December 9, 2016 at 13:42Paul Graham's Strategic Essay: Defragmenting (Part 2)
- Transfer
I present to you the full version of the strategic geopolitical long-range Paul Graham (January 2016). For convenience, I hid the first part of the essay under the spoiler. Reading time 10-20 minutes.
A classic example is microcomputers. Pioneers in this field have become firms like Apple. When it became large enough, IBM decided that it was worth paying attention to this area. At that time, IBM completely controlled the computer industry. They suggested that now that the market is ripe, all you have to do is just reach out and rip it off. At that moment, most would agree with them. But what happened then showed how complicated the world is. IBM has released its same microcomputer. Although he was quite successful, he did not become a rout for Apple. And what's more, IBM itself, in the end, ousted the supplier from another area - from the field of software, which was not even perceived as something close to this business. It was a big mistake for IBM to accept non-exclusive DOS rights. At that time, such a maneuver must have seemed safe. No other computer manufacturer was able to sell more. What would change if other manufacturers could also offer DOS? This miscalculation caused the rapid growth of inexpensive personal computers. Now PC is run by Microsoft standards, just like the client base, and the microcomputer industry has become a confrontation between Apple and Microsoft.
First, Apple sat on IBM, and then Microsoft stole its wallet. In the 50s, this would not have happened with large firms. But in the future this will happen more often.
Basically, in the field of computers, the changes took place on their own. In other areas, it was first necessary to get rid of the obstacles in the form of a legislative base. In the 1950s, the federal government endowed many oligopolists with relevant policies (and in wartime, with large orders), which did not allow competition to develop. At that time, this did not seem so dubious to government officials, unlike us. It was believed that the bipartisan system provided a sufficient level of competition in politics, which should have worked for business.
Gradually, the government realized that anti-competition courses did more harm than good, and when Carter was in office, they began to take them away. The word chosen to describe this process carried a deceptively narrow sense: deregulation. But what was actually happening was called deoligopolization, occurring in one sphere after another. Most notably, this affected two services: air transportation and international telephone calls. Both of these services dropped significantly after deregulation.
In the 80s, deregulation also led to a wave of hostile takeovers. In the old days, the only limit to the company's inefficiency, in addition to bankruptcy, was the inefficiency of its competitors. Now, firms had to deal with absolute standards, not relative standards. For any insufficiently profitable state-owned company, there was a risk of losing their current leadership and acquiring new ones that would increase this profitability. Often, the new management achieved this by dividing the company into parts, each of which in itself was more valuable. [17]
The first version of the national economy consisted of several large blocks, whose interaction was stipulated in secret cabinets by a circle of senior officials, politicians, regulators, and trade union representatives. Version 2 was more “detailed”: the number of firms specializing in various goods and services increased, their sizes varied, and their relationships changed even faster. In this world, many decisions were still made during negotiations in secret offices, but much was presented to the market. And this, in the future, accelerated fragmentation.
It might seem that the mention of versions in the description of the continuous process is a little misleading, but this is not entirely true. Over the course of several decades, many changes have taken place, and what we finally came to was qualitatively different from the previous stages. In 1958, companies from the S&P 500 list were on average 61 years in it. By 2012, this period was 18 years. [18]
The collapse of the Duplo economy occurred simultaneously with an increase in computing power. How significant have computers played in this story? To answer this question, I would have to write a whole book. Of course, increasing computing power has become fertile ground for startups. I suspect that the financial sector has also contributed. Was this the reason for globalization or the wave of LBO (Leveraged buyout) deals? I do not know, but I would not rule out such an opportunity. The stimulus for refragmentation was probably computers, as well as steam engines for the industrial revolution. Computers were a prerequisite or not, but they certainly accelerated the matter.
The new smooth development of firms has changed the relationship with employees. Why climb the career ladder, which at any moment can be knocked out from under you? People with ambitions began to imagine a career not as a climb one ladder, but as a sequence of posts, possibly even held in various companies. An increasing number of transitions (or even potential transitions) from one company to another led to greater competition in salaries. Plus, with the decrease in the size of companies, it has become easier to evaluate the employee’s influence on the company's income. These changes raised salaries to market prices. And, since people's productivity varies significantly, wages at the market price have led to a difference in salaries.
It is no coincidence that the term "yuppie" was coined in the early 80's. This word is not so widely used now, because the phenomenon that it describes is quite familiar to our time, but then it denoted something innovative. Yuppies called young professionals who earned a lot. For today's twenty-year-olds, this does not seem something outstanding, deserving of a separate definition. Why don't young professionals earn large sums? But until the 80s, underpaying in the early stages of career development was considered a direct part of the path to what was meant by the word “professionalism”. Young specialists paid fees during the construction of their careers. And the reward will come later. What was innovative in yuppies was that they wanted their current jobs to be priced at market prices.
The first yuppies did not work in startups, as time for startups has not come yet. But they also could not be found in large firms. These were specialists from areas such as law, finance and consulting. Such an example instantly inspired their peers. As soon as they saw the new BMW 325i, they immediately wanted the same.
The underpay chip only works if everyone does this. If only one employer violates this order, then everyone else will be forced to do the same, otherwise they will not get good workers. And as soon as the process starts, it will spread throughout the economic system, as at the beginning of their careers, people not only easily change their employers, but also entire industries.
But not all young specialists were in a favorable position. To get paid a lot, you need to invest. It is no coincidence that the first yuppies worked in areas where it was easy to measure this contribution.
In general, the idea was similar to the situation with names (which were considered obsolete only because they were rare for a long time): one could get rich. And in the past, there were many ways to do this. Some get rich, shaping their condition, while others, participating in antagonistic games. But as soon as such an opportunity appeared, people with ambitions had to decide whether to do it or not. In 1990, a physicist who preferred Wall Street science sacrificed everything, unlike the 1960 physicist.
The same idea flowed back to large firms. The CEOs who now earn more than before, and, as it seems to me, the whole thing is prestige. In 1960, corporate CEOs enjoyed tremendous authority. They occupied the most advantageous position in the economic system. But if they were making the same pennies and now, in real dollar terms, they would be small fry compared to professional athletes and geeks who earn millions on startups and hedge funds. They don’t like this idea, so now they are trying to extract as much as possible, which already exceeds their income in the past. [19]
Meanwhile, similar fragmentation occurred on the other side of the economy. As the oligopolies of large firms have become less secure, there are fewer opportunities for shifting costs onto customers' shoulders, and therefore less willingness to overpay for labor. And as soon as the Duplo world of several large blocks broke up into many companies with different numbers of employees, and some of them were also registered abroad, it became more difficult for unions to impose their monopoly. As a result, employee salaries crawled to market value, which (and this is inevitable even if the unions did their work) decreased, and, most likely, significantly if the demand for some types of work fell due to automation.
And since the model of the 50s caused both social and economic unity, its destruction entailed both social and economic fragmentation. People began to act and look different. Those who would later be called the “creative class” have become more mobile. Those who did not care about religion experienced less pressure due to the fact that they attended church for a view, while others who liked it very much preferred bright ceremonies and rituals. Some switched from meat rolls to tofu, while others switched to Hot Pockets (translator's note: under this name a product was produced that resembled puffs filled with cheese, meat or vegetables, intended for heating in a microwave oven). Someone switched from a Ford sedan to small imported cars, and the rest to SUV-type cars. a sports utility vehicle, a kind of light truck for everyday use). Children from private schools, as well as those who would like to study in such schools, began to dress like students from an elite private school, and children who wanted to seem rebels consciously tried to look defamatory. People are divided into groups according to hundreds of indicators. [20]
After almost 10 years, fragmentation is still ongoing. Was she overall good or bad? I dont know; a rhetorical question. Although there are pluses in it. We perceive forms of fragmentation, which we like, as a matter of course, and worry only when something does not suit us. But, as a person who happened to survive the conformism of the 50s, I can say that this was not a utopia. [21]
I did not aim to determine the effects of fragmentation as good or bad. I just wanted to explain why it happens. Now that the centripetal forces of the world war and the oligopoly of the twentieth century have almost come to naught, what will happen next? And specifically, is it possible to reverse some changes that have arisen due to fragmentation?
