Paul Graham's Strategic Essay: Refraction (Part 1)

In old age there is one advantage, and it lies in the fact that all the changes in your life become noticeable. One such significant change that I have seen is fragmentation. The direction of the political activities of the United States is much more controversial than before. In fact, there is less in common between them than ever. Creative people rush to certain cities in search of happiness, and leave their homes. And growing economic inequality entails widening the gap between the rich and the poor. And here is my hypothesis: all these trends are essentially a manifestation of the same thing. Moreover, the problem is not that there is a force that separates us, but that there are certain forces that attract us to each other, and such attraction is destructive for us.

Worse, for those who are worried about these changes, the forces that pushed us towards each other were considered anomalous, once happened a succession of circumstances that most likely cannot be repeated. And we ourselves would not like to repeat them.
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These two forces were war (mainly World War II) and the growth of large corporations.

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The consequences of the Second World War were both economic and social. From an economic point of view, the difference in income has decreased. Like all modern armed forces, the US military, economically, played the role of a socialist: from each according to his ability, to each according to his needs. More-less. High-ranking military leaders get more (as is always the case for high-ranking members of socialist society), but what was due to them was clearly regulated. The leveling effect was not limited to participants in hostilities, because the US economy was also "in service." From 1942 to 1945, all salaries were determined by the National Labor Council in the military industry. As in the case of the military, it was decided to make the salary equal for all. And this atmosphere of national standardization of salaries so imbued with society that its impact can still be felt years after the end of the war. [one]

No one even imagined that entrepreneurs would make money. Franklin Roosevelt noted: “the policy will prevent the appearance of“ millionaires who profit from the war ”. To implement this plan, any excess of the company's profits over the pre-war level was taxed at 85%. And when what remained after paying taxes on the company's profits reached individuals, it was again taxed at a rate of 93%. [2]

In social terms, the war was supposed to reduce wage fluctuations. More than 16 million people from different places and different conditions gathered together to literally lead a unified lifestyle. The standard of care for men born in the early 20s is close to 80%. And work for the common goal, often in stressful situations, further rallied them.

Although for the United States the Second World War, strictly speaking, lasted less than four years, its consequences had a longer effect. Wars allow the central government to increase its influence, and the Second World War brought this to the extreme. In the United States, as in all other allied countries, the federal government hardly refused to acquire new levers of influence acquired by it. Of course, in some respects the war did not end in 1945; The concept of "enemy" has just switched to the Soviet Union. At tax rates, federal government, defense spending, recruiting campaign, as well as the level of nationalism, even decades after the end of the war, the situation was more like a war than a prewar period. [3] The social effect also continued. The child, who was dragged directly from the herd of mules in West Virginia and put into the army, could no longer simply return to the farm. Something else was waiting for him, something that strongly resembled an army.

If a major political event of the 20th century was war, then a major economic event was the emergence of new types of companies, which also led to the emergence of both social and economic unity. [four]

The 20th century was the century of large, national corporations: General Electric, General Foods, General Motors. Events in the sphere of finance, communications, transport and production gave impetus to the emergence of a new type of companies whose goal was, above all, to increase the scale of production. The first version of this world could be compared with Lego Duplo, because it consisted of very large, massive blocks, where there are only a few large firms, each of which has a decent share in the sales market. [five]

At the turn of the XIX and XX centuries, the consolidation process developed, based mainly on John Morgan (JP Morgan). Thousands of companies, headed by their founders, were merged into a couple of hundred gigantic structures under the management of professional managers. Then all ran the extensive economy. At that time it seemed to people that this was the final stage of development of events. In 1880, John D. Rockefeller announced that the day of unification had come. Individualism is gone, and will never return. He was wrong, but for the next hundred years no one questioned his words.

Consolidation began at the end of the XIX century and lasted most of the twentieth century. By the end of World War II, as Michael Lind wrote (Michael Lind), "the main economic sectors either acted as cartels with government support, or were controlled by several oligopolistic corporations."

