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Since it is impossible to give a precise estimate of each manager's contribution to the firm's output, it is inevitable that this process yields decisions that

Since it is impossible to give a precise estimate of each manager's contribution to the firm's output, it is inevitable that this process yields decisions that are largely arbitrary and dependent on hierarchical relationships and on the relative bargaining power of the individuals involved. It is only reasonable to assume that people in a position to set their own salaries have a natural incentive to treat themselves generously, or at the very least to be rather optimistic in gauging their marginal productivity. To behave in this way is only human, especially since the necessary information is, in objective terms, highly imperfect. It may be excessive to accuse senior executives of having their "hands in the till," but the metaphor is probably more apt than Adam Smith's metaphor of the market's "invisible hand." In practice, the invisible hand does not exist, any more than "pure and perfect" competition does, and the market is always embodied in specific institutions such as corporate hierarchies and compensation committees. Piketty, Capital in the Twenty First Century

ChuckMcM 10y ago
I largely disagree with Piketty in this case. There are metrics which are available to management which provide the specific insights needed to drive compensation to the most appropriate individuals. I do not disagree that there management systems which ignore those metrics and base their compensation on relationships. I agree with the basic thesis that as the productivity of workers (as measured by $ generated per worker hour of labor) has gone up tremendously in the silicon age, and that the fruits of that gain have been disproportionately allocated to management. But as the root of that gain has been the transition for goods economies to information economies, and information economies are particularly susceptible to price correction through antagonistic action[1] Given the challenges of creating barriers to entry, the information economics will (in my opinion of course) eventually force capital to the creators away from management. [1] In the goods economy if the price of a car is too high you substitute other goods (like bikes or motorcycles) but in an information economy if your price is too high people simply pirate the content and take the capital out by force. cite: Netflix vs Napster vs MPAA.
- deleted 10y ago
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- roymurdock 10y ago
  > the root of that gain has been the transition for goods economies to information economies Piketty argues that the root of the move towards equality from 1945-1995 was long-lasting economic shocks after WWII: Quite different in their effect were the rates of 20–30 percent or higher that were imposed in most wealthy countries in the wake of the military, economic, and political shocks of 1914–1945. The upshot of such taxes was that each successive generation had to reduce its expenditures and save more (or else make particularly profitable investments) if the family fortune was to grow as rapidly as average income. Hence it became more and more difficult to maintain one's rank. Conversely, it became easier for those who started at the bottom to make their way, for instance by buying businesses or shares sold when estates went to probate. > Given the challenges of creating barriers to entry, the information economics will (in my opinion of course) eventually force capital to the creators away from management. Until we can eat information, or make a house out of information, we won't be living in an information economy. (Even at that point you can bet that someone will have figured out how to gate/moat/control/curate/distribute the most "necessary" information, much as corporations and the press do today). For now we need to rely on taxation to redistribute the returns on capital: Without taxes, society has no common destiny, and collective action is impossible. This has always been true. At the heart of every major political upheaval lies a fiscal revolution. The Ancien Régime was swept away when the revolutionary assemblies voted to abolish the fiscal privileges of the nobility and clergy and establish a modern system of universal taxation. The American Revolution was born when subjects of the British colonies decided to take their destiny in hand and set their own taxes. ("No taxation without representation"). Two centuries later the context is different, but the heart of the issue remains the same. How can sovereign citizens democratically decide how much of their resources they wish to devote to common goals such as education, health, retirement, inequality reduction, employment, sustainable development, and so on?
rkapsoro 10y ago
I'd also like to disagree with Piketty here. It is very difficult to give a precise estimate of the value of Tim Cook's contribution to Apple, or indeed what it might be at any other firm. Competitive markets do not need (and often must not) rely on comprehensive estimate analysis pricing to determine the value of something to the parties making the exchange. This is why they were much more successful than totalitarian central planning: central planners found themselves forced to try costing out all prices in terms of their complete component parts and recursing ad nauseam, rapidly running into limited knowledge issues. Instead, I find the more Hayekian analysis of prices emerging through human behaviour on voluntary transactions much more compelling. While Piketty is right to mention that the market is embodied in specific institutions and that no market exists in pure isolation from institutional dynamics, these different institutions do exert competitive pressure on one another.

ChuckMcM 10y ago

I largely disagree with Piketty in this case. There are metrics which are available to management which provide the specific insights needed to drive compensation to the most appropriate individuals. I do not disagree that there management systems which ignore those metrics and base their compensation on relationships. I agree with the basic thesis that as the productivity of workers (as measured by $ generated per worker hour of labor) has gone up tremendously in the silicon age, and that the fruits of that gain have been disproportionately allocated to management. But as the root of that gain has been the transition for goods economies to information economies, and information economies are particularly susceptible to price correction through antagonistic action[1] Given the challenges of creating barriers to entry, the information economics will (in my opinion of course) eventually force capital to the creators away from management. [1] In the goods economy if the price of a car is too high you substitute other goods (like bikes or motorcycles) but in an information economy if your price is too high people simply pirate the content and take the capital out by force. cite: Netflix vs Napster vs MPAA.

deleted 10y ago
[deleted]
roymurdock 10y ago
> the root of that gain has been the transition for goods economies to information economies Piketty argues that the root of the move towards equality from 1945-1995 was long-lasting economic shocks after WWII: Quite different in their effect were the rates of 20–30 percent or higher that were imposed in most wealthy countries in the wake of the military, economic, and political shocks of 1914–1945. The upshot of such taxes was that each successive generation had to reduce its expenditures and save more (or else make particularly profitable investments) if the family fortune was to grow as rapidly as average income. Hence it became more and more difficult to maintain one's rank. Conversely, it became easier for those who started at the bottom to make their way, for instance by buying businesses or shares sold when estates went to probate. > Given the challenges of creating barriers to entry, the information economics will (in my opinion of course) eventually force capital to the creators away from management. Until we can eat information, or make a house out of information, we won't be living in an information economy. (Even at that point you can bet that someone will have figured out how to gate/moat/control/curate/distribute the most "necessary" information, much as corporations and the press do today). For now we need to rely on taxation to redistribute the returns on capital: Without taxes, society has no common destiny, and collective action is impossible. This has always been true. At the heart of every major political upheaval lies a fiscal revolution. The Ancien Régime was swept away when the revolutionary assemblies voted to abolish the fiscal privileges of the nobility and clergy and establish a modern system of universal taxation. The American Revolution was born when subjects of the British colonies decided to take their destiny in hand and set their own taxes. ("No taxation without representation"). Two centuries later the context is different, but the heart of the issue remains the same. How can sovereign citizens democratically decide how much of their resources they wish to devote to common goals such as education, health, retirement, inequality reduction, employment, sustainable development, and so on?

rkapsoro 10y ago

I'd also like to disagree with Piketty here. It is very difficult to give a precise estimate of the value of Tim Cook's contribution to Apple, or indeed what it might be at any other firm. Competitive markets do not need (and often must not) rely on comprehensive estimate analysis pricing to determine the value of something to the parties making the exchange. This is why they were much more successful than totalitarian central planning: central planners found themselves forced to try costing out all prices in terms of their complete component parts and recursing ad nauseam, rapidly running into limited knowledge issues. Instead, I find the more Hayekian analysis of prices emerging through human behaviour on voluntary transactions much more compelling. While Piketty is right to mention that the market is embodied in specific institutions and that no market exists in pure isolation from institutional dynamics, these different institutions do exert competitive pressure on one another.