Paul Graham's Strategic Essay: Refraction (Entire)

One of the advantages that age gives is the ability to see the changes that occurred in your age. Many of the changes I've seen are fragmentation. Political views in the US are much more polarized today than they used to be. Culturally, we have much less in common than ever. The creative class is flocking to several happy cities, leaving all the rest. Increasing economic inequality means that the gap between the rich and the poor is also growing. I propose a hypothesis: all these trends are a manifestation of the same phenomenon. And, moreover, the reason for this is not the force that pushes us, but rather the extinction of the forces that held us together.

Even worse for those who are worried about such tendencies that the forces that unite us were an anomaly, a one-time confluence of circumstances that are unlikely to recur, and, in fact, we would not want to repeat it.

These two forces were war (primarily World War II) and the flourishing of large corporations.
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The influence of World War II was both economic and social. Economically, she reduced the difference in income. Like all modern armed forces, the US military was economically socialist. From each according to his ability, to each according to his needs. More or less. The more senior military received more (as always, more senior members of socialist societies), but how much they received was determined by their rank. And the averaging effect was not limited to those who served in the army, since the US economy was mobilized too. Between 1942 and 1945, all wages were set by the National Military Labor Council [ orig. National War Labor Board]. And this national standardization was so pervasive that its consequences can still be observed, many years after the end of the war. [one]

Business owners also did not have to make money. Franklin Delano Roosevelt [ orig. FDR] said it would not allow the emergence of "no military millionaire." To ensure this, any excess of the company's income above the pre-war level was taxed at 85%. And then, when what remained after corporate tax deduction reached individuals, tax was again raised at a rate reaching 93%. [2]

In social terms, the war also removed the differences. Over 16 million men and women of diverse backgrounds were brought together in a way of life that was literally unified. The proportion of employees among men born in the early 1920s reached 80%. And working on a common goal, often under stressful conditions, brought them closer together.

And although, strictly speaking, the Second World War lasted less than 4 years for the United States, its consequences lasted longer. Wars make central governments more influential, and World War II was in this sense an extreme case. In the United States, like all Western allies, the federal government was in no hurry to part with the influence gained. Moreover, in some respects, the war did not end in 1945; just the enemy was the Soviet Union. In terms of tax rates, the influence of the federal government, defense spending, mobilization and nationalization, the post-war decades were more like wartime than peacetime before the war. [3] Social consequences also continued. The guy who was taken to the army from the brigade of shepherds in West Virginia, then did not just go back to the farm. Something else was waiting for him, something that looked much like an army.

If total war was a big political phenomenon of the 20th century, then a big economic phenomenon was the emergence of a new type of company. And this phenomenon also usually led to social and economic unity. [four]

The 20th century was the century of large, national corporations. General Electric, General Foods, General Motors. Successes in financial business, communication systems, vehicles and manufacturing made possible the existence of a new type of company whose goals knew no boundaries. Version 1 of this world had a low resolution: the world of several huge companies that dominate each large market. [five]

The end of the 19th and the beginning of the 20th century was a time of unification, led mainly by John Pierpont Morgan [ orig. JP Morgan.] Thousands of companies, managed by their founders, were combined into several hundred giants, managed by professional managers. The effect of the scale of the rules of the ball. At that time it seemed to people that it would always be like this. John Davison Rockefeller said in 1880: “The day of unification has come. Individualism is gone, not to return. " It turned out that he was wrong, but his words were true for a hundred years.

The unification, which began at the end of the 19th century, continued for most of the 20th century. By the end of the Second World War, as Michael Lind writes, “the main sectors of the economy were either organized as government-supported cartels or they were dominated by several oligopolistic corporations”.

Consumers in this new world, regardless of where they were located, had the same choice of several products. When I was small, there were usually 2-3 names to choose from, and since they all focused on the middle market segment, they were almost the same.