For consumers, such a new world always foreshadowed the same choice, but only from a limited number of goods. During my growing up period, there were only 2 or 3 sets of goods, and since all of them were aimed at the middle level market, there were few differences between them.

Well illustrates this situation that was happening on television, where there were only 3 options: NBC, CBS, and ABC. Well, and more public channels for intellectuals and avid communists. The programs offered by these three channels were difficult to distinguish from each other. In fact, the pressure came from three sides. If one program tried to show something outstanding, the local branches of the traditional market would have forced its creators to stop this business. Plus, due to the fact that television was not a cheap pleasure, families watched the same programs in full force, so they (programs) should be suitable for everyone.

But the information was not only presented to everyone in the same form, but also at the same time. It's hard to imagine now, but every night tens of millions of families sat down in front of the TV and watched the same show, at the same time as their neighbors. What is happening now during the final Super Bowl matches then happened every evening. We literally were in sync. [6]

To some extent, the culture of television in the 50s was not bad. The view of the world she presented seemed to be taken from children's books, and, probably, as parents hoped, the effect was similar to what was observed when reading children's books, prompting people to behave approximately. But, as in the case of children's books, television was just as deceptive. And for adults, even dangerously deceptive. In his autobiography, Robert MacNeil talks about the terrible scenes of what is happening in Vietnam, and he came to the conclusion that it is impossible to show this to families during lunch.

I know how pervasive the conventional culture was, because I tried to distance myself from it, and it was almost impossible to find an alternative. When I was 13, I realized, more on the basis of my own reasoning than from any external sources, that all the ideas that feed us on TV are simply bullshit, and I stopped watching TV. [7] But it wasn't just him. It seemed that everything around me was a heresy. All politicians say the same thing, brands create almost identical products, sticking different labels to stand out, houses with wooden beams, which are examples of pseudocolonial architectural style, cars with meters of free metal bands on each side, which began to fall off after 2 years , “Red ripe” apples, which, although they were red, were only called apples. Looking back into the past, all this was nonsense. [eight]

But when I continued to search for alternatives to fill the void, I could hardly find anything. Then there was the Internet. The only place to look was the network of bookstores in the local mall. [9] There I found the issue of The Atlantic. It is a pity that I can not say that it became a window to a new world, but on the contrary, it turned out to be a boring and hard to understand. Like a child who first tried whiskey and pretending that he liked it, I tremblingly kept this magazine like a book. I'm sure he still lies somewhere in my place. But, although it was obvious that somewhere there was a world without ripe red fruits, I never managed to get to know him before entering college.

Large firms not only made us identical consumers, they turned us into identical workers. Inside companies, there are powerful forces that force people to act in accordance with a single model of behavior. Especially IBM was known for this, but it went to extremes just a little bit compared with other large "players" in the market. And the patterns of behavior in different corporations were not particularly different, implying that everyone in this world is expected to be more or less like the others. And not only from those related to the corporate sphere, but also from all who seek to get into it, which, in the middle of the twentieth century, included mainly people who had already left its territory. For most of the twentieth century, working-class people tried hard to resemble the middle class. This can be seen in old photos. Few in 1950 tried to look risky.

The emergence of corporations of national scale not only exert pressure on us culturally, but also economically, and from both sides.

Along with the giant national companies, we got large national trade unions. And in the middle of the twentieth century, corporations made deals with those trade unions in which they paid wages above market indicators. Partly due to the fact that alliances were monopolists. [10] And partly due to the fact that, as part of the oligopoly system, corporations knew that you can safely transfer costs to your customers, since their rivals would have to do the same. And also, partly due to the fact that in the 1950s most of the large firms were still focused on finding new ways to squeeze the most out of the extensive economy. Just like in a situation when startups regularly pay AWS beyond the cost of supporting their servers, which allows them to focus on their development. Many large state corporations would prefer to pay extra for labor. [eleven]

Along with raising the level of income from the lower border due to overpayments to unions, large firms of the twentieth century also reduced income in higher circles, underpaying their top managers. In 1967, the economist Galbraith (JK Galbraith) wrote that "There were a total of several companies that would suggest keeping the salaries of managers at the maximum level." [12]

