Success to the successful(riskmusings.substack.com)
riskmusings.substack.com
Success to the successful
https://riskmusings.substack.com/p/success-to-the-successful
88 comments
I constantly ponder this as I look around my home town. We're in Cornwall and so house prices have gone fairly batshit to the extent that local teachers (in fact, local GPs too) can't afford rents or house purchases.
Meanwhile, a patch of land sold a few years back for £1m. On it, the developer built a block of retirement flats. There are maybe 30 of them. They each sold for north of £500k. The property owner also charges £20k per property per year for "maintenance".
It's simplistic but he's basically printing money. Out of his £15m turnover he had to spend £1m on the land, maybe £1m on building the flats - so £13m clear profit, and an annual of £600k.
So then he goes on and buys the next piece of land for £2m, this time makes a clear £30m, annual of £1.5 etc etc.
So, yeh, success to the successful. Who needs teachers or GPs anyway, right?
Meanwhile, a patch of land sold a few years back for £1m. On it, the developer built a block of retirement flats. There are maybe 30 of them. They each sold for north of £500k. The property owner also charges £20k per property per year for "maintenance".
It's simplistic but he's basically printing money. Out of his £15m turnover he had to spend £1m on the land, maybe £1m on building the flats - so £13m clear profit, and an annual of £600k.
So then he goes on and buys the next piece of land for £2m, this time makes a clear £30m, annual of £1.5 etc etc.
So, yeh, success to the successful. Who needs teachers or GPs anyway, right?
If I understand your back of the envelope estimate, you believe he had a 650% return on investment. It seems far more likely that some of your assumptions are wrong.
Regardless, assume this guy had couple of million pounds — building the flats is a productive use of the capital. We know that because he sold them at a profit. That means buyers valued the output more than the cost of the inputs. That is good.
(I understand that markets are not perfect, and monopolists, monopsonists and rent seekers can make profits without creating value, and I agree that is bad. But the fact that an enterprise is profitable is not a bad thing.)
Regardless, assume this guy had couple of million pounds — building the flats is a productive use of the capital. We know that because he sold them at a profit. That means buyers valued the output more than the cost of the inputs. That is good.
(I understand that markets are not perfect, and monopolists, monopsonists and rent seekers can make profits without creating value, and I agree that is bad. But the fact that an enterprise is profitable is not a bad thing.)
> We know that because he sold them at a profit. That means buyers valued the output more than the cost of the inputs. That is good.
This is a very naive interpretation. Perhaps (maybe even more likely) the value of the land skyrocketed according to rising demand, regardless of the capital invested in building flats. They could have built single-family homes, or a parking lot, or even nothing at all and still profited handsomely.
Please read up on Georgism, land value tax (LVT) and ground-rents: https://www.strongtowns.org/journal/2020/1/16/the-power-of-t...
This is a very naive interpretation. Perhaps (maybe even more likely) the value of the land skyrocketed according to rising demand, regardless of the capital invested in building flats. They could have built single-family homes, or a parking lot, or even nothing at all and still profited handsomely.
Please read up on Georgism, land value tax (LVT) and ground-rents: https://www.strongtowns.org/journal/2020/1/16/the-power-of-t...
> So, yeh, success to the successful. Who needs teachers or GPs anyway, right?
You are wrongly framing the builder as the bad guy, and not the homeowners that lobby for SFZ that causes a scarcity of flats which then causes the possibility for abnormal profits. Study the causality and place the blame at the correct place if you want to enact real change instead of just making people angry.
You are wrongly framing the builder as the bad guy, and not the homeowners that lobby for SFZ that causes a scarcity of flats which then causes the possibility for abnormal profits. Study the causality and place the blame at the correct place if you want to enact real change instead of just making people angry.
There isn't SFZ in Cornwall, England. As far as I know.
30 flats built for £1m? I think not.
> It's simplistic but he's basically printing money.
Upvoted you, but I disagree. This is classic survivorship bias. You see the 10% of cases where this works, and you don't see the 90% of cases where the owner goes into crippling debt, can't sell the land, can't sell the condos, or vacancies are at 50%+. There's no such thing as "printing money" in capitalistic markets and it's naïve to think there is. I'm not an efficient market hypothesis guy, but markets tend to be efficient.
There are cases of problematic monopolies (e.g. telecom companies, energy distribution, steel, Google advertising, "too big to fail" banks, etc.) and maybe you could argue those actually do print money, but, imo, that's far and few in between.
Upvoted you, but I disagree. This is classic survivorship bias. You see the 10% of cases where this works, and you don't see the 90% of cases where the owner goes into crippling debt, can't sell the land, can't sell the condos, or vacancies are at 50%+. There's no such thing as "printing money" in capitalistic markets and it's naïve to think there is. I'm not an efficient market hypothesis guy, but markets tend to be efficient.
