clips
war, conformity, lack of choice, apparent security
The effects of World War II were both economic and social. Economically, it decreased variation in income. Like all modern armed forces, America's were socialist economically. From each according to his ability, to each according to his need. More or less. Higher ranking members of the military got more (as higher ranking members of socialist societies always do), but what they got was fixed according to their rank. And the flattening effect wasn't limited to those under arms, because the US economy was conscripted too. Between 1942 and 1945 all wages were set by the National War Labor Board. Like the military, they defaulted to flatness. And this national standardization of wages was so pervasive that its effects could still be seen years after the war ended. [1]
Business owners weren't supposed to be making money either. FDR said "not a single war millionaire" would be permitted.
...Along with giant national corporations, we got giant national labor unions. And in the mid 20th century the corporations cut deals with the unions where they paid over market price for labor. Partly because the unions were monopolies. [10] Partly because, as components of oligopolies themselves, the corporations knew they could safely pass the cost on to their customers, because their competitors would have to as well. ...
... Within companies there were powerful forces pushing people toward a single model of how to look and act. IBM was particularly notorious for this,...
...There was no market; the expectation was that you'd work for the same company for decades if not your whole career. [13]...
changes
...But change was coming soon. And when the Duplo economy started to disintegrate, it disintegrated in several different ways at once. Vertically integrated companies literally dis-integrated because it was more efficient to. Incumbents faced new competitors as (a) markets went global and (b) technical innovation started to trump economies of scale, turning size from an asset into a liability. Smaller companies were increasingly able to survive as formerly narrow channels to consumers broadened. Markets themselves started to change faster, as whole new categories of products appeared. And last but not least, the federal government, which had previously smiled upon J. P. Morgan's world as the natural state of things, began to realize it wasn't the last word after all...
computers - supply chain options
Why didn't Henry Ford realize that networks of cooperating companies work better than a single big company? One reason is that supplier networks take a while to evolve. ... And the second reason is that if you want to solve a problem using a network of cooperating companies, you have to be able to coordinate their efforts, and you can do that much better with computers. Computers reduce the transaction costs that Coase argued are the raison d'etre of corporations. That is a fundamental change.
In the early 20th century, big companies were synonymous with efficiency. In the late 20th century they were synonymous with inefficiency.
...The companies in the S&P 500 in 1958 had been there an average of 61 years. By 2012 that number was 18 years. [18]
The breakup of the Duplo economy happened simultaneously with the spread of computing power. To what extent were computers a precondition? It would take a book to answer that. Obviously the spread of computing power was a precondition for the rise of startups....driven by computers in the way the industrial revolution was driven by steam engine...
pay - Yuppies started it
CEOs of big companies make more now than they used to, and I think much of the reason is prestige. In 1960, corporate CEOs had immense prestige. They were the winners of the only economic game in town. But if they made as little now as they did then, in real dollar terms, they'd seem like small fry compared to professional athletes and whiz kids making millions from startups and hedge funds...
...a similar fragmentation was happening at the other end of the economic scale. As big companies' oligopolies became less secure, they were less able to pass costs on to customers and thus less willing to overpay for labor...harder for unions to enforce their monopolies. As a result workers' wages also tended toward market price...
cohesion vs. fragmentation
...And just as the mid-century model induced social as well as economic cohesion, its breakup brought social as well as economic fragmentation. People started to dress and act differently....
income inequality, fragmentation + technology - increasing
...The form of fragmentation people worry most about lately is economic inequality, and if you want to eliminate that you're up against a truly formidable headwind—one that has been in operation since the stone age: technology. Technology is a lever. It magnifies work. And the lever not only grows increasingly long, but the rate at which it grows is itself increasing.
Which in turn means the variation in the amount of wealth people can create has not only been increasing, but accelerating....
...as long as it's possible to get rich by creating wealth, the default tendency will be for economic inequality to increase... but unless taxes are high enough to discourage people from creating wealth, you're always going to be fighting a losing battle against increasing variation in productivity. [24]
conclusions
...the tendency toward fragmentation should be more forever than most things, precisely because it's not due to any particular cause. It's simply a reversion to the mean. ...we'd be better off thinking about how to mitigate its consequences
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