Category: Sexy Economics

“Could you tell me something about the Corporate Wars?” – Rollerball (1975)

My CEO says this is the wave of the future for corporations, or at least he does when we go visit him at San Quentin.

“Dad, where should I go to work to make a fortune before I win a Nobel Prize®?”  The Boy actually said this to me when he was in fifth grade one day while just he and I were out driving.  I think that his expectations might be more in line with reality right now.  In his defense, by that time he had already made the equivalent of $2,500 by trading in Bitcoin and other crypto currency in his bedroom on the computer he had built when he was in fourth grade.  I had no idea that he’d set up a trading shop in his bedroom until Wired® showed up to do a profile on him.  Needless to say, his computer moved to the front room the next day.

Today, The Boy’s expectations are a bit more in keeping with what most adults consider reality.  He’s thinking about college and career.  The Boy is now contemplating a life of drudgery where he spends his time at a dull, faceless gray job working long hours so he can fulfill his obligations by existing only to pay bills until he dies.  Oh, wait.  I guess I misspelled, “looking to go out and conquer the world!”

Seriously, who touches people at work besides strippers and Joe Biden?

The sad fact is, however, that most Americans nowadays work for mid or large-sized organizations of more than 100 employees.  What’s the definition of most?

70%+.

I guess that makes sense.  We live in an age that celebrates the collective, the large, the behemoth, and that’s just our sodas and underpants.  And working for a corporation/large organization has to be nice, right?  Of course it is.  Otherwise, just like vaping, all the cool kids wouldn’t be doing it.

Well, there are upsides:

• Steady Paycheck: Large organizations have figured out how to get money.  Notice I didn’t say make money.  Some borrow it.  Some get suckers  A friend of mine once did a calculation on a large corporation – I think it was GM©.  At the point of his calculation, if you took all of the money invested in the company, and all of the profits the company had ever seen and subtracted the investments from the profit, GMâ„¢ had lost money over its 100 year plus history.  But the check cashes every payday, so what is there to complain about?
• Benefits: In theory, a large organization can negotiate discounts that save the organization money while providing valuable health care to employees, but in practice it’s a choice between selling the kidney the didn’t operate on to pay the bill or Fred’s Medical School Discount Surgery®.
• Relative Disconnect Between Pay and Performance: So, why is this listed as an upside?  You have bad days.  Bad weeks.  Bad months.  So blame it on the business cycle.  Or on some competitor.  Or on someone.  Certainly it wasn’t you.  Mostly, a boss will buy this as long as you didn’t take a pellet gun and shot customers/other employees in the butt as they walked by while spraying mosquito repellent in their eyes.  Heck, even if you did do that, blame it on Phil from Marketing.  Everybody knows Phil is crazy.
• Autocratic Governance: Your boss may be horrific, but can you imagine how bad they would be if you had to elect them?  Can you imagine the campaigns?  Then Phil from Marketing would start a Political Action Committee . . . .
• Specialization: This is a true upside.  It’s nice that large organizations offer positions where you can study and become a true expert on a narrow slice of the business to improve results through superior knowledge.  Thankfully, after you’ve done this you can train your replacements from India who work for wages paid in cardboard, broken furniture, and used dental floss.

“I wonder if McDonald’s® is hiring,” wondered wonderful Karen wonderingly.

• Increasing Rewards: The farther up the organizational ladder, a strange thing happens.  It’s mentioned above that pay gets decoupled from performance, but the higher you go, the more likely you get raises and huge bonuses if the business performs poorly.  You’d think that this would require more work, but it really doesn’t.  Please tell me the last time you took off in the middle of the day to smoke weed while you were on a podcast?  Yeah, looking at you, Elon.
• Occasionally, Working With Great Teams For A Great Boss: By accident, you are occasionally thrown together with a likeable group of competent people with good hygiene who share common interests.  These people are dedicated to producing good results and in helping each other for both individual success and group success.  Please notify HR if this happens so the team can be broken up and reallocated through the business.

Apple’s® 2024 business strategy.

But it’s not all wine and PEZ® coffee and bagels.  There are downsides to large organizations, too:

• Politics/Egos: This is the biggest one.  You might be humming along, doing great work, and achieving great results.  Then your boss gets promoted and you get his replacement:  Politics Manâ„¢.  Politics Man© doesn’t care about what you do or how you do it or the results you get.  Politics Man®, in fact, won’t pay any attention at all, since his superpower has replaced normal logic with a finely tuned sense of how he looks that day to his boss and/or the CEO, along with his other power, to turn Perception to Reality.
• Perception is Reality: I had one job where my boss may have been a biker who indicated that he paid a witness in a felony trial to “be out of state” on the court date.  I have no idea if he was telling the truth, but he was weird enough that we all thought that he actually lived in his office.  His particular brand of Business Fu (ancient New York martial art) was to convince everyone that he was blameless.  In one particular instance he decided to blame me.  Thankfully, I had a friend who heard about this and tipped me off.  I walked into his office and used Wilder Fu:  “You know, I’m glad you’re my boss, since if I look bad, you look bad and perception is reality.  I know you’ll take care of me.”  He switched from blaming me to blaming Phil from Marketing.