If so, this should be phased. It is impossible to recreate the unity of the 50s as it was originally. It would be crazy to start a war simply to stimulate national unity. And as soon as you realize the degree of “blockiness” in which the history of the economy of the twentieth century version 1 was, it will become clear: this cannot be reproduced.
At least the unity of the twentieth century arose naturally. The war began, mainly due to external forces, and the Duplo economy was a phase of evolution. If you need unity now, you would have to call it on purpose. And it’s not entirely obvious exactly how. I suppose the only thing we can do is respond to the symptoms of fragmentation. And this may already be enough.
The form of fragmentation, which recently mainly concerns people, is called economic inequality, and if you have a desire to eliminate it, you will have to face a truly powerful obstacle that has existed since the Stone Age: with technology. Technique is a lever that increases the effect of work. And this lever is not only lengthening, but the pace with which this happens is accelerating.
Which, in turn, means that the difference in the volumes of states that can be accumulated not only increases, but also accelerates its pace. Unusual conditions prevailing in the middle of the twentieth century hid this underlying trend. Ambitious personalities have no particular choice but to join the ranks of large organizations, which would force them to march along with other people - as in the case of the armed forces in the literal sense, or, figuratively speaking, as in the case of large corporations. Even if large firms expressed a desire to pay for the work of people in proportion to their value, they would not be able to determine how to do this. But such pressure is no longer there. As soon as this idea began to weaken in the 70s, the secret forces again made themselves felt. [22]
Of course, not everyone who managed to get rich did this by forming their fortune. But this is true for a significant number of people, and according to the Baumol effect, all of their contemporaries will also be drawn into this process. [23] And while there is an opportunity to get rich through the formation of their capital, economic inequality will only grow. Even if you close all other ways of enrichment. You can smooth the situation through subsidies on the one hand, and taxes on the other, but so long as the size of taxes does not impede the formation of your fortune, you simply will always desperately struggle with the growing difference in productivity. [24]
This form of fragmentation, like the others, will continue. Or rather, she again overtook us. Nothing lasts forever, but the tendency toward fragmentation must be more long-lived than most things in this world, precisely because there is no particular reason for it. This is just a return to the average. When Rockefeller announced the disappearance of individualism, he was right for hundreds of years. And now we have come to this again, and such will be our reality for a longer period.
I’m afraid if we don’t recognize this, then we won’t have problems. If you think that the unity of the twentieth century has disappeared due to several political amendments, you will mistakenly believe that it can be returned (in some way, without the flaws inherent in it) after several counter-corrections. And then, we spend a lot of time to eliminate fragmentation, while it would be better if we thought about how to mitigate its consequences.
[1] Lester Thurow, in his 1975 recordings, said that the wage gap prevailing at the end of World War II was so “embedded” in the system that it was “perceived as“ reasonable ”even after how the leveling pressure of the second world war ceased. In principle, the same pay gap has been preserved to this day, 30 years later. ” But Claudia Goldin and Robert Margot believe that market relations in the post-war period also helped to maintain a trend towards a reduction in wages, as during the war, when they specifically increased the demand for unskilled workers and increased the oversupply of educated workers.
(Oddly enough, the traditional in America shifting responsibility for paying health insurance to workers appeared as a result of attempts by entrepreneurs to circumvent wage control by the National Labor Council in the military industry in order to attract workers.)
[2] As always, tax rates do not reveal the whole picture . There were many benefits, especially for individuals. And during World War II, the tax code was new, and few asked the government for tax breaks. If the rich paid heavy taxes during the war, then, to a greater extent, this was due to the fact that they themselves expressed a desire, and not because of a sense of duty
After the war, federal tax revenue as a percentage of GDP remained at the same level as today. In fact, throughout the entire period since the start of the war, tax revenues remained close to 18% of GDP, despite significant changes in tax rates. The smallest amount of payments occurred when income tax rates were the highest: 14.1% in 1950. With such data, it’s hard not to conclude that tax rates had almost no effect on actual payments by citizens.
[3] Although, in fact, 10 years before the war there was an era of unlimited power in response to the Great Depression. And this is not just a coincidence, because The Great Depression was one of the causes of the war. In many ways, the New Deal was a kind of dress rehearsal for the measures taken by the federal authorities during the war period. Although, the versions (of these measures) of the military period were much more radical and had a greater impact. As Anthony Badger wrote, “For many Americans, significant changes in their lives did not occur during the New Deal, but during World War II.”
[4] I do not have enough information about the underlying causes of world wars, but it is impossible not to notice that they are associated with the emergence of large corporations. If this is so, then there is only one reason for the cohesion of the twentieth century.
[5] More precisely, the economy was based on two peaks. In the words of Galbraith, it was "a world of dynamically developing technically, maximally focused on the benefits of highly organized corporations, on the one hand, and hundreds of thousands of small firms and owners in the traditional sense of the other." Money, prestige and power were concentrated in the former, and there was no need to talk about equal opportunities.
[6] It is interesting to what extent the number of families having dinner together has subsequently decreased due to the decrease in the number of families watching TV together.
[7] I remember it well, because then just released the first season of the series Dallas. Everyone was discussing the events of the series, but I had no idea what everyone around was talking about.
[8] I was not aware of this until I started researching for my essay, but the tastelessness of the goods I grew up with is a fairly well-known by-product of oligopoly. If firms cannot compete in price, then competition is based on small details.
[9] The Monroeville Mall was the largest in the country upon completion of construction in 1969. In the late 1970s, they shot the film Dawn of the Dead. Of course, the store was not only a film set, but also inspired the script for the film, because crowds of shoppers strolling through the center’s huge building reminded filmmaker George Romero of zombies. And at my first job, I stood at an ice cream distribution at Baskin Robbins.
[10] In 1914, Clayton’s antitrust law ruled that unions did not fall within the scope of antitrust laws because human labor was not “a commodity or a trade”. I wonder if this means that service companies are also not in this category.
[11] Relations between trade unions and their constituent companies may even be symbiotic in nature, as unions are able to exert political pressure to protect their members. According to Michael Lind, when politicians tried to oppress the A&P supermarket chain for not allowing local grocery stores to expand, “A&P successfully defended its position by allowing its workers to join the union in 1938, thus gaining its support.” I myself observed this: hotel associations are responsible for a significant part of the political pressure on the Airbnb service to a greater extent than the hotels themselves.
[12] Galbraith was clearly perplexed by the fact that board members worked so hard for the benefit of others (shareholders). Most of his work, The New Industrial State, was devoted to the analysis of this issue.
His theory was based on the fact that professionalism replaced money as the main source of motivation, and that modern corporate leaders were, like (good) scientists, less motivated by the financial aspect, and more inspired by the desire to do good work and thus earn the respect of their colleagues . There is something in this, although, I believe, the lack of nomadic personnel from one company to another, together with personal interests, explains a lot in this behavior.
[13] Galbraith (p. 94) mentioned a 1952 study that found that three-quarters of the 800 highest-paid executives of 300 large firms had worked in these firms for over 20 years.
[14] Probably, in the first third of the twentieth century, managers had low salaries, partly due to the fact that companies of that time were more dependent on banks that would not like the situation when workers in senior positions received too much. Of course, in the beginning this was all. The first CEOs of large firms were hired by John Morgan.
Until 1920, companies could not provide themselves with retained earnings. Prior to this, they had to spend their income on dividends, and thus they depended on banks and continued to work with them in exchange for providing capital for expansion. Bankers continued to be on the corporate board until Glass-Steagall passed the law in 1933.
By the middle of the century, the revenues of large firms subsidized 3/4 of their growth. But the early years of banking dependence, backed by financial control of the Second World War, probably had a significant impact on social norms regarding the salaries of managers. Therefore, perhaps the lack of staff turnover was both a consequence of low salaries and their cause.
Incidentally, the transition to financing growth using retained earnings in the 1920s was one of the reasons for the stock exchange crash of 1929. Now banks have to look for someone else to lend, and so they have gained even more margin loans.
[15] Even now, it’s hard to get them. I believe that it is most difficult for potential startup founders to understand how important it is to do some kind of rough work in the early stages of a company’s development. To work on something that does not scale, compared to the beginning of Henry Ford’s career, is like comparing a high-fiber diet with the nutritional principles of a typical villager: they had no choice but to do what was right at the time how we have to make efforts and make choices consciously.
