
Corporations in the Age of Inequality - king_kerr
https://hbr.org/cover-story/2017/03/corporations-in-the-age-of-inequality
======
Sone7
I take issue with the "Average Company Salary" graph at the center of the
article. The article claims that "This means that the rising gap in pay
between firms accounts for the large majority of the increase in income
inequality in the United States."

However, when CEOs make on average 300 times more than their workers, it kinda
screws up that crucial average, doesn't it. Then there's the other executives
messing up the data. For reference, in 1965 the ratio was 20-1.

Between 1978 and 2014, inflation-adjusted CEO pay increased by almost 1,000%,
according to a report by the Economic Policy Institute. Meanwhile, typical
workers in the U.S. saw a pay raise of just 11% during that same period. Hmm.

It's cute that the article lumps rent-seeking behaviour, political corruption,
monopolistic practices, exploitation of the environment by a handful of
massive companies, tax dodging and evasion etc. into one small paragraph that
acknowledges there are other problems.

And it's hilarious that the article claims that "focus on education" and
"focus on anti-trust" are "unique recommendations" born of looking at the
issue this way.

But to me, it smells of a deliberate attempt to shift blame. There were only a
handful of protesters angry at how much Google employees get paid (Bless their
hearts). But this article will reach many people, and under the surface - it's
bullshit.

~~~
coredog64
How much of CEO pay prior to the Reagan tax reforms were cash, and how much
were things like corporate apartments, golf club memberships, company cars,
etc.?

Follow up question: When US CEO pay is compared to CEOs of European and Asian
companies, how much of those same non-cash benefits are included?

Final question: How much of US CEO pay is cash (I.e. payed by the company) and
how much is equities (I.e payed by shareholders)?

~~~
Sone7
Yeah I'm sure CEOs had other perks in the past. This refutes precisely none of
my criticism of the article.

As to your other two questions, I completely fail to see how they affect my
argument, and I don't want to get off track.

To reiterate the criticism I was making - basing your entire article on the
claim that the difference between average pay in companies is at fault for
"the majority" of inequality, while making no attempt to account for or
mention the fact that those firms average wages are likely grossly distorted
by executive pay, is at best ignorant and more likely intentional.

We live in a world where the 8 richest people own the wealth of 3.5 billion of
the poorest. This is insane, it's dangerous, and it's :not: the fault of
Google employees' wage packets; no matter how much CEOs in the 60s or in Asia
are paid. For the HBR to suggest this is grossly irresponsible, I find it
ghoulish.

~~~
dukeluke
In a global economy, workers have no leverage. If a group tries to form a
union, the work goes elsewhere. Globalism exploits the fact that there are
people willing to work for $1/hr, and leads to many of the problems of
capitalism predicted by Marx and friends in the early 1900s. As long as
globalization is allowed to continue, inequality within the US will just grow
worse.

~~~
Sone7
Globalization is not the enemy. Centralised globalization with a handful of
megacorps dominating the global economy is fucking awful however.

Protectionism is at best a short term solution that comes with a host of other
problems.

The major threats to our existence are global problems like climate change and
nuclear arsenals. Fighting against all globalization will only divide us.

I believe that the best leverage workers of the world can have is the ability
to live a decent life without the threat of starvation or extreme poverty.
This dream is attainable, and worth planning for and building towards as a
species.

We have near instant communication, the ability to translate between languages
is developing rapidly, and automation can potentially, realistically, make it
so that work is truly optional. Fighting against all globalization and
protecting US interests above all others is, I would think, very much not what
'Marx and friends' would have had in mind.

~~~
AnthonyMouse
> Globalization is not the enemy.

The problem is there are two kinds. The classic one, and the one you can
easily defend, was just eliminating tariffs. Don't discriminate against
foreign businesses; treat them the same as local businesses.

But there is another one that generally gets called "harmonization", and
that's the one that kills everything. Because what it means in practice is the
undemocratic international enforcement of regulations created via regulatory
capture. You enforce the same rules everywhere, those rules are created by
megacorps to give them an advantage and the predictable result obtains.

~~~
mantas
The classical one does quite a bit harm too.