There are cases of problematic monopolies (e.g. telecom companies, energy distribution, steel, Google advertising, "too big to fail" banks, etc.) and maybe you could argue those actually do print money, but, imo, that's far and few in between.
Where are you getting 90% failure rate for those with access to enough wealth to easily sweep up $1m land + development costs for several buildings?
I can buy that for average folk, as they often do not have the expertise (nor the wealth to access the expertise) necessary to make better decisions for their business. For those substantially wealthier, it doesn't really make sense but maybe you're privy to more sources here that I would love to dive into.
I can buy that for average folk, as they often do not have the expertise (nor the wealth to access the expertise) necessary to make better decisions for their business. For those substantially wealthier, it doesn't really make sense but maybe you're privy to more sources here that I would love to dive into.
Even when you own the land it's hard to get anything built. Planning permission, legal disputes, nimbys, nimbys, nimbys. Developers take on a lot of risk when they do this; they might end up owning a very pretty parcel of land that is a pile of shit in business terms, because they effectively aren't allowed to do anything profitable with it. Therefore, in the cases where it does work out, the profit is high. It has to be, to justify the whole thing. That's what "risk-adjusted rate of return" means.
Btw this is why it's always "big developers" in the first place; they have to be big, because they have to spread out this risk over a large number of ventures, and have easier access to credit. Planning restrictions drives consolidation in the construction/real estate industry because it raises the level of risk above what smaller companies can endure.
That's why it's so maddening to hear nimbys say they're opposed to profiteering big developers, and that loosening of planning regulations would be some kind of handout to them. Precisely the opposite is the case. They're unwitting agents of regulatory capture.
Jeremy Clarkson's farm show is an accidental documentary about this. See here: https://twitter.com/NuclearBeacon/status/1630617164536332303
Btw this is why it's always "big developers" in the first place; they have to be big, because they have to spread out this risk over a large number of ventures, and have easier access to credit. Planning restrictions drives consolidation in the construction/real estate industry because it raises the level of risk above what smaller companies can endure.
That's why it's so maddening to hear nimbys say they're opposed to profiteering big developers, and that loosening of planning regulations would be some kind of handout to them. Precisely the opposite is the case. They're unwitting agents of regulatory capture.
Jeremy Clarkson's farm show is an accidental documentary about this. See here: https://twitter.com/NuclearBeacon/status/1630617164536332303
I think to be clear - firstly it's a hot topic in Cornwall not because of nimby-ism but because the developments are all pitched at hyper wealthy individuals, whether retirement individuals with £500k to spunk on a 1-bed per my example or people from outside the region who are buying holiday homes at similarly inflated values. I don't think anyone locally would say "don't build", instead it's "please build for locals" (where "local" = normal locally employed person).
Secondly, my point is kind of more general. I think if anyone with reasonable intelligence were given £1m they could make fairly reasonable profits in fairly short time, possibly from land or maybe from other investments. Of course there are risky investment strategies that could easily see them losing the lot but in general I think you'd be hard pushed to not find some level of success given this initial starting point.
Secondly, my point is kind of more general. I think if anyone with reasonable intelligence were given £1m they could make fairly reasonable profits in fairly short time, possibly from land or maybe from other investments. Of course there are risky investment strategies that could easily see them losing the lot but in general I think you'd be hard pushed to not find some level of success given this initial starting point.
> but in general I think you'd be hard pushed to not find some level of success given this initial starting point
What does this even mean? "some level of success" as in sticking it in the stock market and collecting ~7-10%, or more than that?
If you think that anyone with capital can generate above-market returns, that is a very odd perspective.
Capital is relatively abundant. If you can reliably generate above-market returns with $1M+ you should try to raise capital.
What does this even mean? "some level of success" as in sticking it in the stock market and collecting ~7-10%, or more than that?
If you think that anyone with capital can generate above-market returns, that is a very odd perspective.
Capital is relatively abundant. If you can reliably generate above-market returns with $1M+ you should try to raise capital.
Do you think that rich people pop out of thin air whenever a new luxury home is built?
They don't.
They move out of their existing homes into the new luxury homes... And the existing homes they just left now become affordable.
They don't.
They move out of their existing homes into the new luxury homes... And the existing homes they just left now become affordable.
>the developments are all pitched at hyper wealthy individuals, whether retirement individuals with £500k to spunk on a 1-bed per my example or people from outside the region who are buying holiday homes at similarly inflated values. I don't think anyone locally would say "don't build", instead it's "please build for locals" (where "local" = normal locally employed person).