[16] During my childhood, the founders were not particularly honored in the press. Under the words “our founder” was a photograph of a stern-looking man with a walrus-like mustache and starched collar, printed ten years after his death. In childhood, I wanted to be a leader. If you have not found this time, then it will be difficult for you to catch the features of this term. Everything that we wanted to see around fell under the "managerial" model.
[17] The wave of hostile takeovers in the 80s was due to a number of circumstances: court decisions that undermined state regulations governing takeovers, starting with the 1982 Supreme Court verdict in James Edgar v. MITE Corp .; the relatively friendly attitude of the administration of President Reagan to takeovers; the 1982 Depository Institutions Act, which allowed banks and savings institutions to buy corporate bonds; the new Securities Commission rule of 1982 (rule 415), which allowed corporate bonds to be brought to market faster; the organization of the trash bond market by Michael Milken; the conglomerate fashion that took place in the previous period and became the reason for the unification of many companies, which was impossible to do; ten-year inflation, which led to that the value of many public companies was lower than the value of their assets; and, just as importantly, the growth of management complacency.
[18] Foster, Richard. “Creative Destruction Whips through Corporate America.” Innosight, February 2012.
[19] Perhaps the CEOs of large firms also overpay. I do not have enough relevant information regarding large companies. But I can say for sure that the CEO may well have such an effect on the company's revenues, the degree of which is 200 times greater than the average employee. See what Steve Jobs did for Apple when he returned as CEO. For the board to give him a 95% stake in the company would be a bargain. On the day Steve returned (in July 1997), Apple had a market capitalization of 1.73 billion. Now (January 2016), a 5% stake in Apple would cost about 30 billion. But that would not have happened if Steve had not returned; Apple probably would not have existed at all.
The very example of Steve may be enough to answer the question of whether the combined directors of the open joint stock companies are overpaid. And this is not a deceptive maneuver, as it might seem, because, you only care about the expansion of your share of the property, with a parallel increase in the total amount.
[20] The late 60s is known for its social upsurge. But it was more like a riot (which can happen in any era, if you bring people to a certain state), rather than fragmentation. It is not noticeable until you see how people are torn apart in different directions.
[21] On a global scale, the trend has gone in a different direction. While the US is becoming more fragmented, the world as a whole is less fragmented. And in most cases in a good sense of the word.
[22] Then there were a lot of ways to get rich, and the most basic was to drill oil wells, which was an open sphere for beginners, because this is not an area where large firms could dominate through an extensive economy. How did individual individuals manage to accumulate a great fortune in an era of such high taxes? It's all about tax loopholes that were defended by the two most influential people in the US Congress: Sam Reyburn and Lyndon Johnson.
Becoming a Texan oilman is not something that anyone could strive for in 1950, which cannot be said about the prospects of creating a startup or working on Wall Street in 2000, because (a) there was a powerful local component there, and (b) success depended heavily on luck.
[23] The Baumol effect caused by startups is very noticeable in Silicon Valley. Google is ready to pay millions of dollars a year to prevent employees from leaving the startup.
[24] I do not claim that the difference in productivity is the only cause of economic inequality in the United States. But her contribution is significant, and its significance will increase to such an extent that if you block other ways to form a state, those who want to get rich will use it to realize their goal.
Translation: Yana Shchekotova
Publishing support - Edison company , which specializes in automation of asphalt plants and the development of payment systems and terminals .
A classic example is microcomputers. Pioneers in this field have become firms like Apple. When it became large enough, IBM decided that it was worth paying attention to this area. At that time, IBM completely controlled the computer industry. They suggested that now that the market is ripe, all you have to do is just reach out and rip it off. At that moment, most would agree with them. But what happened then showed how complicated the world is. IBM has released its same microcomputer. Although he was quite successful, he did not become a rout for Apple. And what's more, IBM itself, in the end, ousted the supplier from another area - from the field of software, which was not even perceived as something close to this business. It was a big mistake for IBM to accept non-exclusive DOS rights. At that time, such a maneuver must have seemed safe. No other computer manufacturer was able to sell more. What would change if other manufacturers could also offer DOS? This miscalculation caused the rapid growth of inexpensive personal computers. Now PC is run by Microsoft standards, just like the client base, and the microcomputer industry has become a confrontation between Apple and Microsoft.
Part 1
Old age has one advantage, and it consists in the fact that all the changes that occur in your life become noticeable. One of the significant changes that I have observed is fragmentation. The political lines of the United States are much more controversial than before. In fact, there is less in common between them than ever. Crowds of creative people rush to certain cities in search of happiness, and leave their native places. And increasing economic inequality entails widening the gap between rich and poor. And here is my hypothesis: all these trends are essentially a manifestation of the same thing. Moreover, the problem is not that there is a force that separates us, but that there are certain forces that attract us to each other, and such an attraction is destructive for us.
Worse, for those who are worried about these changes, the forces that pushed us towards each other were considered abnormal, which once happened in a series of circumstances that, most likely, cannot be repeated. Yes, and we ourselves would not want to repeat them.
The two forces were war (mainly World War II) and the growth of large corporations.
The consequences of World War II were both economic and social in nature. From the point of view of the economy, the difference in income has decreased. Like all modern armed forces, the US military, in economic terms, played the role of a socialist: from each according to his capabilities, to each according to his needs. More-less. High-ranking military leaders receive more (as always for members of socialist society holding high posts), but what was due to them was clearly regulated. The leveling effect was not limited to the participants in the hostilities, because the US economy was also “at the service”. In the period from 1942 to 1945, the size of all salaries was determined by the National Council for Labor in the Military Industry. As in the case of the military, it was decided to make the salary equal for all. And this atmosphere of national standardization of salaries has so saturated society that its impact can still be felt years after the end of the war. [1]
No one even imagined that entrepreneurs could make money. Franklin Roosevelt noted: "Politics will prevent the emergence of" millionaires profiting from war. " To implement this plan, any excess of the company's profits over the pre-war level was taxed at 85%. And when what remained after the payment of corporate income taxes reached individual people, it was again taxed at a rate of 93%. [2]
Socially, the war was supposed to reduce wage fluctuations. More than 16 million people from different places and different conditions brought together to literally lead a unified lifestyle. The standard of service for men born in the early 20s, approached 80%. And work for the benefit of a common goal, often in stressful situations, rallied them even more.
Although the Second World War, strictly speaking, lasted less than four years, its consequences had a more lasting effect. Wars allow the central government to strengthen its influence, and the Second World War brought it to the extreme. In the United States, as in all other allied countries, the federal government hardly refused the new leverage it acquired. Of course, in some respects the war did not end in 1945; the enemy has just switched to the Soviet Union. In terms of tax rates, federal government, defense costs, draft campaigns, and the level of nationalism, even decades after the war ended, the situation was more like a military than a pre-war period. [3] The social effect also continued. A child who was pulled directly from a herd of mules in West Virginia and put into the army, could no longer just return to the farm. Something else was waiting for him, something very much like an army.
If war was a major political event of the 20th century, a new type of company was a major economic event, which also led to the emergence of both social and economic unity. [4] The
20th century was the century of large, national corporations: General Electric, General Foods, General Motors. Events in the field of finance, communications, transport and production gave impetus to the emergence of a new type of company, whose goal was, first of all, to increase the scale of production. The first version of such a world could be compared with Lego Duplo, because it consisted of very large, massive blocks, where there are only a few large firms, each of which has a decent share in the market. [5]
At the turn of the nineteenth and twentieth centuries, the consolidation process was developed, mainly founded by John Morgan (JP Morgan). Thousands of companies, led by their founders, were combined into a couple of hundred gigantic structures under the supervision of professional managers. An extensive economy was then in charge. At that time, it seemed to people that this was the final stage of the development of events. In 1880, John Rockefeller announced that the day of unification had arrived. Individualism is gone, and will never come back. He was wrong, but over the next hundred years no one questioned his words.
Consolidation began at the end of the 19th century and continued for most of the 20th century. Towards the end of World War II, as Michael Lind wrote, “the main economic sectors either acted as cartels with government support, or were controlled by several oligopolistic corporations.”
For consumers, such a new world foreshadowed the same choice, but only from a limited number of products. During my growing up, there were only 2 or 3 sets of products, and since they were all aimed at a mid-range market, there was little difference between them.