Western/1st/etc world (used to?) treat workers well. The rest of the world
didn't. Once tariffs are eliminated, all countries join the rat race to the
bottom. How can western countries with good social safety net, reasonable work
hours and good wages compete with cut-throat conditions in Asia? Naturally the
conditions equalise. The good ones get worse, while bad ones adopt a thing or
two.

~~~
AnthonyMouse
> How can western countries with good social safety net, reasonable work hours
> and good wages compete with cut-throat conditions in Asia?

In theory the idea is that they're not supposed to -- if you have unskilled
work with no geographical restrictions, you do it where there is the lowest
labor cost, and then everyone benefits by paying lower prices. Meanwhile
western countries do the higher paying jobs that require a skilled workforce
and the unskilled workers in western countries either do service jobs that do
have geographical requirements or go to school and become skilled workers.

One of the things that's been killing us on that front is the broken welfare
system that puts high marginal rates on lower income people through benefits
phase outs, which makes it so that middle class people can't afford to hire
lower income people to do service jobs, because 80% of the money goes to the
government in benefits phase outs. Which means those people become unemployed,
and the higher unemployment rate pushes down unskilled wages, erodes the tax
base and increases the total cost government is paying out in benefits to the
unemployed.

~~~
mantas
And it turns out that those cheap countries can produce skilled work too,
without becoming expensive and as caring about the workers. Yet bigger than
expected portion of western countries' population does not perform well in
skilled work market..

------
AnthonyMouse
> In an increasingly winner-take-all or at least winner-take-most economy, the
> best-educated and most-skilled employees cluster inside the most successful
> companies, their incomes rising dramatically compared with those of
> outsiders.

US median income is $52K, software developer is maybe 100K, so around double.
But to make that you have to live in an area with a much higher cost of
living, and the various governments take more than a quarter of the difference
in taxes _and_ more than a quarter of the difference in disqualifications from
income-based benefits programs. While you work 80 hours a week.

Someone making $100K in San Francisco is not doing better than someone making
$50K in Houston. (You have a serious problem, however, if you make $50K in San
Francisco.)

And the people clearing a million aren't typically silicon valley developers,
they're Wall St quants and investment bankers. And those same people are
generally paying the lower capital gains rate rather than the higher earned
income rate, and losing a smaller percentage in benefits phase outs because by
then everything is already phased out.

The numbers in the article are also including people who aren't working -- it
has the 25th percentile income as zero and the median as something like $25K,
which it probably is if you include retirees and homemakers and students, but
how is that "income inequality"? For it to mean anything you have to be
comparing people who are actually working full time. Anyone working obviously
makes infinity times more than anyone with zero income.

As to the central thesis of "winner take most", markets like Facebook with
network effects are the exception and have existed before (e.g. AT&T). In most
other markets you can really blame regulatory compliance costs and regulatory
capture. More paperwork to do and lawyers to hire and fees to pay to do
business today than in 1970. The higher the cost of operating a business, the
more advantage to consolidation.

~~~
notacoward
> But to make that you have to live in an area with a much higher cost of
> living

No, you don't. Many _choose_ to, but there are plenty of $100K developer jobs
in cities with reasonable cost of living.

~~~
AnthonyMouse
There are plenty of $80K developer jobs in cities with a $20K lower cost of
living.

If there were actually enough jobs in Texas and Tennessee for everyone in San
Francisco to live there with lower expenses but the same salary, explain why
most of those people don't do that. Note that things like "cost of finding a
new job if you lose yours" are components of cost of living.

~~~
notacoward
Don't move the goalposts or shift the burden. You said _have to_. Now you say
_most_ and demand that others prove the contrary. Please stick to your
original claim and prove it yourself. That's how honest discussion is done.

The real question here is not whether developers can get the exact same salary
working somewhere other than SF/SV. For one thing, the story wasn't just about
our industry. The original story posited _three_ possible causes for between-
firm inequality. Before we obsess over the winner-take-all factor and how it
relates to being or not being in the Center Of The Universe (ha), we need to
consider how those other two factors play out across the entire economy.

Even among tech companies, subject to the exact same cost-of-living issues,
there are significant differences in pay scales. Believe me, I know, because
I'm taking advantage of that _right now_ as I transition between jobs. The
richer companies are very successfully capturing a disproportionate share of
the high-end labor market, either by direct hiring or by acquisition. That
enables them to compound their original advantage, in a feedback loop that IMO
_must_ be attenuated unless we want to live in a true monoculture. The idea
that developers must move to high-cost areas is crap, but the problem of
developers going to work (often remotely) for the richest companies is very
real.