They really do say "don't build". Or rather, their actions (revealed preference) say "don't build", regardless of what comes out of their mouths. Housing developments that would be affordable to normal people get blocked all the time. There are too many people with veto power, and someone can almost always find an excuse to say "no".
So what does get built is biased towards the luxury end, by necessity. Developers have to make up in margin what they lose in volume. There's no way around this.
Think about it: if you make it illegal to build holiday homes, that doesn't get rid of the demand for holiday homes, does it? Those same wealthy people will be competing over a smaller stock of possible housing, i.e. the very same housing that local people want to live in. So the prices will still go up! What you're proposing cannot possibly work, unless you want to make it literally illegal for outsiders to move in.
When you artificially restrict supply, you get a shortage. It's not rocket science.
They really do say "don't build". Or rather, their actions (revealed preference) say "don't build", regardless of what comes out of their mouths. Housing developments that would be affordable to normal people get blocked all the time. There are too many people with veto power, and someone can almost always find an excuse to say "no".
So what does get built is biased towards the luxury end, by necessity. Developers have to make up in margin what they lose in volume. There's no way around this.
Think about it: if you make it illegal to build holiday homes, that doesn't get rid of the demand for holiday homes, does it? Those same wealthy people will be competing over a smaller stock of possible housing, i.e. the very same housing that local people want to live in. So the prices will still go up! What you're proposing cannot possibly work, unless you want to make it literally illegal for outsiders to move in.
When you artificially restrict supply, you get a shortage. It's not rocket science.
I'm still not seeing any sources to the high failure rates.
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Maybe 90% is a bit dramatic, but the spirit of my post is that, even with $1m, you won't be printing money any time soon.
Yes you can and yes it is as simple and nearly foolproof as buying land.
It takes a lot of stupidity and/or misfortune to lose money on real estate in a stable economy.
It takes a lot of stupidity and/or misfortune to lose money on real estate in a stable economy.
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> This is classic survivorship bias.
The analysis is not looking at the probability of the situation occurring (where survivorship would apply). The formula is applied, where it can be. The observation is pointing out the Success driving success paradigm in action.
The analysis is not looking at the probability of the situation occurring (where survivorship would apply). The formula is applied, where it can be. The observation is pointing out the Success driving success paradigm in action.
But there's plenty of cases where success drives failure (look at Bezos' Fire Phone as a low hanging fruit example, or more recently at Branson's Virgin Orbit), so, again, it's classic survivorship bias, as there are plenty of counter-examples.
Bezos' Fire phone is an example of success drives success. Amazon is a success even after Fire phone failed because he could afford to do many things, have some of them fail and some work out well.
It is perhaps classic survivorship bias if you look at Amazon initially, but after it got into a money printing machine the expansion shows how one success can lead to many mores even if some of them fail.
It is perhaps classic survivorship bias if you look at Amazon initially, but after it got into a money printing machine the expansion shows how one success can lead to many mores even if some of them fail.
> But there's plenty of cases where success drives failure
That's a separate issue, under different conditions. Land development is the most common way to grow wealth, historically. It's mostly a matter of probability consideration and access to capital. It's not no-risk, but it's low risk until you start building.
That's a separate issue, under different conditions. Land development is the most common way to grow wealth, historically. It's mostly a matter of probability consideration and access to capital. It's not no-risk, but it's low risk until you start building.
> It's not no-risk, but it's low risk until you start building.
Building is kind of.. the whole point. And risk profiles vary. For example, I'd rather build/invest in a startup rather than buying land where I may or may not be able to build anything profitable over the long term. Development also has a very long horizon, tying up liquidity in the process.
Saying "just buy land bro, making money is ez" seems like a very TikTok Investor kind of take.
Building is kind of.. the whole point. And risk profiles vary. For example, I'd rather build/invest in a startup rather than buying land where I may or may not be able to build anything profitable over the long term. Development also has a very long horizon, tying up liquidity in the process.
Saying "just buy land bro, making money is ez" seems like a very TikTok Investor kind of take.
> Building is kind of.. the whole point.
Land development is not limited to "build anywhere you can". Purchases of land for later resale, when armed with knowledge about likely events, is a common strategy. In cities, you often have to deal with municipal pressures to do more. Parking lots filled empty plots in southern california 1980s and since 2015ish the number of Car Washes in Fargo, ND has grown to 80... a cash business with minimal overhead and a flimsy construction, which does not have to cover the entirety of the plot.
> Saying "just buy land bro, making money is ez" seems like a very TikTok Investor kind of take
Just like interest on large amounts of liquidity, land ownership generates a meaningful passive income, over time. There's nothing trivial about it...unless you buy wasteland in Arizona (which many people hold).