One of the most striking manifestations of this phenomenon was television. There was a choice of three alternatives: NBC [ orig. NBC; National Broadcasting Company], CBS [ orig. CBS] and ABC [ orig. ABC; American Broadcasting Corporation]. In addition to this, state television for wise men and communists. The programs offered by 3 networks were indistinguishable. In fact, there was a tripled striving for unity. If any TV program tried something bold, then the TV company branches operating in conservative markets stopped it. In addition, because the TVs were expensive, the whole family watched the shows together, so they had to fit everyone.

And not only everyone got the same thing, everyone got it at the same time. It's hard to imagine now, but every evening tens of millions of families sat down together in front of the TV to watch the same program at the same time with their neighbors. What happens now when the Super Bowl is walking [ orig. Super Bowl], happened earlier every evening. In the literal sense of the word, we were synchronized. [6]

To some extent, the television of the middle of the last century was good. The worldview that it offered was similar to the one that can be found in books for children. And, perhaps, it influenced in the same way as children's books (parents hope so), forcing people to behave better. But, as well as books for children, television was misleading. Misleading dangerous for adults. In his autobiography, Robert McNeil [ orig. Robert MacNeil] talks about how he saw the terrible scenes that had just come from Vietnam, and thought that we could not show them to families who were having dinner.

I knew that this common culture infiltrated everything because I tried not to deal with it, but it was almost impossible to find alternatives. When I was 13, I realized (rather than from external sources) that the ideas with which television feeds us is a complete mess, and I stopped watching TV. [7] But it was not only television. It seemed that everything around me was sucking. Politicians who all said the same thing; consumer brands making almost identical products with different labels pasted to show how prestigious these products are; houses assembled on a wooden beam-rack frame, decorated with a colonial style; cars with unnecessary pieces of metal on each side, falling apart after a couple of years; "Red delicious" apples [ orig. "Red delicious"; sort of apples, letters. “Red tasty”], which were red, but were apples only formally. And, in retrospect, it was a sediment. [eight]

But when I began to look for any alternatives to fill this void, I almost did not find anything. There was no internet then. The only place to look was the online bookstore at the local mall. [9] There I found Atlantik magazine [ orig. The Atlantic]. I would be glad to say that it became the door to something bigger, but, in fact, I found it boring and incomprehensible. As a teenager who tastes whiskey for the first time and pretends that he liked it, I kept this magazine with all possible accuracy, as if he were a book. I am sure that I still have it somewhere. And, although this magazine was a signal that somewhere there was a world that was not as red and sweet as “red delighted” apples, I did not find it before the university.

Big companies have made us the same not only as buyers. They did the same thing as employers. Within companies, there were powerful forces that pushed people to look and act the same. IBM was particularly famous for this, but it was only a bit more radical than other large companies. And the patterns for appearance and behavior were only slightly different between companies. Which means that everyone belonging to this world was expected to be more or less the same. And this was true not only for those who already belonged to the corporate world, but also for everyone who wanted to go there - in the middle of the 20th century, this meant most of those who were not there yet. For most of the 20th century, people from the working class diligently tried to look like the middle. You can see it in old photos. Few adults wanted to look extreme in the 1950s.

But the heyday of corporations brought us together not only culturally. Economically, he also brought us together, on both sides.

Together with the giant national corporations, we got giant national trade unions. And in the middle of the 20th century, corporations entered into agreements with trade unions, according to which they paid for labor at a price higher than the market price. Partly because unions were monopolists. [10] Partly because, as members of oligopolies, corporations knew that they could safely pass the cost on to their customers, because competitors would be forced to do the same. And partly for the reason that in the middle of the last century most of the giant companies were still aimed at finding new ways to profit from the economies of scale. Just as startups rightly pay AWS [Amazon Web Services] a premium compared to the cost of owning their own servers to focus on growth, many of the large national corporations agreed to pay a premium for labor. [eleven]

At the same time, with the increase in revenues due to overpayment to unions, large companies of the 20th century reduced revenues at the top, underpaying their top management. Economist DK Galbraith [ orig. JK Galbraith] wrote in 1967 that "there are few corporations, about which we can say that the salaries of managers there are maximum." [12]

