Answering Brad DeLong’s “Deep Question”: Productivity vs. Power
As a naive young noodler on economic topics I always wondered: Why are players in the financial industry — which produces very few real, human, consumable goods and services that people value in their lives — so well-paid?
I figured it out pretty quickly: it’s because they are able to control who gets that real stuff. Sure: the financial industry is necessary to our ongoing assault on scarcity — increased productivity and production, yadda yadda yadda. But that’s not really why they get the big bucks. It’s because they’re playing the rivalry game. Anyone who doesn’t use their services (or become one of those players) loses that game.
Which brings me to an answer to Brad DeLong’s excellent question.
What is it, precisely, about Apple technology and today’s economy that gives it much more of a winner-take-all nature than Eastman-Kodak technology? And why was the same true of Andrew Carnegie-age technology and organization, but not of Alfred P. Sloan-age technology and organization? Deep questions.
I do like deep questions. My answer:
There are new technologies that produce more/better consumables (and methods to produce consumables with less human effort), and ones that give control over who gets to do the consumption (and take the leisure).
Computer technology is more like double-entry accounting and limited-liability corporations in that respect, and proportionally less like steam engines and electric motors.
Cross-posted at Asymptosis.
When you squeeze a toothpaste tube at the bottom, it all comes out the top — to wit:
What I call a subsistence-plus labor market is when employees have no mechanism with which to withhold labor from employers in attempt to extract the maximum price consumers may be willing to pay — pay levels set to suit employers needs only.
Examples: Fast food pays subsistence (or less). Starbucks — pays up a rung — a couple of dollars an hour more plus benefits for more yuppie-attuned employees (English as a first language). Starbucks employees may expect they are headed for better things (likely) — may be why they endure pay too close to bottom money. Whole Foods — up another rung — pays a couple of more bucks plus benefits (to the 80% who turn over) because it needs what Starbucks needs plus some additional industry.
My (un)favorite example of subsistence-plus is regional airline pilots whose pay and benefits may hover around Whole Foods level – with typically $100,000 educations and years of building flight hours – but who hope for much better things (which may be getting less hopeful all the time).
When employees whose wages extract the max consumers will pay have the opportunity to purchase products made by employees whose wage potentials are skinned (skimmed) under subsistence-plus, then, the labor price/value spectrum as assessed by consumers only becomes distorted. Ditto for any labor-price extraction differential.
If all employees were paid according to the maximum price their products could command from consumers – instead of too many by how little (how few rungs) above subsistence the boss can skin them – the working rubric would be: from each consumer according to their needs; to each employee according to their abilities. (You had it all backwards, Vladimir Ilyich. :-])
There is only one modality — introduced by legal mandate in late 1940s continental Europe, since picked up elsewhere in the world and established by the Teamsters Union National Master Freight Agreement in 1964 in the US — that ownership cannot work its ratcheting-down, subsistence-plus ways around: centralized bargaining – where all employees doing the same category of work in the same locale (nationwide where applicable) work under a single collectively bargained contract with all employers. (This should eliminate the use of scabs who don’t have a legal contract – I’ve never heard of scabs in Europe.)
My old Teamsters local 804 (left in 1970, age 26) recently won (as they like to phrase it) a 30-and-out retirement benefit of $3900 a month. Which may double what regional pilots earn while still active.
Time is a-waisting. A few years ago, Northwest Airlines squeezed a billion dollars in givebacks out of its major airline flight crews only to next year award a billion dollars in bonuses to a thousand of its execs. The pace on the road to serfdom may be speeding up. Help! Now!
To the comparison between George Eastman and Rockefeller/Carnigie:
Eastman did not invent the roll film idea but bought the rights to it from the inventor. Really he combined the phases of photography in his first camera, It came loaded with film, you mailed it back and it came back with a new roll of film and the old roll developed and printed. However both within and without the US there were competitors, Ansco was a major us competitor, as were Agfa, Ilford and others in other countries. However eastman was among the top 10. philanthropists of his generation. Kodak had a good run for 90 years or so, moving from the closed camera to selling film, processing, and cameras. Of course technology (at least partly invented at Kodak labs) did the company in as it thought it was in the film business.
Carnigie got rich because JP Morgan felt that he was to competitive in the way he did business so he had to be bought out to tame his company.
In the case of Jobs, not enough time has elapsed to see how his reputation stands the test of time. Further intellectual property regimes are tighter than in the past.
Partly this of course depends on technological advances. For example had the transistor (and the Integrated circuit) not been invented Kodak might today be the dominant company it once was.
Had Eastman had the means to assure you became a permanent customer, a means that appear inherent with the application of the internet and a compliant judiciary regarding copywriters/ patents etc. then Kodak would be Apple.
It’s not the technology so much as it is the legal environment that gets built up around it and thus sets the given sector of the economy.
It’s why I don’t use I phone, ITunes and the rest. It is why I hate using QuickBooks (but my accountant made me do it). It is why I am forever working to not get my self locked in. It is why I use Open Office.
Actually in the time Kodak had the means, if you wanted pictures you had to buy film, and Kodak was a prime supplier. Now this was a step down from the first model where the camera was loaded and unloaded at the factory, which is pretty close to what you describe. However others sold cameras, so Kodak sold film and processing. Until the digital revolution, Kodak had it good. It did have patents on things, but they had all expired even the ones on color film, Kodachrome for example was first introduced in 1935 so any patents there expired in 1955 or so. There were patent suits etc in the 1890s over various items, and Kodak did finally buy the patent on roll film.
However as Christensen says Kodak thought it was in the film business but really was in the image preservation business. I.E. film was just a medium to preserve images, not the be all and end all. Digital photography preserves images better.