My Americana. XXV. From the best of schools.
New Yorker has an interesting story related to the previous post.
http://www.newyorker.com/reporting/2010/10/11/101011fa_fact_gladwell
Once upon a time, in a faraway country called the postwar USA, the Talent was not paid much by the Capital, and the society marvelled at how "ordinary" its captains of industry were. The baseball players were not paid millions but thousands. The CEOs were paid (at best) millions rather than billions. The filthy rich tended to be the heirs of the Guilded Age, the living anachronism. The Capital controlled the pay scale in the authoritative fashion. The marginal tax rates were enormous. The actual salaries fell twice as compared to the 1930s and even more as compared to the Roaring Twenties. Then this whole world shattered. Soon everyone, from the paperback authors to baseball players to fashion models to biz executives required exclusive contracts. Where the Capital of the olden times imposed cost-saving pay structures maximizing the profit, the Talent imposed its own structure in which the profits were pushed aside to provide bloated compensation. How did it happen?
Martin
http://rogerlmartin.com/library/articles/incentives-executive-compensation-governance
http://www.rotman.utoronto.ca/rogermartin/CapitalvsTalent.pdf
suggests that there was sudden awareness of the Talent (aka human capital) of its true market value. There was a snowball effect: once X started to receive inflated compensation, Y and Z also demanded the same. Unlike the interchangeable industrial workers, the Talent was not disposable. As soon as this was realized, there was no stopping to the demand. The only question is why it took so long. The probable answer is the trauma of the Great Depression and WWII. Once the disaster was behind, the inevitable happened. It only needed a spark. The spark came from the professional sports.
The insistence on ever increasing wages unrelated to performance is a trait best learned in a trade union. Blackmailing the owner by the promise of walking out is the essence of the operation; its scale is limited by the realities of life: nothing is unique to worker's skills. This limitation is an Achilles' heel of trade unionism. The old school professionals did not behave in this streetsmart way. However, a professional is a work in the making: typically, it takes a long time to become someone who is not expendable. Raising to the top of the profession takes 20-30 years.
What happened in the late 1960s is that the new generation has arrived. These were the men of the New Deal. The article tells the story of one of such men, Marvin Miller, an economist and a professional labor organizer (the National War Labor Relations Board, the Machinist Union, the United Auto Workers, the United Steelworkers union). In the 1960s, Marvin hit it big becoming the executive director of the MLBPA. There he found the dream fulfilled: a union whose members cannot be let to walk out. It took him a decade to explain this to the baseball players. The players were content to earn 2-4 times what the folk were making back home, regarded the club owners as father figures, and voluntarily took lower pay after a bad season. Marvin changed all that.
...In 1974, Miller used arbitration to resolve a dispute when Oakland A's owner Charlie Finley failed to make an annuity payment as required by Catfish Hunter's contract. The arbitrator ruled that Finley had not met the terms of the contract so Hunter was free to negotiate a new contract with any team - making Hunter a free agent. When Hunter signed a 5-year, $3.5 million contract with the Yankees, the players saw the amount of money that could be made when players were free to negotiate with any team. Baseball's reserve clause tied players to a team for one year beyond the end of an existing contract, which in practice froze any player's ability to determine his own career. In 1974, Miller encouraged Andy Messersmith and Dave McNally to play out the succeeding year without signing a contract. After the year had elapsed, both players filed a grievance arbitration. The ensuing Seitz decision declared that both players had fulfilled their contractual obligations and had no further legal ties to their ballclubs. This effectively eradicated the reserve clause and ushered in free agency. Miller understood that too many free agents could actually drive down player salaries. Miller agreed to limit free agency to players with more than six years of service, knowing that restricting the supply of labor would drive up salaries as owners bid for an annual, finite pool of free agents. Miller led the union through three strikes, the first in 1972 which lasted 13 days, in 1980 spring training, and again in 1981 which lasted 50 days, and two lockouts, in 1973 spring training and 1976 spring training. During Miller's era as leader of the Major League Baseball Players' Association (1966-1982), the average players' salary rose from $19,000 to $241,000 a year. http://en.wikipedia.org/wiki/Marvin_Miller
There were other Marvin Millers, a lot of them. Thirty years had passed. The people hardened in the labor tactics of the New Deal raised to the top and brought their habits with them. These habits did not work at the bottom of the feeding chain, as bargaining on behalf of the unskilled is inherently counterproductive. However, the toolbox of such bargaining proved indispensable once the bottom dwellers found themselves in the midstream.