Land development is not limited to "build anywhere you can". Purchases of land for later resale, when armed with knowledge about likely events, is a common strategy. In cities, you often have to deal with municipal pressures to do more. Parking lots filled empty plots in southern california 1980s and since 2015ish the number of Car Washes in Fargo, ND has grown to 80... a cash business with minimal overhead and a flimsy construction, which does not have to cover the entirety of the plot.
> Saying "just buy land bro, making money is ez" seems like a very TikTok Investor kind of take
Just like interest on large amounts of liquidity, land ownership generates a meaningful passive income, over time. There's nothing trivial about it...unless you buy wasteland in Arizona (which many people hold).
It is odd to point out the relatively minor failures of massively successful people.
It is only because they are successful that they are able to afford to take these risks and the fact that these failures did not materially diminish their wealth speaks to the truth of the archetype.
It is only because they are successful that they are able to afford to take these risks and the fact that these failures did not materially diminish their wealth speaks to the truth of the archetype.
> speaks to the truth of the archetype
The archetype claims that success breeds success, and this is categorically false, apart from a few exceptions (e.g. monopolies, collusion, etc.). The fact that even literally the richest person on the planet couldn't make a cellphone project (that he himself spearheaded) successful is a clear counter-example to the archetype. Your point that he didn't go broke afterwards is imo unrelated. I will agree that success definitely lowers risk profiles, but does not necessarily impact future success.
The archetype claims that success breeds success, and this is categorically false, apart from a few exceptions (e.g. monopolies, collusion, etc.). The fact that even literally the richest person on the planet couldn't make a cellphone project (that he himself spearheaded) successful is a clear counter-example to the archetype. Your point that he didn't go broke afterwards is imo unrelated. I will agree that success definitely lowers risk profiles, but does not necessarily impact future success.
I disagree. Having wealth lets you spread risk. That’s one of the big reasons that success breeds success. At least when success is measured in dollars, not projects.
This is why so many wealthy people are VCs.
The failure of the fire phone, Blue Origin (TBD), Virgin Galactic etc simply reinforce the notion that successful people aren’t necessarily smarter than anyone else. But if they only make $10 billion from every billion they invest in crazy schemes… well they are still some way ahead of most of us.
This is why so many wealthy people are VCs.
The failure of the fire phone, Blue Origin (TBD), Virgin Galactic etc simply reinforce the notion that successful people aren’t necessarily smarter than anyone else. But if they only make $10 billion from every billion they invest in crazy schemes… well they are still some way ahead of most of us.
Elon Musk’s money pit Twitter acquisition might be an even more salient example. Success leading to overconfidence leading to failure.
(Read “failure” however you like but the fact remains Musk wouldn’t have bought Twitter unless a court forced him to.)
(Read “failure” however you like but the fact remains Musk wouldn’t have bought Twitter unless a court forced him to.)
Fairly basic flats cost more like £400k each to build. The developer isn’t making all that much profit. That’s one reason why all you see are luxury flats nowadays.
The builder in this case is a good example of what the article mentions. One way to deal with it in this case is to lower the barrier to entry for construction - every landowner should be able to build more a small apartment building on their property, leading to profits shared more broadly among those who own land, and more housing units available for sale and/or rent for people who don't currently own land.
People often have tales like this. For instance, in Denver, they tell tales of developers who greedily sell homes for high prices. But the local Democratic Socialists of America lobbied hard with many other people to preserve a local golf course over allowing someone to build a home. It is a natural characteristic that the demand curve takes effect with fixed supply.
Some folks like to lament greed or profit, while adamantly refusing policy that makes markets efficient and erodes margins. It is an interesting dynamic.
Some folks like to lament greed or profit, while adamantly refusing policy that makes markets efficient and erodes margins. It is an interesting dynamic.
Also known as the Matthew Effect:
https://en.m.wikipedia.org/wiki/Matthew_effect
https://en.m.wikipedia.org/wiki/Matthew_effect
We have a better abstraction of this process in general:
https://en.wikipedia.org/wiki/Preferential_attachment
aka "the rich get richer and the poor get poorer"
The rich could well be getting richer but the poor don't appear to be getting poorer.
What makes you say the poor are not getting poorer?
I think you need to take this from the perspective of what part of the world you are living in.
I'm not sure how we can measure this in quality of life rather than just dollars, but let's consider it this way.
In Australia, Canada, the US, the cost of buying a home has become out of reach for most people. Not even talking about the poorest people, just the average.
Healthcare cost has far outstripped inflation over the last 30 years, and is a greater proportion of the average persons salary. https://www.thebalancemoney.com/causes-of-rising-healthcare-...
Poverty comes with it's own health issues. https://www.aafp.org/about/policies/all/poverty-health.html#....