~~~
AnthonyMouse
> You said _have to_.

It's a fact that they _do_. If they didn't _have to_ then why would they leave
the money on the table?

> Now you say _most_ and demand that others prove the contrary.

It's _most_ because if most of the developers in silicon valley moved to other
places then the cost of living there would fall to parity with the other
places as a result of decreased scarcity of housing and other resources,
before all of them did. And because not everyone has the same utility function
-- some people _have to_ live there _more_ than other people, e.g. because
their spouse also works there and they can't find two equally-paying jobs in
the same other city at the same time.

> Please stick to your original claim and prove it yourself. That's how honest
> discussion is done.

"People behave rationally" is a basic assumption. It isn't _always_ true, but
if you're going to contend that it isn't in a particular case then you're the
one who needs to show that.

> The real question here is not whether developers can get the exact same
> salary working somewhere other than SF/SV. For one thing, the story wasn't
> just about our industry.

You're changing the subject. The story, and the protests, refer to "highly
paid" tech workers at SV companies like Google and Apple. But it remains true
that those people are not significantly wealthier on a PPP basis than people
making median US wages but living in a city with a lower cost of living.

> Even among tech companies, subject to the exact same cost-of-living issues,
> there are significant differences in pay scales.

Better developers obviously get paid more than worse developers. But the same
is true in Texas. They both get paid less and pay less for housing but the
better developer still makes more than the worse developer. And that isn't new
either -- "better talent costs more" is as old as money.

> That enables them to compound their original advantage, in a feedback loop
> that IMO _must_ be attenuated unless we want to live in a true monoculture.

There are two kinds of markets. One is natural monopolies, like local roads or
last mile telecommunications, where the fixed cost is the essentially whole
cost, barriers to entry are high, monopoly is inevitable, and they should be
operated by the local government. The other is "real" markets that, left
alone, would have competition.

We keep screwing up the second ones and forcing them into monopolies anyway,
by making it harder for small entities to compete. The situation with software
patents is a prime example.

Having money to pay talent is an advantage, but it isn't an _insurmountable_
advantage. The only way to use it to stay on top is to be efficient. Serve
every possible niche so well that nobody else can come in and carve one out
for themselves. And if a company is doing that, nobody objects.

The problem isn't that, it's that we've set things up so that little companies
have prohibitively high costs, so a startup that should be five people in a
garage using money borrowed from parents instead has to take a million dollars
in VC funding to hire lawyers and file paperwork. And then, if they succeed,
megacorp shows up with a buyout against the threat of a lawsuit if you refuse
to take the money to make the competition go away, which is what the VCs
wanted all along anyway, so everybody gets paid but nobody competes.

The problem isn't that they have too much money, it's that they have too much
leverage. If was only the money and regulatory barriers to entry were lower
then there would be too many startups to buy them all and more of them would
become independent competitors.

~~~
notacoward
> But it remains true that those people are not significantly wealthier on a
> PPP basis than people making median US wages but living in a city with a
> lower cost of living.

No, it remains your unfounded - and untrue - assertion. A lot of people have
salaries very close to those in Silicon Valley, in housing markets
significantly cheaper than Silicon Valley. Haven't you heard of remote work? A
lot of us at the high end are able to do it, but maybe you haven't reached
that point yourself. For people like me and quite a few of my
friends/colleagues, we're winning the PPP game by _not_ living in SV.

> Better developers obviously get paid more than worse developers.

Now who's changing the subject? We're not talking about better or worse
developers. We're talking about developers at the same level, often the _same
people_ as they move from job to job. Rich companies can and do pay higher
salaries regardless of the worker's location. That creates a feedback loop,
distorting both labor and capital markets, turning temporary advantages into
permanent ones and stifling competition.

I've worked at a lot of startups, and learned a lot about their advantages and
disadvantages relative to larger competitors. Over-regulation was never one of
those problems, and nobody responsible for setting strategy was ever so
ideologically blind that they tried to pretend otherwise. I'm guessing that's
not a recipe for startup success, in Silicon Valley or anywhere else.

~~~
AnthonyMouse
> No, it remains your unfounded - and untrue - assertion.