This situation is well illustrated by what was happening on television, where there were only 3 options: NBC, CBS, and ABC. Well, there are also public channels for intellectuals and avid communists. The programs offered by these three channels were difficult to distinguish from each other. In fact, pressure came from three sides. If one program tried to show something outstanding, the local branches of the traditional market would force its creators to stop this business. Plus, due to the fact that television was not a cheap pleasure, families watched the same programs in full force, so they (programs) should be suitable for everyone.
But the information was not only submitted to everyone in the same way, but at the same time. Now it’s hard to imagine, but every night tens of millions of families sat in front of the TV and watched the same show, at the same time as their neighbors. What happens during the final matches of the Super Bowl then happened every evening. We were literally in sync. [6]
To some extent, the culture of television in the 50s was not bad. The view of the world she presented was as if taken from children's books, and probably, as her parents hoped, the effect was similar to what was observed when reading children's books, encouraging people to behave approximately. But, as with children's books, television was just as deceiving. And for adults, it’s even dangerous deceptively. In his autobiography, Robert MacNeil talks about the terrible pictures of what is happening in Vietnam, and came to the conclusion that this is not to be shown to families during lunch.
I know how pervasive the conventional culture was, because I tried to distance myself from it, and it was almost impossible to find an alternative. When I was 13, I realized, more from my own reasoning than from any external sources, that all the ideas that feed us on TV were just bullshit, and I stopped watching TV. [7] But the matter was not only in him. Everything around me seemed to be heresy. All politicians say the same thing, brands create almost identical products, sticking different labels to stand out, houses with a wooden beam frame, which are examples of a pseudocolonial architectural style, cars with meters of free metal stripes on each side that started to fall off after 2 years , "Ripe red" apples, which, although they were red, but only called apples. Looking back, this was all nonsense. [8]
But when I continued to search for alternatives to fill the void, I was practically unable to find anything. Then there was no Internet. The only place to search was a chain of bookstores in a local mall. [9] There I found the issue of The Atlantic magazine. It’s a pity that I can’t say that it became a window into the new world, but on the contrary, it turned out to be boring and obscure. Like a child who first tasted whiskey and pretending to like it, I tremblingly kept this magazine, like a book. I am sure he still lies somewhere with me. But, although it was obvious that somewhere there was a world without ripe red fruits, I still could not get to know him before entering college.
Large firms not only made us identical consumers, they turned us into identical workers. There are powerful forces within companies that force people to act in accordance with a single model of behavior. IBM was especially known for this, but it went to the extremes of just a little bit compared to other major "players" in the market. And the patterns of behavior in different corporations did not differ much, implying that everyone in this world was expected to be more or less similar to the others. And not only from those associated with the corporate sphere, but also from everyone who wants to get into it, which, in the middle of the 20th century, included mainly people who had already left its territory. For most of the twentieth century, people of the working class worked hard to resemble the middle class. This is visible in old photographs.
The emergence of national corporations not only puts pressure on us culturally, but also economically, on both sides.
Along with giant national companies, we got large national unions. And in the mid-twentieth century, corporations made deals with those unions in which they paid wages above market levels. Partly due to the fact that the unions were monopolists. [10] And partly due to the fact that, as part of the oligopoly system, corporations knew that it was possible to calmly transfer costs to their customers, because their rivals would have to do the same. And also, partly due to the fact that in the 50s, most large firms were still focused on finding new ways to get the most out of the extensive economy. Just like in a situation where startups regularly pay extra AWS over the cost of supporting their servers, which allows them to focus on their development. Many large state corporations would prefer to pay more for labor. [eleven]
Along with raising incomes from the lower border due to overpayments to trade unions, large companies of the twentieth century also reduced revenues in higher circles, not paying their top managers. In 1967, economist Gelbraith (JK Galbraith) wrote that "There were a few companies that offered to keep managers' salaries at the highest level." [12]
In a way, it was an illusion. Most actual payments to management have never been reflected in income tax returns, as she was presented in the form of benefits. The higher the income tax rate, the more senior employees were forced to pay under the previously mentioned expense item. (In the UK, where taxes were even higher than in the US, firms even paid for the education of children of workers in private schools.) The most valuable thing that large subordinate firms provided to their subordinates in the mid-20th century was a guarantee of employment, which was also not reflected in tax returns , nor in revenue statistics. Thus, the very essence of hiring in these organizations has led to erroneously underestimated rates of economic inequality. But, even with all of the above, large firms paid for the work of their best workers below the market level. Market as such, then it was not and it was implied that you would work for the same company for decades, if not all your life. [thirteen]
The work was so illiquid that the chances of getting a competitive salary were small. And this same illiquidity suppressed the desire to seek it. If the company promised to provide you with work until you reach retirement age, and to make pension payments after this period, you would have lost the incentive to extract from it the same benefits this year as you could. You would need to take care of the company so that it could take care of you. Especially when you have been working with the same people for decades. If you tried to squeeze out more money from the company, then you would be in a situation where you extort money from the company that cares about them. Moreover, if you did not put the company in the first place, you could forget about the increase. And if you couldn’t change your career, then current work would be the only opportunity to rise. [14]
For those who spent several years in the armed forces at the height of their personality formation, such a situation would not have seemed strange, as it is now for us. From the point of view of the leaders of a large firm, they are senior officers. They are paid much more than ordinary people. They have acquired a bill of dining expenses in the best restaurants and fly the world on Gulfstream planes at the expense of the company. It probably didn’t even occur to them to ask if their labor was paid at market rates.
The main way to achieve a market level of remuneration is to work for yourself, opening your own company. This is obvious to any person with ambition. But such an idea was alien to people in the middle of the twentieth century. And not because the opening of his company seemed too ambitious, but because it did not seem sufficiently ambitious. Even in the 70s, when I grew up, the pretentious plan included getting an education at prestigious universities, and subsequent work in another prestigious institution with the passage of all levels of the hierarchy. Your prestige was the prestige of the university where you studied. Of course, people started their own business, but educated people did it rarely, because then almost no one had any idea how to start what we call a startup today: a business starting small, and growing to large volumes. In the mid-twentieth century, it was much harder to crank. Opening a business meant starting a small business that would never gain momentum. Which, in that era of large firms, often meant fussy throwings in an attempt not to be trampled by elephants. It was more prestigious to be one of the governing class governing these elephants.
By 1970, everyone continued to wonder where these large, prestigious firms came from. It seemed that they always existed as chemical elements. Indeed, there was a difference between the ambitious children of the twentieth century and the founders of large companies. Many large firms were a kind of "homemade", which did not have specific founders. And when they appeared, they were different from us. Almost none of them had an education in the sense that they did not attend college. Shakespeare called such people rude artisans. The college taught to be a member of the society of specialists. And no one thought that the graduates would begin to do some dirty dirty work like Andrew Carnegie or Henry Ford. [fifteen]
And in the twentieth century, the number of college graduates became more and more. Their number increased from about 2% of the population of 1900 to almost 25% in 2000. In the 50s, during the merger of our two powerful camps, the GI Bill Act, according to which 2.2 million people who served during the Second World War, sent to college. Few perceived this in this vein, but as a result of attempts to give the college a canonical image, a world appears in which it was quite acceptable to work for Henry Ford, but not to be like him. [16]
I remember it well, because just when all this began to end, I reached adulthood. During my childhood, these ideas still prevailed in the minds of people. But not as noticeable as before. Using the example of old TV shows and yearbooks, we can understand from adult behavior that people in the 50s and 60s were even more conservative than we are. The model of the 50s has already begun to become obsolete. But at that time we saw everything in a different light. The maximum that we could note is that in 1975 one could be a little bolder than in 1965. And really, little has changed.
But the changes soon came. And when the Duplo economy began to disintegrate, it disintegrated in several ways at the same time. The vertical hierarchy of companies literally broke up into its constituent parts, as it was more efficient. Existing companies are faced with new competitors, as (a) the market has become global; and (b) technical innovation has covered the return of an extensive economy by converting quantity from assets to financial liabilities. Smaller firms managed to survive to a greater extent, because previously narrow consumer channels expanded. The markets themselves began to change faster, because completely new product categories have arisen. And finally, the federal government, which previously perceived the world presented by Morgan as a natural state of affairs, began to realize that this was not the end.
