I’ve just finished Walter Isaacson’s fascinating book on Steve Jobs’ fascinating life. Among the many intriguing things about Jobs’ story is that it may shed some light on a particular interpretation of America’s economic performance over the past generation.
Between 1979 and 2007, inflation-adjusted hourly wages for Americans at the median and below were essentially flat. Household incomes in the lower half increased, but not very much. Both wages and incomes for many ordinary Americans trailed far behind growth of the economy. At the same time, the earnings and incomes of those at the top exploded (see here, here, here, here).
One story sometimes told about the 1980s, 1990s, and pre-crash 2000s links these two developments to offer an optimistic verdict on the evolution of living standards for America’s lower half. The story goes something like this: A winner-take-all economy reduces income growth for low-to-middle Americans. But it nevertheless produces a substantial rise in living standards for them. It does so by increasing financial incentives for inventiveness and hard work, which yields leaps in consumption that aren’t reflected in the price data used to measure changes in the cost of living.
To put it more precisely, the story has four parts:
1. Returns to success soared in fields such as entertainment, athletics, finance, and high tech, as well as for CEOs. These markets became “winner-take-all,” and the amounts reaped by the winners mushroomed.
2. For those with a shot at being the best in their field, this increased the financial incentive to work harder or longer or to be more creative.
3. This rise in financial incentives produced a rise in excellence — new products and services and enhanced quality.
4. These improvements haven’t been satisfactorily captured in the price index by which we assess changes in the cost of living. Watching Michael Jordan or LeBron James play basketball is a qualitatively superior experience relative to what came before in a way that isn’t reflected in the price of a ticket or of a cable TV subscription. Similarly, the Macintosh, iPod, iTunes, iPhone, and iPad are so different from and superior to anything that preceded them that what they add to living standards isn’t likely to be adequately measured.
I think there’s a good bit of truth to parts 1, 2, and 4 of this story. But I’m skeptical about part 3.
This brings me to Steve Jobs. Apple and its delightful, user-friendly, (eventually) affordable gadgets play a key role in this story. The question is: Would Jobs and his teams of engineers, designers, and others at Apple have worked as hard as they did to create these new products and bring them to market in the absence of massive winner-take-all financial incentives?
In the things-have-improved-more-than-the-income-data-make-it-seem story, the answer is no. The financial incentive is the critical spur to inventiveness and hard work.
But I don’t find anything in Isaacson’s account of Jobs that supports this view. Jobs himself seems to have been driven mainly by a passion for the products, for winning the competitive battle, and perhaps for status among peers. The satisfaction of achieving excellence and of beating one’s opponents appears to have been far more important than monetary compensation. Excellence and victory were their own reward, rather than a means to the end of financial riches. In this respect Jobs was little different from scores of inventors and entrepreneurs over the ages, or for that matter from Bill Russell, Larry Bird, and Michael Jordan.
The rise of winner-take-all compensation occurred simultaneously with surges in innovation and productivity in certain fields, but that doesn’t mean it was the cause of those surges.
I would suggest that Winner Take All is more an attitude expressing hyper-competition than an incentive for greater creation, productivity or compensation.
Winner Take All is another way of saying Zero-Sum, in that this hyper competitive view of capitalism posits that for one to win, all others must lose. It’s an attitude/belief I saw a lot among senior management of companies which were clients in my 40 years in advertising, especially in the 1990s and 2000s, in particular, in large companies.
Unlike management above, most of us workers tended to see what we did as more cooperative than competitive, to the degree it was thought about at all.
Competition is vital in capitalism, and profit is the major means of spurring it on.
But if the basic, primary purpose of an economy is to provide products and services for the survival of the economic group based on a division of labor, then cooperation is much more important and much more productive than just competition.
The Zero Sum/Winner Take All view of business on high has gone hand-in-hand with the rise of income inequality of the last 30 years and has been its Darwinian justification.
“Household incomes in the lower half increased, but not very much.”
This is said a lot, but really should be qualified. You went from predominantly one earner in the household to predominantly two, and the income for the household only increased by not very much? Did the hourly wage decrease? That’s crucial.
Of course such families will feel much worse, working twice the total hours (or a lot more, as I think hours per job increased substantially too), yet little increase in income.
Then there’s the medical costs issue. The non-medical consumption, I would guess, decreased, when the family work hours more than doubled! (Lane, do you know these figures?). So the day to day standard of living may have decreased with the family working ridiculously more hours, AND making it even worse, income inequality skyrocketed, making people feel a lot worse about their quality of life. And income security plummeted, greatly increasing stress.
It would appear the that the anti-trust, anti-monopoly, and unfair trade practice laws have been circumvented not so much as by repeal, but by appointing blind men in government to execute them….on purpose, of course.
