Winner Takes All
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PAUL SOLMAN: Disney’s Michael Eisner prompts the 1994 Businessweek chart of America’s highest paid executives, his $203 million in earnings, roughly 10,000 times that of the lowest paid Disney employee, Hollywood’s Sylvester Stallone $20 million a picture, the average member of the Screen Actors Guild $12,500 a year.
Now, admittedly, there have always been high paid superstars and moguls, but listen to this. In German and Japanese companies, the CEO is paid about 30 times what the bottom worker makes. Two decades ago in the U.S. the ratio was also thirty to one. By 1990, it had reportedly shot up to a hundred and forty to one in the United States. It seems as if something has changed.
To understand the stratospheric salaries of our era, the best place to start might be Cornell University. To paraphrase Cornell’s alma mater, we forayed far above Cayuga’s waters to learn the hows and whys of our winner- take-all society. For that is what economics Prof. Robert Frank says we are becoming as incomes diverge between the haves and have nots.
PROF. ROBERT FRANK, Cornell University: There’s been not only a change in the disparity of incomes between the people at the top of the pyramid and those at the bottom, between the most skilled and the less skilled, but also within each category that we have the data to measure. So within the category of medical practitioners, the incomes of the highest earners have grown relative to the incomes of the lowest earners. The same is true in law.
PAUL SOLMAN: And says Frank in virtually every profession. You can even see it here at Cornell.
SPOKESMAN: Well, each of these hoods, for instance, glove boxes, cost $200,000.
PAUL SOLMAN: Chairman of the world class Cornell Chemistry Department, Bruce Ganem has one main job, keeping superstar faculty from leaving for higher offers. Prof. Frank Disalvo is currently considering a seven-figure offer from Princeton to set up a lab just for him.
PAUL SOLMAN: Why do you suppose there is a bidding war for your services? I mean, you must have thought about it.
PROF. FRANK DISALVO, Cornell University: Well, I think it has to do with being able to attract other good faculty that have already proven that they can do research that’s both of interest to the scientific community and receives awards and things of that sort, and can attract federal money to keep doing it.
PAUL SOLMAN: So is it a case of the rich getting richer, or the more excellent getting even more excellent?
PROF. FRANK DISALVO: I think there’s some truth to that statement. The idea is that you put your money on proven winners, I think.
PAUL SOLMAN: Cornell isn’t always on the defensive. In 1987, it wooed polymer chemist Jean Frechet away from the University of Ottawa.
PROF. JEAN FRECHET, Cornell University: At the time, they offered me $2 million to start my lab, and that was a significant amount of money then.
PAUL SOLMAN: So just between us now, is anybody coming after you now, trying to recruit you?
PROF. JEAN FRECHET: Yes, yes. I mean, it’s every year.
PAUL SOLMAN: The point is, for every Jean Frechet or Frank Disalvo, there are hundreds, maybe thousands, of perfectly good chemistry professors getting no offers at all, losers, so to speak, in a winner-take-all contest. It’s a race among students as well. At Cornell, one out of every three undergraduates takes basic organic chemistry. The course is oversubscribed, the competition furious, at least for most. But few of these students intend to become chemists. This course is prerequisite to a clearly rewarding profession in which nearly everyone wins.
PAUL SOLMAN: How many of you are in this class because you’re pre-med and want to go to med school? Every single one, except you up there? Every single person.
PAUL SOLMAN: Now, part of the drive to become a doctor is surely a desire to be useful, but Bruce Ganem thinks winner-take-all is at work, and it’s at work throughout the chemistry curriculum.
BRUCE GANEM, Cornell University: When you and I were in college, we talked and our parents talked about doing your best, about the good old college try. And when Vince Lombardi said winning isn’t everything, it’s the only thing, we chuckled and we thought, well, maybe in football. But today, the good old college try isn’t good enough. To be successful, you have to be at the top, you have to come home with the goods, you have to have the job after the interview, or you haven’t succeeded.
PAUL SOLMAN: Small wonder then that in the last two decades students with the highest SAT scores have increasingly clustered at Ivy League schools, jostling for position on the trip to the top. But to Prof. Frank, a winner-take-all society is a recipe for ruin.
PROF. ROBERT FRANK: We’ve never seen an era like the one we’re in now. I think Lester Thurow has written that short of a war or a revolution there’s never been a time when inequality between the top earners and the bottom earners has grown so sharply as in the last 20 years, and it’s very difficult to maintain a well-ordered society when you’ve got that kind of growing income gap.
PAUL SOLMAN: And winner-take-all is a contributor?
PROF. ROBERT FRANK: We argue that the spread of winner-take-all markets is really the driving force behind growing income inequality. It’s not just between the highly skilled and the unskilled; it’s within the most skilled workers we can identify, the rich getting richer and the poor getting poorer.
PAUL SOLMAN: In a new book, Frank and co-author Philip Cook of Duke [The Winner-Take-All Society by Robert H. Frank and Philip J. Cook] spell out their thesis and their worries as to how far winner-take-all is spreading. To be fair, not all economists share their concerns.
In a “New York Times” column, Stanford’s Paul Krugman was quoted as saying, “Most people don’t try to become Michael Jordan or Michael Eisner,” and Chicago’s Sherwin Rosen said, “I don’t think this applies to the butcher, baker, and candlestick maker.” The critique then, winner-take-all only applies to a few high-profile fields but not all the rest. But co-author Philip Cook thinks winner- take-all is truly pervasive.