If you imagine Morgan as the x axis, then Henry Ford will be the y axis. He wanted to do everything on his own. At the entrance of the giant plant, which he built on the River Rouge from 1917 to 1928, literally iron ore was received, and the output was cars. 100,000 people worked there. In those days, that was what the future looked like. But car companies today operate very differently. Now a huge part of the design and production processes takes place inside a long logistic chain, the results of which auto companies ultimately collect and sell. The reason auto companies operate that way lies in the fact that with this scenario, everything works better. Each company in the supply chain focuses on what it knows best. And each of these firms should do its job well,
Why didn't Henry Ford realize that a network of collaborating companies works better than one big firm? One reason is that it takes a considerable amount of time to develop a supplier network. In 1917, Ford believed that creating everything yourself is the only way to achieve the right scale. The second reason was that if you need to solve the problem through a network of interacting firms, then you should be able to coordinate their work, and this is best done using computers. Computers reduce transaction costs, which, according to Coase, are a reasonable basis for the existence of corporations. And these are fundamental changes.
In the early twentieth century, large companies were associated with efficiency. And at the end of the twentieth century - with inefficiency. To some extent, the reason was that the companies themselves had lost flexibility. It was also influenced by raising our standards.
Changes have occurred not only within existing industries. The industries themselves have changed. There was an opportunity to create a bunch of new things, and sometimes the existing firms were not the only ones who did it best of all.
Worse, for those who are worried about these changes, the forces that pushed us towards each other were considered abnormal, which once happened in a series of circumstances that, most likely, cannot be repeated. Yes, and we ourselves would not want to repeat them.
The two forces were war (mainly World War II) and the growth of large corporations.
The consequences of World War II were both economic and social in nature. From the point of view of the economy, the difference in income has decreased. Like all modern armed forces, the US military, in economic terms, played the role of a socialist: from each according to his capabilities, to each according to his needs. More-less. High-ranking military leaders receive more (as always for members of socialist society holding high posts), but what was due to them was clearly regulated. The leveling effect was not limited to the participants in the hostilities, because the US economy was also “at the service”. In the period from 1942 to 1945, the size of all salaries was determined by the National Council for Labor in the Military Industry. As in the case of the military, it was decided to make the salary equal for all. And this atmosphere of national standardization of salaries has so saturated society that its impact can still be felt years after the end of the war. [1]
No one even imagined that entrepreneurs could make money. Franklin Roosevelt noted: "Politics will prevent the emergence of" millionaires profiting from war. " To implement this plan, any excess of the company's profits over the pre-war level was taxed at 85%. And when what remained after the payment of corporate income taxes reached individual people, it was again taxed at a rate of 93%. [2]
Socially, the war was supposed to reduce wage fluctuations. More than 16 million people from different places and different conditions brought together to literally lead a unified lifestyle. The standard of service for men born in the early 20s, approached 80%. And work for the benefit of a common goal, often in stressful situations, rallied them even more.
Although the Second World War, strictly speaking, lasted less than four years, its consequences had a more lasting effect. Wars allow the central government to strengthen its influence, and the Second World War brought it to the extreme. In the United States, as in all other allied countries, the federal government hardly refused the new leverage it acquired. Of course, in some respects the war did not end in 1945; the enemy has just switched to the Soviet Union. In terms of tax rates, federal government, defense costs, draft campaigns, and the level of nationalism, even decades after the war ended, the situation was more like a military than a pre-war period. [3] The social effect also continued. A child who was pulled directly from a herd of mules in West Virginia and put into the army, could no longer just return to the farm. Something else was waiting for him, something very much like an army.
If war was a major political event of the 20th century, a new type of company was a major economic event, which also led to the emergence of both social and economic unity. [4] The
20th century was the century of large, national corporations: General Electric, General Foods, General Motors. Events in the field of finance, communications, transport and production gave impetus to the emergence of a new type of company, whose goal was, first of all, to increase the scale of production. The first version of such a world could be compared with Lego Duplo, because it consisted of very large, massive blocks, where there are only a few large firms, each of which has a decent share in the market. [5]
At the turn of the nineteenth and twentieth centuries, the consolidation process was developed, mainly founded by John Morgan (JP Morgan). Thousands of companies, led by their founders, were combined into a couple of hundred gigantic structures under the supervision of professional managers. An extensive economy was then in charge. At that time, it seemed to people that this was the final stage of the development of events. In 1880, John Rockefeller announced that the day of unification had arrived. Individualism is gone, and will never come back. He was wrong, but over the next hundred years no one questioned his words.
Consolidation began at the end of the 19th century and continued for most of the 20th century. Towards the end of World War II, as Michael Lind wrote, “the main economic sectors either acted as cartels with government support, or were controlled by several oligopolistic corporations.”
For consumers, such a new world foreshadowed the same choice, but only from a limited number of products. During my growing up, there were only 2 or 3 sets of products, and since they were all aimed at a mid-range market, there was little difference between them.
This situation is well illustrated by what was happening on television, where there were only 3 options: NBC, CBS, and ABC. Well, there are also public channels for intellectuals and avid communists. The programs offered by these three channels were difficult to distinguish from each other. In fact, pressure came from three sides. If one program tried to show something outstanding, the local branches of the traditional market would force its creators to stop this business. Plus, due to the fact that television was not a cheap pleasure, families watched the same programs in full force, so they (programs) should be suitable for everyone.
But the information was not only submitted to everyone in the same way, but at the same time. Now it’s hard to imagine, but every night tens of millions of families sat in front of the TV and watched the same show, at the same time as their neighbors. What happens during the final matches of the Super Bowl then happened every evening. We were literally in sync. [6]
To some extent, the culture of television in the 50s was not bad. The view of the world she presented was as if taken from children's books, and probably, as her parents hoped, the effect was similar to what was observed when reading children's books, encouraging people to behave approximately. But, as with children's books, television was just as deceiving. And for adults, it’s even dangerous deceptively. In his autobiography, Robert MacNeil talks about the terrible pictures of what is happening in Vietnam, and came to the conclusion that this is not to be shown to families during lunch.
I know how pervasive the conventional culture was, because I tried to distance myself from it, and it was almost impossible to find an alternative. When I was 13, I realized, more from my own reasoning than from any external sources, that all the ideas that feed us on TV were just bullshit, and I stopped watching TV. [7] But the matter was not only in him. Everything around me seemed to be heresy. All politicians say the same thing, brands create almost identical products, sticking different labels to stand out, houses with a wooden beam frame, which are examples of a pseudocolonial architectural style, cars with meters of free metal stripes on each side that started to fall off after 2 years , "Ripe red" apples, which, although they were red, but only called apples. Looking back, this was all nonsense. [8]
But when I continued to search for alternatives to fill the void, I was practically unable to find anything. Then there was no Internet. The only place to search was a chain of bookstores in a local mall. [9] There I found the issue of The Atlantic magazine. It’s a pity that I can’t say that it became a window into the new world, but on the contrary, it turned out to be boring and obscure. Like a child who first tasted whiskey and pretending to like it, I tremblingly kept this magazine, like a book. I am sure he still lies somewhere with me. But, although it was obvious that somewhere there was a world without ripe red fruits, I still could not get to know him before entering college.
Large firms not only made us identical consumers, they turned us into identical workers. There are powerful forces within companies that force people to act in accordance with a single model of behavior. IBM was especially known for this, but it went to the extremes of just a little bit compared to other major "players" in the market. And the patterns of behavior in different corporations did not differ much, implying that everyone in this world was expected to be more or less similar to the others. And not only from those associated with the corporate sphere, but also from everyone who wants to get into it, which, in the middle of the 20th century, included mainly people who had already left its territory. For most of the twentieth century, people of the working class worked hard to resemble the middle class. This is visible in old photographs.
The emergence of national corporations not only puts pressure on us culturally, but also economically, on both sides.
