rather transact with a bank that isn’t so cutthroat their employees fear being fired if they don’t break the law.

I used to think I would never be one of those prisoners because I wouldn’t be anywhere near a crime scene or even close to illegal and unethical behavior. Whatever bad outcome they faced in this hypothetical scenario, it was their own fault for being involved. It’s time we realize that we are all much closer to that cancel culture interrogation room than we think. 

In fact, we will probably all be questioned at some point about what we knew and when, while those we have worked with are interrogated separately. At this point, I realize just having done nothing wrong might not be enough to avoid paying the price. It matters more that I trust completely the people who are now incentivized to testify against me.

Read that again. In the court of public opinion, it may not matter that I have not intentionally done anything wrong. The bar has been raised higher than that. I have to associate only with people and businesses that are equally above reproach, and have engaged with them in ways that gave them no incentive to do anything that violates the CSR contract.

No one really loves cancel culture. It is a blunt tool that inflicts a lot of pain and damage in a very broad way. It brings justice down on the guilty and also the innocent around them. But for now it is the only tool that has been effective at forcing the bar to be raised. Cancel culture is the inevitable outcome of people demanding that companies stop incentivizing this race to the bottom.

The expectation is no longer that we be the cheapest, but rather that we be the wisest stewards of the trust that our revenue is bestowed upon us with. If we violate that trust, either in the way we act or in the way those we reward with our revenue act, we will lose the privilege of stewarding future revenue.

This isn’t a threat, something to fight, or a situation that can be avoided. It is simply the new reality of doing business in a world that cares greatly about rewarding socially responsible business practices, and penalizes anyone party to violating that social contract. The only way to succeed in this new paradigm is not only to always act with integrity and honor toward those we do business with, but also to only reward those we trust to do the same with our business.

Pulling ahead in the race to the bottom only puts us further behind in avoiding elimination by this new race to the top.