At Bob McMath’s new products showcase and learning center in Ithaca, Cook explained that winner-take-all is true even of products. Sure, there have always been losers like Licorice Oat Bran and Touch of Yogurt Shampoo, but the point is there are more losers these days and bigger winners. To Philip Cook, that’s partly because more products and people are competing for the same limited shelf space, both the physical kind in stores and the mental shelf space in the minds of us consumers.
PHILIP COOK, Duke University: It’s fascinating to see these products here because what they’re all playing for is the jackpot, and like the Lotto Game, many play, very few win.
PAUL SOLMAN: Why has it gotten worse?
PHILIP COOK: I think one reason it’s gotten worse or more intense and more pervasive has to do just with the changes in technology that we’re all very familiar with. It’s the technology of transportation, of international communication, of data processing, and one of the consequences of that, obviously, has been the globalization of the economy.
PAUL SOLMAN: Now, a global market brings global payoffs, but only if you can get yourself on everyone’s mental shelf. And since we can keep only so many restaurants, products, or people in our heads, name recognition becomes everything. Modern communications technology has made the celebrity king.
PHILIP COOK: The key point here is that distributing, you know, a Mike Tyson fight costs no more because of the technology than to distribute a fight by some no-name thug that is boxing locally in Brooklyn somewhere, so that when you have a technology like that, where the distribution is essentially free, it’s a public good, then why not the best?
PAUL SOLMAN: Prof. Frank has a more PBS-appropriate example.
PROF. ROBERT FRANK: The real market for music now is in recorded form, and if the critics decide that Kathleen Battle is the one who does that best, then we hire her, she records the master disk, and we stamp out as many copies as we wish from her disk. No need to listen to the second best soprano any longer.
PAUL SOLMAN: But, says Frank, it’s not just that today’s top people get more because fame is now worth more; an extra key ingredient is deregulation, open bidding that now takes place for the most productive entertainers, athletes, executives, driving their incomes even higher.
PROF. ROBERT FRANK: And in today’s world, we have a market in which everyone is, in effect, like a free agent in baseball. It used to be that people stayed with the same company for their whole careers, much more than now. It used to be that authors stayed with the same publisher for their entire writing careers. Now everyone’s a free agent. Everyone sells his or her services to the highest bidder, and that competition is the other major factor that’s driven salaries to run- away levels at the top.
PAUL SOLMAN: Now, a bit of balance here. There are some benefits to winner-take-all. Most people prefer a Mike Tyson fight to a local slugfest, Kathleen Battle to a second-best warbler, and closer to home, if you get sick, no matter where you are, you can now be electronically diagnosed, even treated, by a world class expert instead of the doctor down the road. But clearly, there are also costs to winner-take-all markets, when, to quote Coach Lombardi, winning becomes the only thing. In big-time football, if not the Cornell brand, steroid use is escalating as athletes try to out-bulk each other. Steroids are dangerous. The game is no better because everyone is now bigger.
PROF. ROBERT FRANK: But from an individual point of view, it’s compellingly attractive to take the drug because, otherwise, you don’t land a spot on the team, you don’t have a shot at the NFL roster.
PAUL SOLMAN: Here in the Ivy League, of course, the ticket to the top is not in sports but in academics. Still, says chemistry chairman Bruce Ganem, you can see the waste in the classroom too. Cheating is up dramatically.
BRUCE GANEM: Cheating will take place for the smallest number of points, two or three points on an exam, and often with a very good student. There’s just no correlation with the quality of student and who is or isn’t cheating.
PAUL SOLMAN: When I think back on my academic career in the 60’s, the idea of really good students cheating is frankly unimaginable.
BRUCE GANEM: You’re right, but think of pressure again. Pressure is very egalitarian.
PAUL SOLMAN: There’s so much pressure because there’s so much competition; the limited number of med school spots for the top jobs that Frank’s students, when we polled them, thought his economics course might help them get, and there’s so much competition because the prizes are so great at the top in business, or as is often noted in basketball, where one in twelve thousand hoop dreams pays off big-time and the rest, despite all their hard work, never make a penny from the sport. And that’s the other great cost of winner-take-all, the misallocation and disappointment of talent as too many people vie for the handful of spots at the top. Now, call us obsessed, if you like, but we thought we could even see this problem at an annual Ivy event we happened on just before we left town.
“Playboy Magazine’s” women of the Ivy League issue had just come out, and some men of the Ivy League had queued up for signed copies amid grim signs of protest. For their part, the pin-ups said they’d had a good time posing, were paid, of course, and here’s the point, wouldn’t mind at all if this exposure led to a modeling contract, or would they, we asked?
WOMAN: Oh, definitely not, and I don’t think any of us would turn it down if someone called.
PAUL SOLMAN: But to quote Robert Frank, modeling is a winner-take-all market of the most extreme sort. The typical annual income, zero; the top superstars, ever more eye-poppingly remunerated. And perhaps most significant, very little to distinguish the cover girls from the also- rans. In fact, in the end, the most disturbing aspect of winner-take-all may be its apparent injustice; that modest, if not arbitrary differences in talent, can result in yawning differences in pay, in jobs in modeling, in sports, in business, maybe even in TV news.
Add to that the growing income gap between jobs, between those that demand marketable skills and those that don’t, and you can see how America’s multitude of non-winners might feel that economic life is simply unfair, getting more unfair, and that some might even feel the game, itself, isn’t worth playing at all.