Which part do you assert is untrue, that there are developers actually living
in SV, or that making more money there is equivalent to making less money
somewhere with a lower cost of living?

> A lot of people have salaries very close to those in Silicon Valley, in
> housing markets significantly cheaper than Silicon Valley. Haven't you heard
> of remote work?

Everybody _wants_ remote work at SV salaries. That doesn't mean everybody can
_get it_.

It's obviously true tautologically that people who don't live in SV don't have
to live there, but those are also not the people bidding up area rents or
riding a shuttle with people protesting outside it.

You still haven't offered any explanation for why the people living in SV
continue to do so if it was actually possible for them to do the same thing
you're doing.

> We're not talking about better or worse developers. We're talking about
> developers at the same level, often the _same people_ as they move from job
> to job.

We are talking about better or worse developers, or what is your argument?
When one person goes from making less money to more money, all it shows is
that they were previously under-compensated (or are now over-compensated) for
their skill level. Or that their skill level has changed. If big companies
were paying higher salaries to the _same_ developers then how would that
create any advantage for them?

> Rich companies can and do pay higher salaries regardless of the worker's
> location. That creates a feedback loop, distorting both labor and capital
> markets, turning temporary advantages into permanent ones and stifling
> competition.

Rich tech companies don't have a monopoly on capital. If all it took is to pay
developers a lot of money then it would be Wall St rather than tech companies
doing the paying and collecting the yields.

> I've worked at a lot of startups, and learned a lot about their advantages
> and disadvantages relative to larger competitors. Over-regulation was never
> one of those problems, and nobody responsible for setting strategy was ever
> so ideologically blind that they tried to pretend otherwise.

Over-regulation isn't a problem for the startups that actually exist -- VCs
don't fund the ones the regulations make prohibitive and provide the money to
pay the cost for the others. But the result is fewer startups, so rich
companies can afford to buy every one of them that poses a threat to them.

Let me give an example of bad regulation. DMCA 1201 (or software patents, or
the CFAA, or whatever they use this year), which Apple et al use to lock
smaller entities out of their platforms unless they pay 30% and just outright
prohibit people from making apps they don't like. Are you taking the position
that that sort of a veto doesn't prevent startups that would otherwise compete
with Apple's apps from getting off the ground?

~~~
notacoward
> Which part do you assert is untrue,

Neither of your strawmen. I am not making my own assertion at all. I am
challenging your assertion that maintaining a high standard of living requires
moving to the Center Of The Universe for all or nearly all developers. You
seem to base this assertion on a premise that the difference in salaries
outweighs the difference in cost of living, but have provided no evidence to
support that. I know it's not true for me, but at least I don't assume that my
experience is universal.

> Everybody wants remote work at SV salaries. That doesn't mean everybody can
> get it.

True. You have to be pretty good at what you do.

> We are talking about better or worse developers, or what is your argument?

Again, it's not my argument. It's yours, and it's ridiculous. It's only about
good vs. bad developers if one assumes that a good developer lives in Silicon
Valley and a bad developer is one who lives anywhere else. If one accepts that
there are good and bad developers everywhere, or that some people measure
value differently than you do, then it makes absolutely no sense.

> If big companies were paying higher salaries to the same developers then how
> would that create any advantage for them?

Have you heard abou this little thing called network effects? The theory is
that, by bringing good developers together, synergy creates value that doesn't
exist with them separate. It's an idea I could argue from either side, but the
important thing is that it doesn't require _physical_ proximity to work. It
can be well worth paying a premium to bring good developers into logical or
virtual proximity with one another, and the big rich companies are taking
advantage of that.

> Rich tech companies don't have a monopoly on capital. If all it took is to
> pay developers a lot of money then it would be Wall St rather than tech
> companies doing the paying and collecting the yields.

It doesn't require a _monopoly_. All it requires is a significant _asymmetry_.
Also, Wall Street very much has been playing this game too, with effects and
remedies that would be just as worthy of debate if we could get past the
facile attempts to deny the reality of it happening.

~~~
AnthonyMouse
> Neither of your strawmen. I am not making my own assertion at all. I am
> challenging your assertion that maintaining a high standard of living
> requires moving to the Center Of The Universe for all or nearly all
> developers.