Along with giant national companies, we got large national unions. And in the mid-twentieth century, corporations made deals with those unions in which they paid wages above market levels. Partly due to the fact that the unions were monopolists. [10] And partly due to the fact that, as part of the oligopoly system, corporations knew that it was possible to calmly transfer costs to their customers, because their rivals would have to do the same. And also, partly due to the fact that in the 50s, most large firms were still focused on finding new ways to get the most out of the extensive economy. Just like in a situation where startups regularly pay extra AWS over the cost of supporting their servers, which allows them to focus on their development. Many large state corporations would prefer to pay more for labor. [eleven]
Along with raising incomes from the lower border due to overpayments to trade unions, large companies of the twentieth century also reduced revenues in higher circles, not paying their top managers. In 1967, economist Gelbraith (JK Galbraith) wrote that "There were a few companies that offered to keep managers' salaries at the highest level." [12]
In a way, it was an illusion. Most actual payments to management have never been reflected in income tax returns, as she was presented in the form of benefits. The higher the income tax rate, the more senior employees were forced to pay under the previously mentioned expense item. (In the UK, where taxes were even higher than in the US, firms even paid for the education of children of workers in private schools.) The most valuable thing that large subordinate firms provided to their subordinates in the mid-20th century was a guarantee of employment, which was also not reflected in tax returns , nor in revenue statistics. Thus, the very essence of hiring in these organizations has led to erroneously underestimated rates of economic inequality. But, even with all of the above, large firms paid for the work of their best workers below the market level. Market as such, then it was not and it was implied that you would work for the same company for decades, if not all your life. [thirteen]
The work was so illiquid that the chances of getting a competitive salary were small. And this same illiquidity suppressed the desire to seek it. If the company promised to provide you with work until you reach retirement age, and to make pension payments after this period, you would have lost the incentive to extract from it the same benefits this year as you could. You would need to take care of the company so that it could take care of you. Especially when you have been working with the same people for decades. If you tried to squeeze out more money from the company, then you would be in a situation where you extort money from the company that cares about them. Moreover, if you did not put the company in the first place, you could forget about the increase. And if you couldn’t change your career, then current work would be the only opportunity to rise. [14]
For those who spent several years in the armed forces at the height of their personality formation, such a situation would not have seemed strange, as it is now for us. From the point of view of the leaders of a large firm, they are senior officers. They are paid much more than ordinary people. They have acquired a bill of dining expenses in the best restaurants and fly the world on Gulfstream planes at the expense of the company. It probably didn’t even occur to them to ask if their labor was paid at market rates.
The main way to achieve a market level of remuneration is to work for yourself, opening your own company. This is obvious to any person with ambition. But such an idea was alien to people in the middle of the twentieth century. And not because the opening of his company seemed too ambitious, but because it did not seem sufficiently ambitious. Even in the 70s, when I grew up, the pretentious plan included getting an education at prestigious universities, and subsequent work in another prestigious institution with the passage of all levels of the hierarchy. Your prestige was the prestige of the university where you studied. Of course, people started their own business, but educated people did it rarely, because then almost no one had any idea how to start what we call a startup today: a business starting small, and growing to large volumes. In the mid-twentieth century, it was much harder to crank. Opening a business meant starting a small business that would never gain momentum. Which, in that era of large firms, often meant fussy throwings in an attempt not to be trampled by elephants. It was more prestigious to be one of the governing class governing these elephants.
By 1970, everyone continued to wonder where these large, prestigious firms came from. It seemed that they always existed as chemical elements. Indeed, there was a difference between the ambitious children of the twentieth century and the founders of large companies. Many large firms were a kind of "homemade", which did not have specific founders. And when they appeared, they were different from us. Almost none of them had an education in the sense that they did not attend college. Shakespeare called such people rude artisans. The college taught to be a member of the society of specialists. And no one thought that the graduates would begin to do some dirty dirty work like Andrew Carnegie or Henry Ford. [fifteen]
And in the twentieth century, the number of college graduates became more and more. Their number increased from about 2% of the population of 1900 to almost 25% in 2000. In the 50s, during the merger of our two powerful camps, the GI Bill Act, according to which 2.2 million people who served during the Second World War, sent to college. Few perceived this in this vein, but as a result of attempts to give the college a canonical image, a world appears in which it was quite acceptable to work for Henry Ford, but not to be like him. [16]
I remember it well, because just when all this began to end, I reached adulthood. During my childhood, these ideas still prevailed in the minds of people. But not as noticeable as before. Using the example of old TV shows and yearbooks, we can understand from adult behavior that people in the 50s and 60s were even more conservative than we are. The model of the 50s has already begun to become obsolete. But at that time we saw everything in a different light. The maximum that we could note is that in 1975 one could be a little bolder than in 1965. And really, little has changed.
But the changes soon came. And when the Duplo economy began to disintegrate, it disintegrated in several ways at the same time. The vertical hierarchy of companies literally broke up into its constituent parts, as it was more efficient. Existing companies are faced with new competitors, as (a) the market has become global; and (b) technical innovation has covered the return of an extensive economy by converting quantity from assets to financial liabilities. Smaller firms managed to survive to a greater extent, because previously narrow consumer channels expanded. The markets themselves began to change faster, because completely new product categories have arisen. And finally, the federal government, which previously perceived the world presented by Morgan as a natural state of affairs, began to realize that this was not the end.
If you imagine Morgan as the x axis, then Henry Ford will be the y axis. He wanted to do everything on his own. At the entrance of the giant plant, which he built on the River Rouge from 1917 to 1928, literally iron ore was received, and the output was cars. 100,000 people worked there. In those days, that was what the future looked like. But car companies today operate very differently. Now a huge part of the design and production processes takes place inside a long logistic chain, the results of which auto companies ultimately collect and sell. The reason auto companies operate that way lies in the fact that with this scenario, everything works better. Each company in the supply chain focuses on what it knows best. And each of these firms should do its job well,
Why didn't Henry Ford realize that a network of collaborating companies works better than one big firm? One reason is that it takes a considerable amount of time to develop a supplier network. In 1917, Ford believed that creating everything yourself is the only way to achieve the right scale. The second reason was that if you need to solve the problem through a network of interacting firms, then you should be able to coordinate their work, and this is best done using computers. Computers reduce transaction costs, which, according to Coase, are a reasonable basis for the existence of corporations. And these are fundamental changes.
In the early twentieth century, large companies were associated with efficiency. And at the end of the twentieth century - with inefficiency. To some extent, the reason was that the companies themselves had lost flexibility. It was also influenced by raising our standards.
Changes have occurred not only within existing industries. The industries themselves have changed. There was an opportunity to create a bunch of new things, and sometimes the existing firms were not the only ones who did it best of all.
First, Apple sat on IBM, and then Microsoft stole its wallet. In the 50s, this would not have happened with large firms. But in the future this will happen more often.
Basically, in the field of computers, the changes took place on their own. In other areas, it was first necessary to get rid of the obstacles in the form of a legislative base. In the 1950s, the federal government endowed many oligopolists with relevant policies (and in wartime, with large orders), which did not allow competition to develop. At that time, this did not seem so dubious to government officials, unlike us. It was believed that the bipartisan system provided a sufficient level of competition in politics, which should have worked for business.
Gradually, the government realized that anti-competition courses did more harm than good, and when Carter was in office, they began to take them away. The word chosen to describe this process carried a deceptively narrow sense: deregulation. But what was actually happening was called deoligopolization, occurring in one sphere after another. Most notably, this affected two services: air transportation and international telephone calls. Both of these services dropped significantly after deregulation.
In the 80s, deregulation also led to a wave of hostile takeovers. In the old days, the only limit to the company's inefficiency, in addition to bankruptcy, was the inefficiency of its competitors. Now, firms had to deal with absolute standards, not relative standards. For any insufficiently profitable state-owned company, there was a risk of losing their current leadership and acquiring new ones that would increase this profitability. Often, the new management achieved this by dividing the company into parts, each of which in itself was more valuable. [17]
The first version of the national economy consisted of several large blocks, whose interaction was stipulated in secret cabinets by a circle of senior officials, politicians, regulators, and trade union representatives. Version 2 was more “detailed”: the number of firms specializing in various goods and services increased, their sizes varied, and their relationships changed even faster. In this world, many decisions were still made during negotiations in secret offices, but much was presented to the market. And this, in the future, accelerated fragmentation.
It might seem that the mention of versions in the description of the continuous process is a little misleading, but this is not entirely true. Over the course of several decades, many changes have taken place, and what we finally came to was qualitatively different from the previous stages. In 1958, companies from the S&P 500 list were on average 61 years in it. By 2012, this period was 18 years. [18]
The collapse of the Duplo economy occurred simultaneously with an increase in computing power. How significant have computers played in this story? To answer this question, I would have to write a whole book. Of course, increasing computing power has become fertile ground for startups. I suspect that the financial sector has also contributed. Was this the reason for globalization or the wave of LBO (Leveraged buyout) deals? I do not know, but I would not rule out such an opportunity. The stimulus for refragmentation was probably computers, as well as steam engines for the industrial revolution. Computers were a prerequisite or not, but they certainly accelerated the matter.