In a way, it was an illusion. Most of the actual payments to management have never been reflected in income tax returns, because she was presented in the form of benefits. The higher the income tax rate, the more they were forced to pay higher-ranking employees for the previously specified expense item. (In the UK, where taxes were even higher than in the US, firms even paid for the education of workers' children in private schools.) The most valuable thing that large firms of the mid-twentieth century provided to their subordinates was employment security, which was also not reflected in tax returns nor in income statistics. Thus, the very essence of hiring in these organizations led to erroneously underestimated indicators of economic inequality. But, even considering all the above, large firms paid the labor of their best employees below the market level. The market, as such, was not then and it was implied that you would work for the same company for decades, if not for the rest of your life. [13]

The work was so illiquid that the chances of getting a competitive salary were small. And the same illiquidity suppressed the desire to look for it. If the firm promised to provide you with a job until you reach retirement age and make pension payments after this period, you would have lost the incentive to extract from it the same benefit this year as you could. You would need to take care of the company so that it can take care of you. Especially when you have worked with the same people for decades. If you tried to squeeze more money out of a firm, you would be in a situation where you extort money from a firm that cares for them. Moreover, if you did not put the company in the first place, you could forget about the increase. And if you could not change your career, then the current work would be the only way to rise. [14]

For those who have spent several years in the armed forces at the very height of the formation of their personality, such a situation would not have seemed strange, as it is to us now. From the point of view of the leaders of a large company, they are officers of senior commanders. They are paid much more than ordinary ones. They got a bill of dining expenses in the best restaurants and fly around the world on Gulfstream aircraft at the expense of the company. Probably, it did not even occur to them to ask whether their work was paid at market rates.

The main way to achieve a market wage level is to work for yourself, opening your own company. This is obvious to any person with ambitions. But the idea was alien to people in the middle of the twentieth century. And not because the opening of his company seemed too ambitious, but because it did not seem quite ambitious. Even in the 70s, when I grew up, the ambitious plan included getting an education at prestigious universities, and then working in another prestigious institution with passing all levels of the hierarchy. Your prestige lay in the prestige of the university where you studied. Of course, people opened their businesses, but educated people rarely did this, because at that time almost no one had any idea how to start what we call a start-up today: a business that starts small and grows to large volumes. In the middle of the twentieth century, it was much more difficult to turn. Opening a business meant starting a small business that never gained momentum. What, in that era of large firms, often meant fussy throwing in an attempt not to be trampled by elephants. It was more prestigious to be in the ranks of the leadership class controlling these elephants.

By 1970, everyone kept wondering where these large prestigious firms came from. It seemed that they always existed, as chemical elements. And indeed, there was a difference between the ambitious children of the twentieth century and the founders of large companies. Many large firms were a kind of “homemade”, which did not have certain founders. And when they appeared, they were different from us. Almost none of them had an education in the sense that they did not attend college. Shakespeare called such people coarse artisans. The college taught to be a member of the professional community. And no one thought that graduates would start doing some dirty, dirty work like Andrew Carnegie or Henry Ford. [15]

And in the twentieth century, the number of college graduates became more and more. Their number increased from about 2% of the population of 1900 to almost 25% in 2000. In the 50s, during the merger of two of our powerful camps, GI Bill became law, according to which 2.2 million people served during the Second World War, sent to college. Few people took it in this vein, but as a result of attempts to give the college a canonical image, a world arises in which it was perfectly acceptable to work for Henry Ford, but not to be like him. [sixteen]

I remember it well, because just when it all began to end, I came of age. During my childhood these ideas still prevailed in the minds of people. But not as noticeable as before. On the example of old TV shows and yearbooks, the behavior of adults can be understood that people in the 50s and 60s were even more conservative than us. The model of the 50s has already begun to become obsolete. But at that time we saw everything in a different light. The maximum that we could point out is that in 1975 one could have been a little bolder than in 1965. Indeed, very little has changed.

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January 2016

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