You seem to be challenging your own straw man.

> You seem to base this assertion on a premise that the difference in salaries
> outweighs the difference in cost of living, but have provided no evidence to
> support that.

The evidence is all of the developers who choose to live and work in SV
despite the high cost of living.

> I know it's not true for me, but at least I don't assume that my experience
> is universal.

That is the straw man -- I never claimed it was universal. It's true of the
people who live there, or why do they?

> True. You have to be pretty good at what you do.

That doesn't seem to have much to do with it. Plenty of call center workers
are allowed (or required) to work from home, because it saves the company from
having to pay for office space for them, but that doesn't make them
particularly highly skilled or highly paid.

> Again, it's not my argument. It's yours, and it's ridiculous.

Here's you from before:

> Rich companies can and do pay higher salaries regardless of the worker's
> location. That creates a feedback loop, distorting both labor and capital
> markets, turning temporary advantages into permanent ones and stifling
> competition.

If the higher salaries aren't paying for better work then how do the companies
get any advantage out of it?

> Have you heard abou this little thing called network effects? The theory is
> that, by bringing good developers together, synergy creates value that
> doesn't exist with them separate.

That isn't what "network effects" means.

[https://en.wikipedia.org/wiki/Network_effect](https://en.wikipedia.org/wiki/Network_effect)

"Big" isn't an advantage here. It means bureaucracy and politics and Mythical
Man Month problems. These companies succeed despite these things, not because
of them.

> It can be well worth paying a premium to bring good developers into logical
> or virtual proximity with one another, and the big rich companies are taking
> advantage of that.

What do you suppose is stopping the same people from coming together on their
own and just keeping the money their work generates?

> It doesn't require a _monopoly_. All it requires is a significant
> _asymmetry_.

Asymmetric _capital_? How is Apple's billion dollars better than any random
capitalist's billion dollars?

> Also, Wall Street very much has been playing this game too, with effects and
> remedies that would be just as worthy of debate if we could get past the
> facile attempts to deny the reality of it happening.

What game? "Money makes money" has been the basis of Wall St since day zero.
The method by which this doesn't lead to permanent massive consolidation of
power is that new entities come into existence and displace old ones, but are
owned by new people. The problem is the thwarting of that process by requiring
the permission of incumbents to make new things.

~~~
notacoward
> The evidence is all of the developers who choose to live and work in SV
> despite the high cost of living.

...ignoring all those who do _not_ make that choice. Nice cherry-picking.

> Plenty of call center workers are allowed (or required) to work from home

Changing the subject again. We were talking specifically about people who were
_making Silicon Valley salaries_ , not call center workers. You need leverage
to do that. The fact that you don't even know anyone with that kind of
leverage tells me that you don't even know what you're talking about, and your
constant employment of sleazy rhetorical tactics tells me that you're not even
trying to learn.

> That isn't what "network effects" means.

OK, so it's not exactly network effects, but it's still synergy. Two good
people together can often do things that neither could do alone. You got the
point, so stop being obnoxious about terms.

> "Big" isn't an advantage here. It means bureaucracy and politics and
> Mythical Man Month problems.

Such a jaundiced view at such a young age. At least I assume you're young,
based on not being senior enough to negotiate - or know anyone else who
negotiates - better working conditions. Better than assuming you're old but
barely competent. In any case yes, bigger companies can have their problems.
So can smaller ones. They can each have their advantages. For example, at a
startup there will inevitably be some specialized areas of knowledge where
coverage is thin. That can be great for creating opportunities to learn, but
not for solving an immediate problem in minimal time. At a larger company,
especially a larger _rich_ company which is what we're talking about, there
might well be a world-class expert on staff for even the most obscure
specialty. There might be specialized hardware (or teams to develop it),
partner relationships, etc. Big companies can be mismanaged and small
companies can be mismanaged. That's why nine out of ten startups fail.
Counting only the hits for one side and only the misses for the other is not
how rational people approach a problem, or how honest people discuss one.

> What do you suppose is stopping the same people from coming together on
> their own and just keeping the money their work generates?

There could be many reasons, from simple risk aversion to lack of skill (or
interest) in the non-technical aspects of running a business to the need for
leads and contacts. You do realize that most people don't work for startups,
right? There's a whole world outside that bubble.

> How is Apple's billion dollars better than any random capitalist's billion
> dollars?

Wrong question. What matters is how Apple's budget _for technical hires_
compares to others' budgets for hiring _in those same specialties_. That's
where the competition occurs. The VC money, fragmented across many companies
pulling in many directions and each having to carry their own business
infrastructure, would have to be much more than a single focused company's
investment in that area of overlap. One of the big five can spend a million
dollars each for a dozen hires in a particular area. A startup would be hard
pressed to justify that to their investors, precisely _because_ those
investors would rather have that money to make other bets entirely. It's a bit
of a collective action problem, which I would have thought anyone spouting so
much pseudo-economics would know about.