The new smooth development of firms has changed the relationship with employees. Why climb the career ladder, which at any moment can be knocked out from under you? People with ambitions began to imagine a career not as a climb one ladder, but as a sequence of posts, possibly even held in various companies. An increasing number of transitions (or even potential transitions) from one company to another led to greater competition in salaries. Plus, with the decrease in the size of companies, it has become easier to evaluate the employee’s influence on the company's income. These changes raised salaries to market prices. And, since people's productivity varies significantly, wages at the market price have led to a difference in salaries.
It is no coincidence that the term "yuppie" was coined in the early 80's. This word is not so widely used now, because the phenomenon that it describes is quite familiar to our time, but then it denoted something innovative. Yuppies called young professionals who earned a lot. For today's twenty-year-olds, this does not seem something outstanding, deserving of a separate definition. Why don't young professionals earn large sums? But until the 80s, underpaying in the early stages of career development was considered a direct part of the path to what was meant by the word “professionalism”. Young specialists paid fees during the construction of their careers. And the reward will come later. What was innovative in yuppies was that they wanted their current jobs to be priced at market prices.
The first yuppies did not work in startups, as time for startups has not come yet. But they also could not be found in large firms. These were specialists from areas such as law, finance and consulting. Such an example instantly inspired their peers. As soon as they saw the new BMW 325i, they immediately wanted the same.
The underpay chip only works if everyone does this. If only one employer violates this order, then everyone else will be forced to do the same, otherwise they will not get good workers. And as soon as the process starts, it will spread throughout the economic system, as at the beginning of their careers, people not only easily change their employers, but also entire industries.
But not all young specialists were in a favorable position. To get paid a lot, you need to invest. It is no coincidence that the first yuppies worked in areas where it was easy to measure this contribution.
In general, the idea was similar to the situation with names (which were considered obsolete only because they were rare for a long time): one could get rich. And in the past, there were many ways to do this. Some get rich, shaping their condition, while others, participating in antagonistic games. But as soon as such an opportunity appeared, people with ambitions had to decide whether to do it or not. In 1990, a physicist who preferred Wall Street science sacrificed everything, unlike the 1960 physicist.
The same idea flowed back to large firms. The CEOs who now earn more than before, and, as it seems to me, the whole thing is prestige. In 1960, corporate CEOs enjoyed tremendous authority. They occupied the most advantageous position in the economic system. But if they were making the same pennies and now, in real dollar terms, they would be small fry compared to professional athletes and geeks who earn millions on startups and hedge funds. They don’t like this idea, so now they are trying to extract as much as possible, which already exceeds their income in the past. [19]
Meanwhile, similar fragmentation occurred on the other side of the economy. As the oligopolies of large firms have become less secure, there are fewer opportunities for shifting costs onto customers' shoulders, and therefore less willingness to overpay for labor. And as soon as the Duplo world of several large blocks broke up into many companies with different numbers of employees, and some of them were also registered abroad, it became more difficult for unions to impose their monopoly. As a result, employee salaries crawled to market value, which (and this is inevitable even if the unions did their work) decreased, and, most likely, significantly if the demand for some types of work fell due to automation.
And since the model of the 50s caused both social and economic unity, its destruction entailed both social and economic fragmentation. People began to act and look different. Those who would later be called the “creative class” have become more mobile. Those who did not care about religion experienced less pressure due to the fact that they attended church for a view, while others who liked it very much preferred bright ceremonies and rituals. Some switched from meat rolls to tofu, while others switched to Hot Pockets (translator's note: under this name a product was produced that resembled puffs filled with cheese, meat or vegetables, intended for heating in a microwave oven). Someone switched from a Ford sedan to small imported cars, and the rest to SUV-type cars. a sports utility vehicle, a kind of light truck for everyday use). Children from private schools, as well as those who would like to study in such schools, began to dress like students from an elite private school, and children who wanted to seem rebels consciously tried to look defamatory. People are divided into groups according to hundreds of indicators. [20]
After almost 10 years, fragmentation is still ongoing. Was she overall good or bad? I dont know; a rhetorical question. Although there are pluses in it. We perceive forms of fragmentation, which we like, as a matter of course, and worry only when something does not suit us. But, as a person who happened to survive the conformism of the 50s, I can say that this was not a utopia. [21]
I did not aim to determine the effects of fragmentation as good or bad. I just wanted to explain why it happens. Now that the centripetal forces of the world war and the oligopoly of the twentieth century have almost come to naught, what will happen next? And specifically, is it possible to reverse some changes that have arisen due to fragmentation?
If so, this should be phased. It is impossible to recreate the unity of the 50s as it was originally. It would be crazy to start a war simply to stimulate national unity. And as soon as you realize the degree of “blockiness” in which the history of the economy of the twentieth century version 1 was, it will become clear: this cannot be reproduced.
At least the unity of the twentieth century arose naturally. The war began, mainly due to external forces, and the Duplo economy was a phase of evolution. If you need unity now, you would have to call it on purpose. And it’s not entirely obvious exactly how. I suppose the only thing we can do is respond to the symptoms of fragmentation. And this may already be enough.
The form of fragmentation, which recently mainly concerns people, is called economic inequality, and if you have a desire to eliminate it, you will have to face a truly powerful obstacle that has existed since the Stone Age: with technology. Technique is a lever that increases the effect of work. And this lever is not only lengthening, but the pace with which this happens is accelerating.
Which, in turn, means that the difference in the volumes of states that can be accumulated not only increases, but also accelerates its pace. Unusual conditions prevailing in the middle of the twentieth century hid this underlying trend. Ambitious personalities have no particular choice but to join the ranks of large organizations, which would force them to march along with other people - as in the case of the armed forces in the literal sense, or, figuratively speaking, as in the case of large corporations. Even if large firms expressed a desire to pay for the work of people in proportion to their value, they would not be able to determine how to do this. But such pressure is no longer there. As soon as this idea began to weaken in the 70s, the secret forces again made themselves felt. [22]
Of course, not everyone who managed to get rich did this by forming their fortune. But this is true for a significant number of people, and according to the Baumol effect, all of their contemporaries will also be drawn into this process. [23] And while there is an opportunity to get rich through the formation of their capital, economic inequality will only grow. Even if you close all other ways of enrichment. You can smooth the situation through subsidies on the one hand, and taxes on the other, but so long as the size of taxes does not impede the formation of your fortune, you simply will always desperately struggle with the growing difference in productivity. [24]
This form of fragmentation, like the others, will continue. Or rather, she again overtook us. Nothing lasts forever, but the tendency toward fragmentation must be more long-lived than most things in this world, precisely because there is no particular reason for it. This is just a return to the average. When Rockefeller announced the disappearance of individualism, he was right for hundreds of years. And now we have come to this again, and such will be our reality for a longer period.
I’m afraid if we don’t recognize this, then we won’t have problems. If you think that the unity of the twentieth century has disappeared due to several political amendments, you will mistakenly believe that it can be returned (in some way, without the flaws inherent in it) after several counter-corrections. And then, we spend a lot of time to eliminate fragmentation, while it would be better if we thought about how to mitigate its consequences.
Notes
[1] Lester Thurow, in his 1975 recordings, said that the wage gap prevailing at the end of World War II was so “embedded” in the system that it was “perceived as“ reasonable ”even after how the leveling pressure of the second world war ceased. In principle, the same pay gap has been preserved to this day, 30 years later. ” But Claudia Goldin and Robert Margot believe that market relations in the post-war period also helped to maintain a trend towards a reduction in wages, as during the war, when they specifically increased the demand for unskilled workers and increased the oversupply of educated workers.
(Oddly enough, the traditional in America shifting responsibility for paying health insurance to workers appeared as a result of attempts by entrepreneurs to circumvent wage control by the National Labor Council in the military industry in order to attract workers.)