That’s what we do at work, just draw random words and circle them.  It’s motivating.

• Random Compensation: One year I saved the company $800,000 dollars – and not made up dollars, actual dollars.  Result?  A 2.13% raise.  One year I didn’t contribute a whole lot at all but looked great doing it.  20% bonus.
• Increasing Rewards: If you’re getting the increasing rewards, they’re awesome.  If you’re working and read in the paper how the CEO is off to Monaco after buying a New York penthouse, maybe not so much.
• Most Decisions Don’t Matter (Pareto): As I’ve discussed before (Pareto and the 80/20 Rule Explain Wealth) a small number of decisions you make are the most important ones.  It’s the same for a company.  Most decisions simply don’t matter if you get them right.  I’ve noticed that if I want to keep management busy, I’ll ask them what color they want something to be.  They’ll spend (nearly up to the CEO Level) hours and hours with meeting after meeting just to pick carpet color.  One time the president of a multi-billion dollar corporation had to pick who got what office at a facility located somewhere in BFE.  As an aside – The Boy heard me say “BFE” the other day and was greatly amused when he found out the definition.  You can Google it® (not safe for work).  I’ll wait.
• No One Knows Which Decisions Matter: Which decisions are important?  You can’t really be 100% sure – the chain of events started by a typographical error on a McDonald’s® menu that led to Joseph Stalin’s clone destroying Europe in 1978 and the rest of humanity having to escape to another dimension where they never invented the virus that wiped the memory of everyone that with an IQ of less than 160 . . . oh, I’ve said too much.  Never mind.

It was even sadder when they started fighting about who got to keep the trophy for “Nearly On Time To Work This Week, Tied For Sixth Place.”

• Rules: Big organizations have rules.  Silly ones like having to show up on time.  Showering at least weekly.  Not flirting with the waitress.  Oh, wait, that’s not work, that’s home.  But big organizations do have rules, too, and they have to.  Why?  Because somebody always has to push the limits.  Every single rule in every company’s HR policy manual has a story behind it.  And every story has Phil from Marketing behind it.  Stupid Phil.
• Weird Bosses That Got Promoted Beyond The Level of Sanity: See above.  This has happened often enough that I think that being a psychopath is a predictor of business success.  Oh, wait, it is? (LINK) That explains everything.

My bad.

• Depersonalizing: You can be replaced.  That’s really part of the strength of a corporation – everyone from the CEO to the accountants to Phil from Marketing can be replaced.  In most cases, unless the CEO is visionary (and most aren’t) you’ll never notice the difference.  Who else is part of this faceless collective?    And the system will put you into a gray box with gray computer and gray walls and a gray chair.  Why gray?  Because it goes with everything.
• Nobody Really Cares: I’ve worked with hundreds of people during my career.  Outside of a few coworkers from decades past, I’ve lost touch with most of them.  It’s not just that I’m a jerk (I am) but also that people are busy with their jobs, their lives and the only intersection they have with you revolves around that 8AM to 5PM time slot.  They’re like people your mom paid to have come to your birthday party when you were five.  Or that porkchop she put around your neck so the dog would play with you.

This wasn’t on my physics final.

• Large Organization Jobs Only Prepare You To Work For Large Organizations: Let’s say you hit mid-career and decide you want to open up your own Sushi-Pizza chain called Samurai Luigi’s – it’s okay, I won’t tell anyone that your secret is serving the pizza raw, too.  Chances are you haven’t learned anything about business that’s useful beyond a small narrow window of “capital tax law related to manufacturing investment for Spork® production in Toledo, Ohio.”  See, corporations want you to be good at that.  But it won’t help with your garlic-salmon-tiramisu or knowing who to bribe to get the local building permit.

So, chances are you’ll be working for a large corporation, but that’s okay.  And to all of you soon-to-be graduates out there, look forward to a life of drudgery where you spends your time at a dull, faceless gray job working long hours so you can fulfill your obligations by existing only to pay bills until you die go out and conquer the world!”

“Well, you know, 80% of all homeless rickshaw businesses fail within the first six months.” -Seinfeld

Pareto:  He was into economics before anyone else was, but it was only because it was ironic.

Vilfredo Pareto was born in France in 1848.  At birth he was given the name Fritz Wilfried but his parents changed it to Vilfredo after the realization that they weren’t German (really – this sounds like a goofy fact I would make up because it might be true, like Lutherans being secret space-vampires, but Vilfredo/Wilfried’s parents actually were kinda nuts).  Vilfredo died in Switzerland.  The logical conclusion?  He must have been Italian.  And he was.

Outside of his extensive collection of Abraham Lincoln-themed women’s undergarments, Pareto is best known to us for the Pareto Principle.  As the story goes, Pareto was in the midst of trying to figure out what laws governed the distribution of wealth, and had pulled together historical economic records from all around Italy.  Now, modern Italian record-keeping is on a par with modern Italian engineering – I mean, has anyone ever been able to keep the oil on the inside of an Italian engine?  But the story goes that while working on this economic problem, Pareto was messing around with the peas in his garden and noticed that 20% of the pea plants produced 80% of the peas.

