Does The Winner Take It All?

This piece in The American Prospect titled, "Talent and the winner takes all society" dates back to 1993 and is rather long but worth the trip.

Some scattered excerpts and quotes to intrigue you into reading the article:

"Largely unnoticed in these discussions has been a more fundamental change, namely, the growing prevalence of what Duke University economist Philip Cook and I have called "winner-take-all markets." These are markets in which a handful of top performers walk away with the lion's share of total rewards. This payoff structure has always been common in entertainment and professional sports, but in recent years it has permeated many other fields--law, journalism, consulting, investment banking, corporate management, design, fashion, even the hallowed halls of academe."

"...the evidence simply does not support Bok's claim that runaway salaries at the top are the result of insufficient competition. On the contrary, top incomes have grown because structural changes have made the top players more valuable as competition for their services has intensified."

"For every author who receives a million-dollar advance payment, there are thousands of others, many of them as talented, who never manage even to support themselves."

"Winner-take-all markets give rise to two important forms of inefficiency. One is that they tend to attract too many resources away from markets with more conventional payoff structures. To see why, we must first examine the cost-benefit criterion for deciding how many contestants should enter a winner-take-all market."

"When an additional person decides to pursue an acting career, for example, the cost to society is the value of what that person could have produced in some other occupation. The benefit from having the additional contestant is to raise the expected value of the ultimate winner's performance, since there is always some chance that the entrant will prove superior to the existing contestants. With relatively few contestants in the market, the expected gain from having another entrant will sometimes be high. But as more and more people enter a winner-take-all market, this gain diminishes sharply (just as the fastest runner from a high school with 1,001 students will be only imperceptibly faster, on the average, than the fastest from a school of 1,000). In an ideal economic world, we would keep sending additional contestants to a winner-take-all market until the expected gain in the value of the winner's performance was just large enough to compensate for what the last contestant could have earned in another occupation.

But when people choose occupations on the basis of narrow self-interest, we generally end up with far more than this optimal number of contestants. This happens because potential contestants ignore the fact that their presence will make other contestants less likely to win. We get too much pollution because people ignore the costs they impose on one other. And for just the same reason, we get too many aspiring actors and rock musicians--and too many aspiring Wall Street lawyers."

"Bok eloquently defends an activist role for government and makes a strong case that more of our most talented citizens should be involved in the public sector. Yet greater government involvement need not entail the vision of government as direct provider of goods and services. On the contrary, governments often do the most good simply by requiring individuals to take the full social costs of their actions into account. Thus, for example, a group of Northeastern states eliminated a large component of the litter problem virtually overnight by simply enacting deposit laws for soft-drink containers. Bok is too quick to reject the possibility that greater reliance on similar market incentives might enhance bureaucratic performance."

On the other hand, many of Bok's recommendations do take us in the right direction. I especially applaud his passionate call for a reexamination of American values. Material incentives are indeed given too much weight in many spheres and in any event cannot hope to solve many pressing problems. How, for example, can the threat of a fine induce someone to drive 30 minutes through traffic to dispose of unwanted pesticide properly, rather than just pour it down the drain? People will incur such costs only if they are socialized to believe it is the right thing to do.

I also share Bok's view that we have become too cynical about the role of government. Like it or not, government will remain responsible for a host of activities that shape our lives. Bok is persuasive that the harshly anti-government rhetoric of recent years has made it needlessly difficult to recruit and retain the competent public servants we so desperately need."

Market forces are ruthlessly effective in getting people to act in their narrow material interests. Often these forces produce benign social outcomes, as when the struggle for market shares leads to cost-saving improvements in technology. Other times, as in the case of winner-take-all markets, market forces guide resources in socially undesirable ways. But when market forces do lead us astray, the attendant social problems are less likely to be solved by traditional bureaucratic interventions than by creative attempts to bring private incentives more closely into balance with social incentives.

On the subject of talent, I often ask myself if any of this can be connected to the question, is Western achievement in the arts and science in decline? More specifically, are we still capable of producing the likes of Da Vinci, Edison, Beethoven and so on? Given the low standards we've designed for ourselves in education and the constant need to produce for a mass audience and its tastes, it's no wonder we don't seem to be in a hurry to find the next Newton. It seems the ball is in the mediocre court so to speak.

This is not to say we're not producing great minds but I wonder about the pace of it.

The title "winner takes all" also reminds me of the notion in sports a silver or bronze medal is useless or means "you lost gold." It completely misfires on the subject of personal achievement. Earning a bronze in an international competition is something to be praised, not dismissed or even sneered at.

In general in society at large, it feels like competition is more fierce than it was just 25 or 30 years ago. It's a rat race to find a specific niche in hopes of carving out a unique existence with financial rewards.

Technology has essentially given voice, through the Internet, to every person with access to a computer. There's more of a chance to be heard but the chance to make cash is just as elusive as it ever was. Getting you piece of the pie, though seemingly closer than ever, can be an optical illusion. The truth is money is scarce; always was and always will be. Finding the "next musical genius" takes a lot of work through searching because pop charts and radio are no longer custodians are great music.

This means the cash is in the hands of a few "gatekeepers" who will make you or break you. Of course, most of the jobs are given to friends and family first so it's even harder to get in. You simply have to find a way in to get your share.

I fear this has gone on long enough. My little brain can't handle all this. It's like digesting garlic. As I'm fond of writing, I'll leave it to greater minds to discuss and offer further insights.