Success to the successful

https://riskmusings.substack.com/p/success-to-the-successful

by vitabenes • 3 years ago

96 70 3 years ago

riskmusings.substack.com

sublinear• 3 years ago

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.

derbOac• 3 years ago

Also known as the Matthew Effect:

https://en.m.wikipedia.org/wiki/Matthew_effect

m463• 3 years ago

aka "the rich get richer and the poor get poorer"

varjag4• 3 years ago

The rich could well be getting richer but the poor don't appear to be getting poorer.

slowmovintarget• 3 years ago

Right, Jesus was telling this story two thousand-ish years ago.

laratied2• 3 years ago

We have a better abstraction of this process in general: https://en.wikipedia.org/wiki/Preferential_attachment

andrewlgood• 3 years ago

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.

thedudeabides5• 3 years ago

So success is increasing returns to scale, basically.

aj7• 3 years ago

“… 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.

pc86• 3 years ago

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)?

gretch• 3 years ago

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.

Cheezmeister2• 3 years ago

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? :)

skybrian• 3 years ago

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.

Nanana909• 3 years ago

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.

nine_k2• 3 years ago

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."

codexjourneys• 3 years ago

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!

renewiltord2• 3 years ago

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.

dmje2• 3 years ago

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?

dvt5• 3 years ago

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.

waboremo2• 3 years ago

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.

Supermancho3• 3 years ago

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.

JackFr• 3 years ago

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.)

ForHackernews• 3 years ago

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...

timerol• 3 years ago

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.

hackerlight• 3 years ago

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.

adammarples• 3 years ago

There isn't SFZ in Cornwall, England. As far as I know.

renewiltord2• 3 years ago

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.

RhodesianHunter3• 3 years ago

30 flats built for £1m? I think not.

jahewson• 3 years ago

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.

pphysch• 3 years ago

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

whack• 3 years ago

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.

austinl• 3 years ago

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).

rippercushions• 3 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

hurtuvac78• 3 years ago

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?

mrpowelldev• 3 years ago

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.

RhodesianHunter3• 3 years ago

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.

trgn2• 3 years ago

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).

ZephyrBlu2• 3 years ago

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.

kayo_20211030• 3 years ago

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.

Cheezmeister2• 3 years ago

Gin & Tonic students?

... Gifted & Talented.

pessimizer• 3 years ago

Two thoughts:

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.

stan3223• 3 years ago

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.

alangou• 3 years ago

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...).

paulpauper• 3 years ago

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.

Success to the successful

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