To some extent it was an illusion. Most of the actual wages of managers have never been indicated in their tax returns, as they had the form of additional privileges. The higher the tax rate, the greater was the desire to pay workers while avoiding taxation. (In the United Kingdom, where taxes were even higher than in the United States, companies paid for their children to study in private schools.) One of the most valuable things provided by large companies in the mid-20th century to employees is a guarantee of employment; it also did not appear in tax returns and salary data. Thus, the organization of employment in these enterprises itself had a tendency to underestimate data on economic inequality. But even with this in mind, big companies paid their best people a lower market price. There was no market; it was expected that you will work for the same company for decades, if not throughout your career. [13]

Your work was so illiquid that the chance of getting a market price was small. But the same illiquidity also repelled the search for market offers. If the company promised to keep the service until retirement and then provide a pension, you did not want to take from the company as much as you could, this year. You had to take care of the company so that it could take care of you. Especially when you worked with the same people for decades. If you tried to squeeze more money out of the company, then you squeezed out of the organization that was supposed to take care of them. In addition, if you did not put the interests of the company in the first place, then you would not be given a raise, and if you could not change the stairs, then the increase on this was the only way up. [14]

For someone who has spent several years in the armed forces when his personality was formed, this situation does not seem as strange as it seems to us now. From their point of view, they were, like the big leaders of the company, officers of senior commanders. They paid for meals at the best restaurants and flights on corporate Gulf Stream. Perhaps they simply didn’t have a question about whether the market price was being paid to them.

The main way to get a market price is to work for yourself by opening your own company. Today it is obvious to any ambitious person. But in the middle of the 20th century, this idea was strange. Not because the opening of his company looked too ambitious goal, but because it did not look quite ambitious. Even in the 1970s, when I was growing up, an ambitious plan was to get a lot of education in prestigious educational institutions, and then go to work in some other prestigious institution and move up the career ladder. Your authority was determined by the authority of the organization where you worked. People, of course, started their own business, but people with education rarely did this, because in those days there was almost no idea what we now call a start - up , a business that grows from small to large. It was much more difficult to do this in the middle of the 20th century. Opening a business meant opening a business that will be small at the beginning and remain small. What, in those days of big companies, often meant throwing around, so as not to be crushed by elephants. It was more prestigious to belong to the leadership class that controls the elephant.

In the 1970s, no one ever thought about where these big prestigious companies came from. It seemed that they always existed, as chemical elements. In fact, there was a double wall between the ambitious small companies of the 20th century and the origins of large companies. Many of the big companies were the result of a merger of small [ orig. roll-up - in venture investment - strengthening of small firms through merger operations in order to reduce costs], and there were no specific founders. And when the founders were, it seems they did not like us. Almost all of them were uneducated, in the sense that they did not attend university. They were what Shakespeare calls “simple artisans” [ orig. rude mechanicals]. The university prepares a person to be a member of the professional community. His graduates do not intend to do such a dirty black work, which started Andrew Carnegie and Henry Ford. [15]

And over the course of the 20th century, more and more people with higher education became. Their number increased from about 2% of the population in 1900 to about 25% in 2000. In the middle of the century, our two great forces intersected in the form of the “Soldiers' Bill of Rights”, because of which 2.2 million World War II veterans went to universities. Few of them thought about this in this section, but the result of the fact that the university became the canonical way for the ambitious was a world in which it was socially acceptable to work for Henry Ford, but not to be Henry Ford. [sixteen]

I remember this world well. I came of age just as it began to collapse. When I was smaller, he still dominated. Not as much as he dominated before. We can see from old television shows, yearbooks, and how adults behaved that people in the 1950s and 1960s were even more conformists than we were. The mid-century model began to age. But we did not think so. More that we could say is that in 1975 one could be more courageous than in 1965. And in fact, the situation has not changed much.

But the changes soon came. And when the world of large companies began to be divided into components, it happened simultaneously in several directions. Vertically integrated companies literally disintegrated, because it was more efficient. The bosses faced new competitors because (a) the markets became global, and (b) technology innovations outweighed economies of scale, turning the size from valuable quality to hindrance. Smaller companies became more viable as distribution channels expanded. The markets themselves began to change more rapidly, as there appeared whole previously non-existent categories of goods. , , , . . , , , , , .

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