Salaries have also been stagnant, apparently since the 70s according to this article. https://www.cnbc.com/2022/07/19/heres-how-labor-dynamism-aff...
So, I don't know how you can claim the poor are not getting poorer.
I think you need to take this from the perspective of what part of the world you are living in.
I'm not sure how we can measure this in quality of life rather than just dollars, but let's consider it this way.
In Australia, Canada, the US, the cost of buying a home has become out of reach for most people. Not even talking about the poorest people, just the average.
Healthcare cost has far outstripped inflation over the last 30 years, and is a greater proportion of the average persons salary. https://www.thebalancemoney.com/causes-of-rising-healthcare-...
Poverty comes with it's own health issues. https://www.aafp.org/about/policies/all/poverty-health.html#....
Salaries have also been stagnant, apparently since the 70s according to this article. https://www.cnbc.com/2022/07/19/heres-how-labor-dynamism-aff...
So, I don't know how you can claim the poor are not getting poorer.
Poverty rates are falling globally by any metric you take. And for the poor, buying properties was never even on the radar. I feel there is some conceptual disconnect, poor isn't just someone who is not middle class.
Globally you are absolutely right. Quality of life for billions is improving.
If you look at the developed world only, the divide between the rich and poor is growing. Quality of life for those outside of the middle-class (and some would even say for the middle-class) is decreasing in these regions.
We absolutely don't want to forget about the poorest globally, and need to ensure they continue to benefit and increase their quality of life, but we don't want to ignore the poor in developed countries.
If you look at the developed world only, the divide between the rich and poor is growing. Quality of life for those outside of the middle-class (and some would even say for the middle-class) is decreasing in these regions.
We absolutely don't want to forget about the poorest globally, and need to ensure they continue to benefit and increase their quality of life, but we don't want to ignore the poor in developed countries.
The divide in developed world could well be growing, although it's not appreciable here in Norway or much of Europe. Can't say quality of life is decreasing for any slice of society. If you believe the story of asymptotic poverty curve, life circumstances for poor have to be dramatically worse now than in 1980s and they simply aren't.
It would be better to say that because of preferential attachment in a networked world that the rich get a massively out sized share of the booty.
It is interesting to see this play out with NFL football podcasts. This use to be a space of random individuals but then former and even current players started podcasts.
Now the Kelce brothers and Taylor Lewan have podcasts. They don't just have the name recognition with football fans relative to the average person but the subject matter expertise too. They also have a cool factor with who wouldn't prefer to work with a current NFL player about football than you or I? Not to mention 50 million dollar contracts so they have so much more capital to make things work. The average person and Kelce/Lewan can both just have their friends on the podcasts as guests but the NFL players friends are also NFL players that the average person has to do a nearly infinite amount more work to get on.
This process applies to pretty much everything in every domain.
It is interesting to see this play out with NFL football podcasts. This use to be a space of random individuals but then former and even current players started podcasts.
Now the Kelce brothers and Taylor Lewan have podcasts. They don't just have the name recognition with football fans relative to the average person but the subject matter expertise too. They also have a cool factor with who wouldn't prefer to work with a current NFL player about football than you or I? Not to mention 50 million dollar contracts so they have so much more capital to make things work. The average person and Kelce/Lewan can both just have their friends on the podcasts as guests but the NFL players friends are also NFL players that the average person has to do a nearly infinite amount more work to get on.
This process applies to pretty much everything in every domain.
Right, Jesus was telling this story two thousand-ish years ago.
For to every one who has will more be given, and he will have abundance; but from him who has not, even what he has will be taken away.
— Matthew 25:29
https://en.wikipedia.org/wiki/Matthew_effect
— Matthew 25:29
https://en.wikipedia.org/wiki/Matthew_effect
In U.S. policy debate, this is also known as “winners win”. In other words, if a resolution passes Congress successfully, the proponents of the policy are more likely to be able to pass another piece of legislation. Whether or not this is actually true in Congress is debatable.
However, there are other systems where winners-win is more clear-cut. For example, college athlete recruits want to go to programs that are already successful (thereby increasing the likelihood that the team will continue to be successful), or F1 teams that do well in the constructors championship get a sizable payout (which helps them to continue winning).
However, there are other systems where winners-win is more clear-cut. For example, college athlete recruits want to go to programs that are already successful (thereby increasing the likelihood that the team will continue to be successful), or F1 teams that do well in the constructors championship get a sizable payout (which helps them to continue winning).
One limiting factor is that everyone dies eventually. (With current technology, anyway.)
Organizations may or may not live on. Most businesses have shorter lives than people, but some have lived longer.
Sometimes they change so much that they might as well be a different entity.
Organizations may or may not live on. Most businesses have shorter lives than people, but some have lived longer.