[2] As always, tax rates do not reveal the whole picture . There were many benefits, especially for individuals. And during World War II, the tax code was new, and few asked the government for tax breaks. If the rich paid heavy taxes during the war, then, to a greater extent, this was due to the fact that they themselves expressed a desire, and not because of a sense of duty
After the war, federal tax revenue as a percentage of GDP remained at the same level as today. In fact, throughout the entire period since the start of the war, tax revenues remained close to 18% of GDP, despite significant changes in tax rates. The smallest amount of payments occurred when income tax rates were the highest: 14.1% in 1950. With such data, it’s hard not to conclude that tax rates had almost no effect on actual payments by citizens.
[3] Although, in fact, 10 years before the war there was an era of unlimited power in response to the Great Depression. And this is not just a coincidence, because The Great Depression was one of the causes of the war. In many ways, the New Deal was a kind of dress rehearsal for the measures taken by the federal authorities during the war period. Although, the versions (of these measures) of the military period were much more radical and had a greater impact. As Anthony Badger wrote, “For many Americans, significant changes in their lives did not occur during the New Deal, but during World War II.”
[4] I do not have enough information about the underlying causes of world wars, but it is impossible not to notice that they are associated with the emergence of large corporations. If this is so, then there is only one reason for the cohesion of the twentieth century.
[5] More precisely, the economy was based on two peaks. In the words of Galbraith, it was "a world of dynamically developing technically, maximally focused on the benefits of highly organized corporations, on the one hand, and hundreds of thousands of small firms and owners in the traditional sense of the other." Money, prestige and power were concentrated in the former, and there was no need to talk about equal opportunities.
[6] It is interesting to what extent the number of families having dinner together has subsequently decreased due to the decrease in the number of families watching TV together.
[7] I remember it well, because then just released the first season of the series Dallas. Everyone was discussing the events of the series, but I had no idea what everyone around was talking about.
[8] I was not aware of this until I started researching for my essay, but the tastelessness of the goods I grew up with is a fairly well-known by-product of oligopoly. If firms cannot compete in price, then competition is based on small details.
[9] The Monroeville Mall was the largest in the country upon completion of construction in 1969. In the late 1970s, they shot the film Dawn of the Dead. Of course, the store was not only a film set, but also inspired the script for the film, because crowds of shoppers strolling through the center’s huge building reminded filmmaker George Romero of zombies. And at my first job, I stood at an ice cream distribution at Baskin Robbins.
[10] In 1914, Clayton’s antitrust law ruled that unions did not fall within the scope of antitrust laws because human labor was not “a commodity or a trade”. I wonder if this means that service companies are also not in this category.
[11] Relations between trade unions and their constituent companies may even be symbiotic in nature, as unions are able to exert political pressure to protect their members. According to Michael Lind, when politicians tried to oppress the A&P supermarket chain for not allowing local grocery stores to expand, “A&P successfully defended its position by allowing its workers to join the union in 1938, thus gaining its support.” I myself observed this: hotel associations are responsible for a significant part of the political pressure on the Airbnb service to a greater extent than the hotels themselves.
[12] Galbraith was clearly perplexed by the fact that board members worked so hard for the benefit of others (shareholders). Most of his work, The New Industrial State, was devoted to the analysis of this issue.
His theory was based on the fact that professionalism replaced money as the main source of motivation, and that modern corporate leaders were, like (good) scientists, less motivated by the financial aspect, and more inspired by the desire to do good work and thus earn the respect of their colleagues . There is something in this, although, I believe, the lack of nomadic personnel from one company to another, together with personal interests, explains a lot in this behavior.
[13] Galbraith (p. 94) mentioned a 1952 study that found that three-quarters of the 800 highest-paid executives of 300 large firms had worked in these firms for over 20 years.
[14] Probably, in the first third of the twentieth century, managers had low salaries, partly due to the fact that companies of that time were more dependent on banks that would not like the situation when workers in senior positions received too much. Of course, in the beginning this was all. The first CEOs of large firms were hired by John Morgan.
Until 1920, companies could not provide themselves with retained earnings. Prior to this, they had to spend their income on dividends, and thus they depended on banks and continued to work with them in exchange for providing capital for expansion. Bankers continued to be on the corporate board until Glass-Steagall passed the law in 1933.
By the middle of the century, the revenues of large firms subsidized 3/4 of their growth. But the early years of banking dependence, backed by financial control of the Second World War, probably had a significant impact on social norms regarding the salaries of managers. Therefore, perhaps the lack of staff turnover was both a consequence of low salaries and their cause.
Incidentally, the transition to financing growth using retained earnings in the 1920s was one of the reasons for the stock exchange crash of 1929. Now banks have to look for someone else to lend, and so they have gained even more margin loans.
[15] Even now, it’s hard to get them. I believe that it is most difficult for potential startup founders to understand how important it is to do some kind of rough work in the early stages of a company’s development. To work on something that does not scale, compared to the beginning of Henry Ford’s career, is like comparing a high-fiber diet with the nutritional principles of a typical villager: they had no choice but to do what was right at the time how we have to make efforts and make choices consciously.
[16] During my childhood, the founders were not particularly honored in the press. Under the words “our founder” was a photograph of a stern-looking man with a walrus-like mustache and starched collar, printed ten years after his death. In childhood, I wanted to be a leader. If you have not found this time, then it will be difficult for you to catch the features of this term. Everything that we wanted to see around fell under the "managerial" model.
[17] The wave of hostile takeovers in the 80s was due to a number of circumstances: court decisions that undermined state regulations governing takeovers, starting with the 1982 Supreme Court verdict in James Edgar v. MITE Corp .; the relatively friendly attitude of the administration of President Reagan to takeovers; the 1982 Depository Institutions Act, which allowed banks and savings institutions to buy corporate bonds; the new Securities Commission rule of 1982 (rule 415), which allowed corporate bonds to be brought to market faster; the organization of the trash bond market by Michael Milken; the conglomerate fashion that took place in the previous period and became the reason for the unification of many companies, which was impossible to do; ten-year inflation, which led to that the value of many public companies was lower than the value of their assets; and, just as importantly, the growth of management complacency.
[18] Foster, Richard. “Creative Destruction Whips through Corporate America.” Innosight, February 2012.
[19] Perhaps the CEOs of large firms also overpay. I do not have enough relevant information regarding large companies. But I can say for sure that the CEO may well have such an effect on the company's revenues, the degree of which is 200 times greater than the average employee. See what Steve Jobs did for Apple when he returned as CEO. For the board to give him a 95% stake in the company would be a bargain. On the day Steve returned (in July 1997), Apple had a market capitalization of 1.73 billion. Now (January 2016), a 5% stake in Apple would cost about 30 billion. But that would not have happened if Steve had not returned; Apple probably would not have existed at all.
The very example of Steve may be enough to answer the question of whether the combined directors of the open joint stock companies are overpaid. And this is not a deceptive maneuver, as it might seem, because, you only care about the expansion of your share of the property, with a parallel increase in the total amount.
[20] The late 60s is known for its social upsurge. But it was more like a riot (which can happen in any era, if you bring people to a certain state), rather than fragmentation. It is not noticeable until you see how people are torn apart in different directions.
[21] On a global scale, the trend has gone in a different direction. While the US is becoming more fragmented, the world as a whole is less fragmented. And in most cases in a good sense of the word.
[22] Then there were a lot of ways to get rich, and the most basic was to drill oil wells, which was an open sphere for beginners, because this is not an area where large firms could dominate through an extensive economy. How did individual individuals manage to accumulate a great fortune in an era of such high taxes? It's all about tax loopholes that were defended by the two most influential people in the US Congress: Sam Reyburn and Lyndon Johnson.
Becoming a Texan oilman is not something that anyone could strive for in 1950, which cannot be said about the prospects of creating a startup or working on Wall Street in 2000, because (a) there was a powerful local component there, and (b) success depended heavily on luck.
[23] The Baumol effect caused by startups is very noticeable in Silicon Valley. Google is ready to pay millions of dollars a year to prevent employees from leaving the startup.
[24] I do not claim that the difference in productivity is the only cause of economic inequality in the United States. But her contribution is significant, and its significance will increase to such an extent that if you block other ways to form a state, those who want to get rich will use it to realize their goal.
Translation: Yana Shchekotova
Publishing support - Edison company , which specializes in automation of asphalt plants and the development of payment systems and terminals .
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