I don’t believe that story for a second.  It’s a well-known fact that Italians explode like watermelons dropped from the Empire State Building if they are in the same room with a pea.  Don’t ask me about how I know what a watermelon dropped from the Empire State Building looks like – Homeland Security® still hasn’t figured out how the watermelons were smuggled up there.  I’m just saying, never go to Olive Garden™ on Fresh Green Pea Night.  It takes them a week to clean the place up from all of the exploding Italians.

The pea proportions that Pareto allegedly observed, that 80% of peas came from 20% of the plants, seemed to match up with his data in economics.  80% of the land in Italy was owned by 20% of the people.

Looking further, 80% of a business’s profit comes from 20% of its customers.  20% of the words in a language account for 80% of the words used.  80% of crime is caused by 20% of criminals.  80% of car accidents are caused by my Mother-In-Law.  Seriously, do NOT be around the woman when she puts the car into reverse.

The numbers aren’t exactly the same in every example but 70/25 or even 75/30 is close enough to prove the point.  80/20 is nice because the math is simple.  It also adds up to be 100, which is nice and makes the number taste better on the tongue, just like watermelon that has been pulverized by being dropped from a great height, even though there is absolutely no reason for the numbers to add up to 100.

To me, however, this proves the idea that the universe isn’t fair.  Talent isn’t equally distributed, and, when you toss in the idea of chance, the result is inequality.  And it’s a vast inequality:  the 80/20 rule holds for wealth.  But you have to dig deeper:  the top 20% that owns 80%?  The top 20% of the top 20% (that’s the top 4%) owns 80% of the 80% (that’s 64%).  So, the top 4% owns 64% of the wealth.  Going one more time:  the top 1% owns roughly 50%.  The real number for the amount of wealth owned by the top 1% is around 38%, so it’s pretty close for an approximation and the missing 12% is probably under a mattress at the Elon Musk’s house.  Pareto’s rule is alive and well in 2019.

It also tells me that even though intelligence and other human attributes follow a bell curve, wealth does not – it grows geometrically.  An old story I use to illustrate this is:  If you have fifty people in a room and bring in the tallest person in the world, well, the average height in the room goes from 5’ 9” (16 meters) to 5’ 10” (30 centimeters).  But if you add Bill Gates to the room, the average person in the room is a billionaire, though your credit rating might not improve as much as you are expecting.  Our brains are used to dealing with that normal distribution, but are inadequate when dealing with these quantities that grow geometrically.  And I think the thing that fosters that geometric growth in today’s society is increasing returns.

When I was just starting at work after college I knew a little more about computers than the folks I was working with.  Just a little.  But because I knew just a little more, my coworkers would ask me questions if their computer broke or wasn’t working right.  I didn’t necessarily know the answers, but I was able to learn more because I (and another coworker) kept getting all the questions.  Pretty soon I knew lots of arcane stuff about how the computers worked and how the network worked.

The point isn’t that I’m a computer wizard, or even an apprentice magician anymore.  I got better at computers because I had a tiny advantage over my coworkers.  Magnified by a couple of years?  Expertise.  But expertise has to be used to be kept, and I didn’t keep my computer mojo.  The Boy and Pugsley have me beaten (by far) at this point.  The point is clear, however:  increasing returns is the rule, rather than decreasing returns.  You get better the more you do, and those slight advantages, that slight edge in competence adds up.  You get better by solving those problems that exist around you – much better.  And you don’t have to be perfect – you just have to be a little better than anyone else.

That was the story of manufacturing in the United States.  There is a ton of knowledge in books about how to make things, but what’s not in the books is the everyday know-how that’s required to actually make the machines run.  The more manufacturing we did as a country, the better we were at it, and the more know-how we had accumulated.  In one story that amazes me still – the SR-71 Blackbird, the fastest manned, air-breathing aircraft that officially exists, was built from contract to flight in just over two years in the early 1960’s.  The X-15 was faster, and also built in the 1960’s but it’s not a fair comparison, since it’s essentially the same as flying a rocket.

Now?  Fighter development takes decades.  Sure, they’re more complicated, but it took eight years from contract to prototype, and a further fifteen years to be put into service.  I doubt we could make the SR-71 today in less than a decade, if even then.

I think that one of three things is happening:  the first possibility is that we’ve forgotten how to make great stuff quickly, which Pareto can easily explain.  The second possibility is that we’re stupider, which I’ll cover in a post within the next month.  The third is we’ve forgotten how to make stuff AND we’re stupider.  It’s like we’re sitting drooling drinking warm Coca-Cola® because we forgot the recipe to make ice.

You can wipe away the drool because the bright side is this:  most of the decisions that you make don’t impact you all that much.  Pareto is at work here, too.  20% of your decisions, actions, and habits account for 80% of where you are in wealth, health, and wisdom.  The nice thing is that you already know what habits are good or bad, which ones take you away from your goals, and which ones help you.

The best part?  You don’t have crazy Italian parents who can’t decide what your name should be.