Sometimes they change so much that they might as well be a different entity.
This is what Malcolm Gladwell wrote about in his book, Outliers. His examples are more insidious as they can happen based on non-success based criteria such as birth dates.
To me, the authors opening remark seems misleading at best. But of course criticisms of capitalism must begin by ignoring their hypotheses under a different or past regime:
> One of the most salient archetypes of our current period is called “success to the successful,” which fairly well describes twenty-first-century capitalism
The implication being this is some new facet of our modern society, and not a part of past ones.
I can’t think of a time period, especially when considering a global scale, when the authors claim of “success to the successful” was not true.
In fact, I would say it is less true than ever before. Note that this isn’t the same as saying it does not apply now. Before the internet what opportunities existed for someone in say, rural Africa, to teach themselves skills to obtain success. Now? Marginal, sure, but absolutely present.
> One of the most salient archetypes of our current period is called “success to the successful,” which fairly well describes twenty-first-century capitalism
The implication being this is some new facet of our modern society, and not a part of past ones.
I can’t think of a time period, especially when considering a global scale, when the authors claim of “success to the successful” was not true.
In fact, I would say it is less true than ever before. Note that this isn’t the same as saying it does not apply now. Before the internet what opportunities existed for someone in say, rural Africa, to teach themselves skills to obtain success. Now? Marginal, sure, but absolutely present.
Indeed. Older societies ossified the success to a scale unimaginable under liberal capitalism. While it's not pronounced in the US due to its genesis, it's still well visible in the Old World. "Q: How to become wealthy in the UK? A: Try to be born to a family whose progenitor gained royal favor during the Norman conquest."
Essay author here. Success-to-the-successful is a real feature of our current economic landscape, more than in the semi-recent past (yes, ancient feudal societies were way worse). Here’s Harvard Business Review:
“… we find that large corporations are more and more likely to maintain their dominant positions, while small corporations are less and less likely to become big and profitable.” Link: https://hbr.org/2019/08/the-gap-between-large-and-small-comp...
Here’s economist Austan Goolsbee in The New York Times highlighting growing corporate concentration even pre-pandemic: https://www.nytimes.com/2020/09/30/business/big-companies-ar...
These are success-to-the-successful trends.
Disruptive shocks (like when Google created a truly better search technology and dethroned AltaVista in the late ‘90s, or when the US gov broke up AT&T in 1984) can change those dynamics. That’s how Kodak, despite having lots of resources, lost dominance and eventually failed: they didn’t have the right non-monetary resources (innovative culture and support for change) at a critical time, so disruptive shock toppled them.
Anyway, thanks for reading!
“… we find that large corporations are more and more likely to maintain their dominant positions, while small corporations are less and less likely to become big and profitable.” Link: https://hbr.org/2019/08/the-gap-between-large-and-small-comp...
Here’s economist Austan Goolsbee in The New York Times highlighting growing corporate concentration even pre-pandemic: https://www.nytimes.com/2020/09/30/business/big-companies-ar...
These are success-to-the-successful trends.
Disruptive shocks (like when Google created a truly better search technology and dethroned AltaVista in the late ‘90s, or when the US gov broke up AT&T in 1984) can change those dynamics. That’s how Kodak, despite having lots of resources, lost dominance and eventually failed: they didn’t have the right non-monetary resources (innovative culture and support for change) at a critical time, so disruptive shock toppled them.
Anyway, thanks for reading!
Indeed! I do not argue at all; positive feedback loops exist in a lot of cases. Sometimes legal means limit their strength, but they look like objective properties of certain structures.
That is actually interesting. After all, if one took a genetic view of the world: those genes that were most successful have a better chance of being successful. They have been copied many more times and therefore accompany many different variants. The ones that have been competed away will need to either confer significant advantage to some time or be lucky enough to be close enough to another that carries them along.
That is a property that has existed for millennia, permitting useless genes that had past success to survive past when they provide strong utility.
And that has nothing to do with capitalism. It is merely a natural effect.
That is a property that has existed for millennia, permitting useless genes that had past success to survive past when they provide strong utility.
And that has nothing to do with capitalism. It is merely a natural effect.
A lot of words and yet somehow none of them are "feedback", the well-accepted term for this concept:
https://en.wikipedia.org/wiki/Feedback
https://en.wikipedia.org/wiki/Feedback
Interesting. The example about resource allocation in education is instructive. The decision to allocate resources to G&T students at the expense of others is fundamentally a political decision. Those allocations can be influenced, changed, or even undone at that level. We could decide to allocate those particular finite resources to "lesser" students (see quotes) with a view to leveling-up. Let them all find their level later; but school isn't the place to put our thumbs on the scale. The best will always do better, without any emphasis.