Lenin called the trade unions a school of Communism. The New Deal trade unions became the school of the "winner takes all" capitalism. The preadaptation only needed the right environment to provide the decisive advantage.
http://www.newyorker.com/reporting/2010/10/11/101011fa_fact_gladwell
Once upon a time, in a faraway country called the postwar USA, the Talent was not paid much by the Capital, and the society marvelled at how "ordinary" its captains of industry were. The baseball players were not paid millions but thousands. The CEOs were paid (at best) millions rather than billions. The filthy rich tended to be the heirs of the Guilded Age, the living anachronism. The Capital controlled the pay scale in the authoritative fashion. The marginal tax rates were enormous. The actual salaries fell twice as compared to the 1930s and even more as compared to the Roaring Twenties. Then this whole world shattered. Soon everyone, from the paperback authors to baseball players to fashion models to biz executives required exclusive contracts. Where the Capital of the olden times imposed cost-saving pay structures maximizing the profit, the Talent imposed its own structure in which the profits were pushed aside to provide bloated compensation. How did it happen?
Martin
http://rogerlmartin.com/library/articles/incentives-executive-compensation-governance
http://www.rotman.utoronto.ca/rogermartin/CapitalvsTalent.pdf
suggests that there was sudden awareness of the Talent (aka human capital) of its true market value. There was a snowball effect: once X started to receive inflated compensation, Y and Z also demanded the same. Unlike the interchangeable industrial workers, the Talent was not disposable. As soon as this was realized, there was no stopping to the demand. The only question is why it took so long. The probable answer is the trauma of the Great Depression and WWII. Once the disaster was behind, the inevitable happened. It only needed a spark. The spark came from the professional sports.
The insistence on ever increasing wages unrelated to performance is a trait best learned in a trade union. Blackmailing the owner by the promise of walking out is the essence of the operation; its scale is limited by the realities of life: nothing is unique to worker's skills. This limitation is an Achilles' heel of trade unionism. The old school professionals did not behave in this streetsmart way. However, a professional is a work in the making: typically, it takes a long time to become someone who is not expendable. Raising to the top of the profession takes 20-30 years.
What happened in the late 1960s is that the new generation has arrived. These were the men of the New Deal. The article tells the story of one of such men, Marvin Miller, an economist and a professional labor organizer (the National War Labor Relations Board, the Machinist Union, the United Auto Workers, the United Steelworkers union). In the 1960s, Marvin hit it big becoming the executive director of the MLBPA. There he found the dream fulfilled: a union whose members cannot be let to walk out. It took him a decade to explain this to the baseball players. The players were content to earn 2-4 times what the folk were making back home, regarded the club owners as father figures, and voluntarily took lower pay after a bad season. Marvin changed all that.
...In 1974, Miller used arbitration to resolve a dispute when Oakland A's owner Charlie Finley failed to make an annuity payment as required by Catfish Hunter's contract. The arbitrator ruled that Finley had not met the terms of the contract so Hunter was free to negotiate a new contract with any team - making Hunter a free agent. When Hunter signed a 5-year, $3.5 million contract with the Yankees, the players saw the amount of money that could be made when players were free to negotiate with any team. Baseball's reserve clause tied players to a team for one year beyond the end of an existing contract, which in practice froze any player's ability to determine his own career. In 1974, Miller encouraged Andy Messersmith and Dave McNally to play out the succeeding year without signing a contract. After the year had elapsed, both players filed a grievance arbitration. The ensuing Seitz decision declared that both players had fulfilled their contractual obligations and had no further legal ties to their ballclubs. This effectively eradicated the reserve clause and ushered in free agency. Miller understood that too many free agents could actually drive down player salaries. Miller agreed to limit free agency to players with more than six years of service, knowing that restricting the supply of labor would drive up salaries as owners bid for an annual, finite pool of free agents. Miller led the union through three strikes, the first in 1972 which lasted 13 days, in 1980 spring training, and again in 1981 which lasted 50 days, and two lockouts, in 1973 spring training and 1976 spring training. During Miller's era as leader of the Major League Baseball Players' Association (1966-1982), the average players' salary rose from $19,000 to $241,000 a year. http://en.wikipedia.org/wiki/Marvin_Miller
There were other Marvin Millers, a lot of them. Thirty years had passed. The people hardened in the labor tactics of the New Deal raised to the top and brought their habits with them. These habits did not work at the bottom of the feeding chain, as bargaining on behalf of the unskilled is inherently counterproductive. However, the toolbox of such bargaining proved indispensable once the bottom dwellers found themselves in the midstream.
Lenin called the trade unions a school of Communism. The New Deal trade unions became the school of the "winner takes all" capitalism. The preadaptation only needed the right environment to provide the decisive advantage.