Good points.
However, I would have to disagree with one very superior product versus small improvement question. Toyota Corolla has been there since 1966. However, the current version is vastly superior to that. You do not have to have a quantum jump to be profitable. (I am agnostic about how superior iXXX products really are).
Tapen Sinha
The lines at food banks tell us #3 is not entirely satisfactory.
Would Jobs have worked as hard if he only could accumulate $3B instead of $6B – ah, yeah.
Jobs success did not hurt the working class, the “success” of financiers who received huge rewards for incompetence and fraud hurt the working class.
Incentives got confused for value creation which produces rewards.
“Shareholder value” was a false theory created by CEO running public companies, such as GE Welsh to justify high incentives for CEOs so that they may be alligned with investors, who also falsely were presumed to have attachment to the company. So, we had three decade rise in the super liquid flybynight investor and incentive driven professional manager, for whom pride in their work, accomplishment and contribution to the company’s long term capability, solutions and products doesn’t exist.
We have a society that has become addicted to financial incentive, which sabotages our ability not just to create solutions but to sustain society.
This is similar to addiction to food, sex, drugs etc, whereby behavior by which one gets the reward eventually becomes a drive and reward itself is ever less felt and has to get higher and higher and the addicted stick together to keep their dependency possible and come up with all manner of false theories to rationalize their drives.
Their brains are permanently altered as is damage done to the social fabric.
Plenty of investors have become addicted and crash as junkies when their incentive addicted professional managers show they can’t compete with passionate owners who do take pride in their work, accomplishment and contribution and create value consumers appreciate and reward.
The balance has to be kept not between incentives and the reward, but between the three component of prides, work, accomplishment and contribution across an institution. Society has to provide growth for individuals in a mix of skillsets as well as in balancing of these three prides, by experience, which involves failing and overcoming failures.
Western society doesn’t do that. Hence, it leaves people to addiction to incentives that destroy identity, will power, sense of intrinsic worth, bonds and trust in society, starting within the family, then continuing on thru companies, governments and electorate.
Society will not be free of danger until west puts in place a solution for the addiction to incentives.
Numbers 2, 3, and 4 are wrong. And Michael Jordan example is a good example of how wrong. (Which any long-time sports fan can explain to you, even without pointing to Jordan’s baseball career.)
That inequality and winner-takes-it all would be required for or even have caused a surge in innovation if just absolutely delusional.
World intellectual property organization puts together statistic over innovation. Here it is clear that equal societies like Sweden, Danemark and Finland spend about as much as US in R&D per capita. Actually, the winner-takes-it-all-countries are the ones that spend the least on R&D! (p.34)
http://www.wipo.int/freepublications/en/intproperty/944/wipo_pub_944_2011.pdf
Actually, Japan is one of the worlds most equal societies. Japan has massively increased their innovation over the last decade, while innovation in US has stagnated as inequality has soared.
http://daveporter.typepad.com/.a/6a00d8345175a969e2014e8a4435aa970d-500wi
There is a special place in hell pr people that think poverty of others are ok because they can buy iPads for themselves. But there is NO place in academia for people that pretend there is a correlation between winner-takes-it-all-mentality and innovation and technological advancement. You have apparently learned that correlation does not necessarily mean causation. What you should have learned is that lack of correlation makes your discussion pointless.
I’ve actually met a few people like Jobs in my life and there’s one thing that stands out with all of them: just how little money means to them. To a man (no women in my group) they’ve dismissed concerns about making money. “That’s for accountants and lawyers,” they say, “Not important people.”
True enough. I don’t even come close to buying the idea that a winner-take-all society creates more innovation. All you have to do is look at the innovators and not just in today’s world. Edison, Tesla, Brunel, all were like Jobs: build it better, build it to your own standards, and beat everyone else to it. The money’s incidental.
I think you’re right. There’s a fair bi of evidence that intrinsic motivation drives creativity and innovation, while extrinsic motivators like monetary reward drive focus and short-term behaviors. Worse, extrinsic motivators can, and often do, displace intrinsic motivation.
Perhaps the most remarkable thing about Steve Jobs was that, despite his massive compensation, he seems to have retained his intrinsic motivation.
Dear Prof Laneworthy: you loose your job, get rehired without bennies at 1/3 the salary, you let me know how that super excellent Lebron james TV stuff works out for you….
I’m sure, sittin at home in your PJs you will feel that your quality of life is so much better…
I don’t see why people excuse jobs: he made wealth off of slave labor in China. I mean, how good a guy can he be ? and just because everyone else did it is no excuse
Apple has what, x billion dollars in teh bank ? they couldn’t take 5% of that and ensure that their slave labor in china had decent jobs ?