~~~
notacoward
Also, even if VC-funded startups could compete with the Big Five, not every
small company is a VC-funded startup. Forcing entrepreneurs to ally with one
group of rentiers and arbitrageurs or be crushed by another group of the same
is not a good way to build a long-term healthy innovation economy.

------
mjevans
The faster we can reach a Star Trek like world, where people work because they
want to rather than need to, the better.

Lets focus on the rights of the living and let automation eat the jobs that it
is able to.

------
seibelj
I have flirted with GooAma AppMicroFace, and got a few interviews deep once,
but after careful thought I stopped the process, and now I ignore the biggest
tech companies. I simply don't want to be a cog in a giant machine, and
therefore my talents will always go to start ups and small companies. Surely I
can't be the only person who refuses to work for the top tech companies out of
preference?

------
MilnerRoute
This was a long article, but I think it boils down to this:

"I believe that much of the rise of between-firm inequality, and therefore
inequality in general, can be attributed to three factors: the rise of
outsourcing, the adoption of IT, and the cumulative effects of winner-take-
most competition."

~~~
nol13
"For example, contract janitors no longer receive the benefits or pay premium
tied to a job at a big company. Their wages have been squeezed as their
employers routinely bid to retain outsourcing contracts, a process ensuring
that labor costs remain low or go ever lower."

I think possibly the most effective change that could be done along these
lines is to change the laws to where hiring as few actual employees as
possible is the only responsible business decision. One big part of this would
be decoupling health care and possibly other benefits from place of
employment, if not universal health care then just put everybody into the
individual market by law.

Or close the 'contractor' loophole entirely, but that could be messy.

------
jondubois
>> Why are some firms paying better than others? It could be that some are
just more generous — paying their workers higher amounts than other firms pay
for the same work — although that would surprise economists

I'm not an economist, but as someone who has worked for many different
companies in the software industry, I don't find this 'generosity' hypothesis
surprising at all. Managers usually don't have a clue who to promote so they
just promote their friends or those who are liked by the rest of the team (for
reasons unrelated to skill).

------
Asooka
Maybe it's time to enforce a maximum wage similar to how we enforce a minimum
wage? Maybe maximum = 10000 * minimum? This won't stop people from amassing
assets and power (i.e. we aren't enforcing a maximum number of expensive art
you can own, or senators you can call), but might curb the inequality among
wage workers and CEOs.

~~~
Broken_Hippo
I've thought about this, and very nearly would agree with you, but it would
take some things away. The hope of lottery winnings and the escapist dreams
that come with it, for example. Would that be excluded?

If some bloke comes up with a cure for 20% of the world's most common cancers,
do I care if he's filthy rich? Would Gates be able to do his charity work if
he didn't once make a load of money?

Furthermore, do I care if the person at the top is getting rich so long as the
folks at the bottom aren't struggling and miserable?

The answer to the last one is: Not really. I do prefer that there be less
difference between the CEO and the janitors. I'd prefer to set a standard of
living that is higher than the poverty guidelines in the US and encourage
companies to pay enough to meet this (at least for a single person to live
independently and be a part of society). I just don't see how the maximum
would help this more than it'd hurt other things.

------
agounaris
Corporate world is just another market for me, driven by supply and demand.
You cannot "force" oranges to have the same price in their production land and
the same price in their export targets. Don't forget that equality IS NOT
about equal number as many think, its about EQUAL chances and fair trade.

------
grondilu
> News outlets reported that people had thrown rocks and a bus window had been
> smashed.

Do poor people really want to settle their resentment issues with violence?
Because it seems to me that they will lose, at least if rich people defend
themselves.