Gin & Tonic students?
... Gifted & Talented.
... Gifted & Talented.
Hmmm..isn't this the Mathew Effect?
Let’s make this concrete and relevant to early 2023: we’ll say A represents a group of companies known as MMANGA (Microsoft, Meta, Apple, Nvidia, Google/Alphabet, Amazon), and B represents a group of all other companies in the US public markets (i.e., a broad-based index minus MMANGA).
People could have said the same in the late 90s, but instead Intel, HP, Oracle, Cisco, IBM, etc. Only Micorsoft has bucked the trend of not fading, unlike the others.
Let’s make this concrete and relevant to early 2023: we’ll say A represents a group of companies known as MMANGA (Microsoft, Meta, Apple, Nvidia, Google/Alphabet, Amazon), and B represents a group of all other companies in the US public markets (i.e., a broad-based index minus MMANGA).
People could have said the same in the late 90s, but instead Intel, HP, Oracle, Cisco, IBM, etc. Only Micorsoft has bucked the trend of not fading, unlike the others.
Australia's public education has this selective high school system. At the end of primary school kids could sit for an exam to enter academically more competitive selective high schools. So higher performing kids are being separated from others. During adolescence you are very much influenced and learn from your peers, so could think of it as resource being taken away from lower performing kids very early on.
We've seen again and again what happens when you destroy academic standard setting with excuses like "oh, the smart students will help bring up their peers". Everyone ends up in one jumbled mass and excellence is dragged down by the average to form undifferentiated mediocrity.
See Communist China before they re-implemented the Gaokao (their college entrance exam), many schools now in California, and once-prominent public schools like Dunbar High in the D.C. area (successful despite the poverty of the area in which it operated-see https://www.creators.com/read/thomas-sowell/10/16/dunbar-hig...).
See Communist China before they re-implemented the Gaokao (their college entrance exam), many schools now in California, and once-prominent public schools like Dunbar High in the D.C. area (successful despite the poverty of the area in which it operated-see https://www.creators.com/read/thomas-sowell/10/16/dunbar-hig...).
A lot of people find moral value in a meritocracy. This "success to the successful" shows the limits.
A lot of people would agree that if someone is 5x smarter and work 5x more than someone else, then making 25x more money could be fair.
My intuitive take is that our system rewards those people with a lot more than x25... this article seems to go in the same direction.
If that is true, is it morally fair? What would be fair? Do we even care about fairness?
A lot of people would agree that if someone is 5x smarter and work 5x more than someone else, then making 25x more money could be fair.
My intuitive take is that our system rewards those people with a lot more than x25... this article seems to go in the same direction.
If that is true, is it morally fair? What would be fair? Do we even care about fairness?
If smarts follow a normal distribution, then someone 5x smarter than your average Joe is exponentially more rare. Supply and demand would suggest their compensation increase wouldn't merely be linear.
Why do smart people need to be rewarded more? What's so special about being smart, that this is the main axis of merit? You never hear the same said about, say, being strong, healthy, patient, cold blooded (maybe this one), ... It's always "smart". "Smart" must be rewarded. Colleges must pick "smart". Not being facetious. I want to learn more about the origins and apologetics of the cult of smart.
("hard work" I can see. That certainly has pedigree - toiling the land to please god, that sort of thing, there's something virtuous about it).
("hard work" I can see. That certainly has pedigree - toiling the land to please god, that sort of thing, there's something virtuous about it).
I assume people view it as more meritocratic because smart people tend to do more useful things (E.g. scientists, lawyers, doctors, etc), but I don't really think it's meritocratic.
Generally "smart" = born with high intelligence and the right personality traits (I.e. conscientious). I see it mostly as lottery.
Generally "smart" = born with high intelligence and the right personality traits (I.e. conscientious). I see it mostly as lottery.
Thanks for chiming in. When smart becomes a catch-all term, it feels a little tautological, but makes sense to me in that context.
I think you may have missed the point, being that the person who's 5x smarter and works 5x harder may well not get anything unless they're the incumbent.
> One of the most salient archetypes of our current period is called “success to the successful,” which fairly well describes twenty-first-century capitalism or the late stages of the board game Monopoly
It seems a stretch to describe this as "One of the most salient" archetypes. This would only be true if "resources" are "one of the most salient" factors for success. If two companies are almost identical in every other way, then sure resources are a great tie-breaker. But if one company is significantly better than the other in some way, I would expect that company to overcome a resource-deficit. See Google winning search over other earlier and larger search engines. Facebook winning social media over other earlier and larger social networks. OpenAI leading/co-leading the AI race despite being outgunned by so many other companies. AMD surpassing Intel in valuation despite an enormous financial deficit a decade ago.
In fact, an abundance of resources can actually negatively impact success. See the resource curse: https://en.wikipedia.org/wiki/Resource_curse . Highly relevant in big tech companies that are so much slower and bureaucratic compared to startups. Today's world might possibly be the most startup friendly in history - there is far more VC financing available than ever before for any company that can demonstrate any form of competitive advantage in a lucrative market. Financing that provides just enough resources to avoid being handicapped, but not so much that startups are lulled into complacency the way more established companies are.
It's easy to pick one model that seems intuitive, and use it to make sweeping statements about "twenty-first-century capitalism". In the real world there are many different models all operating at the same time, and the one that is most intuitive may not be the most salient.
It seems a stretch to describe this as "One of the most salient" archetypes. This would only be true if "resources" are "one of the most salient" factors for success. If two companies are almost identical in every other way, then sure resources are a great tie-breaker. But if one company is significantly better than the other in some way, I would expect that company to overcome a resource-deficit. See Google winning search over other earlier and larger search engines. Facebook winning social media over other earlier and larger social networks. OpenAI leading/co-leading the AI race despite being outgunned by so many other companies. AMD surpassing Intel in valuation despite an enormous financial deficit a decade ago.
In fact, an abundance of resources can actually negatively impact success. See the resource curse: https://en.wikipedia.org/wiki/Resource_curse . Highly relevant in big tech companies that are so much slower and bureaucratic compared to startups. Today's world might possibly be the most startup friendly in history - there is far more VC financing available than ever before for any company that can demonstrate any form of competitive advantage in a lucrative market. Financing that provides just enough resources to avoid being handicapped, but not so much that startups are lulled into complacency the way more established companies are.
It's easy to pick one model that seems intuitive, and use it to make sweeping statements about "twenty-first-century capitalism". In the real world there are many different models all operating at the same time, and the one that is most intuitive may not be the most salient.
So success is increasing returns to scale, basically.
Missing from the diagram is when success of A is mismanaged and all its resources get slowly redistributed to C through Z in fragments until one of them becomes the next A.
WalterBright(5)
“… A receives more resources from a (presumed) finite pool of resources, so B therefore receives less”
No. If A is a big enough success, money can get thrown at a bunch of B’s. Resources can INCREASE. Most B’s will be unsuccessful.
No. If A is a big enough success, money can get thrown at a bunch of B’s. Resources can INCREASE. Most B’s will be unsuccessful.
Resources will always be finite even if they increase over time. Won't A always receive more resources than any one B (if you're looking at them as individual companies)?
No because people allocate resources based on future expectations of success.
Look at Tesla market cap (a measure of resources allocated) vs Toyota and look at how many cars they sell.
Tesla definitely didn’t start out winning, but people saw the potential and started allocating resources away from old car manufacturers.
If this model actually held then no one would have ever bet on them.
Look at Tesla market cap (a measure of resources allocated) vs Toyota and look at how many cars they sell.
Tesla definitely didn’t start out winning, but people saw the potential and started allocating resources away from old car manufacturers.
If this model actually held then no one would have ever bet on them.
Define "resources".
If we want to speak in absolutes, entropy cannot be reduced; we will only capture so much energy over time, and I refer you to http://www.thelastquestion.net/
If we get a little zen and allow for the ever-elusive human joy to be the ultimate resource, then I'm not sure we can necessarily say that it's finite. I guess without humans there can be no human joy, but why not machine/post/trans-human joy?
Whoever dies with the most toys wins, right? :)
If we want to speak in absolutes, entropy cannot be reduced; we will only capture so much energy over time, and I refer you to http://www.thelastquestion.net/
If we get a little zen and allow for the ever-elusive human joy to be the ultimate resource, then I'm not sure we can necessarily say that it's finite. I guess without humans there can be no human joy, but why not machine/post/trans-human joy?
Whoever dies with the most toys wins, right? :)
1) It's not an accident that Monopoly looks like this. Monopoly was an intentional demonstration by a Georgist that if everyone starts in the same space with the same capital, eventually one player will own all of the other players. It originally had a second phase (Prosperity) showing that you could change the rules and have things turn out differently.
2) This model has invisible, magical "allocators," but there are material ways by which wealth attracts more wealth. If you're wealthy, you can buy heavily when prices are low and not buy at all (or even sell) when prices are high. You can also buy wholesale at all times, because large purchases/purchasers bring down costs for the seller.
There's no doubt for me that most of the benefit of early success in a industry is that you can wait until new entrants are in a fragile, time-constrained situation, and just buy them. You can also buy from suppliers at a high enough volume that they don't even bother to sell to your smaller scale competitors. You can sell at a loss longer than they can.
None of that is investors making decisions, it's just a natural consequence of wealth.