If You're Not No.1 You're Zero


By Robert H. Frank and Philip J. Cook

Free Press 272pp $25

To the victor belong the spoils: That age-old adage seems to have become the motto of today's economy. When an actor earns $20 million for one movie, nobody blinks. And the average weekly paycheck of a CEO has come to dwarf annual salaries earned on the shop floor.

Yet there's a spreading sense that something is awry: A widening gulf between the few haves and the many have-nots has contributed to political anger among U.S. voters. In sync with that mood, Robert H. Frank and Philip J. Cook, economics and public policy professors at Cornell and Duke Universities, respectively, try to identify the conditions that lead to global markets in which, increasingly, the bulk of the money goes to a few stars. Their book, The Winner-Take-All Society, also considers the implications for society when winning is far more important than how you play the game.

Winner-take-all markets have proliferated for many reasons, say Frank and Cook. Among the causes: Falling transportation costs, the spread of telecommunications, and the wider use of English as a common language have turned once-small regional markets into targets for global competition. The mass media have given a few entertainers and sports figures dominance. And intense competitive pressures drive corporate boards to spend big bucks for the "best" consulting firms and executives from other companies. In the 1960s, top corporate suits rarely switched employers: Now nobody is shocked when Louis V. Gerstner Jr. jumps from RJR Nabisco Inc. to IBM.

What's important in a winner-take-all market is not absolute performance but relative results. Being really good will not cut it: You have to be better--or perceived as better--than all others to gain star status. Take Mary Lou Retton, the gymnast who took the Olympic gold in 1984. As the authors point out, "her endorsement contracts have earned her millions in the years since her medal. But although Retton's victory mver the silver medalist came by only a slim margin, today almost no one can even remember the runner-up's name." (It was Romania's Ecaterina Szaba). Likewise, Microsoft's Bill Gates became a billionaire because his company's software lords it over the computer field.

Nor are human beings the only ones to compete in winner-take-all markets, say the authors. Technologies, nations, and novels vie for the top spot, too. For example, VHS overtook Betamax technology to become the primary way to view and record videos: No dealer nowadays would even attempt to sell a Beta VCR.

While some of this analysis is not new, Frank and Cook break ground by credibly linking the win-at-all-costs mentality to economic and cultural problems. Income inequality is the most obvious of these, but there are other issues. Among the winners are big conglomerates, which exacerbate social inequality and lower cultural standards by building markets around lowest-common-denominator products--ever-more-violent movies and dumbed-down news coverage, for example. (That doesn't mean niche markets are slighted: The authors describe a "countervailing" boutique movement, wherein large markets are transformed into several smaller ones, such as microbreweries and specialty clothing shops, but they feel this is often temporary and leads to a new round of consolidation.)

Winner-take-all markets also encourage bad career choices: On a large scale, this means a waste of economic resources. People tend naturally to overestimate their ability to become the next George Soros or Madonna, the authors report. One survey shows that 90% of today's workers feel they are more productive than the median worker. Many Americans, it seems, live in Garrison Keillor's mythical Lake Wobegon, "where all the women are strong, all the men are good-looking, and all the children above average." Combine that phenomenon with market incentives that lure too many "contestants" away from realistic job choices, and you have significant income loss and a much less productive economy.

Then there's the growing elitism in higher education, perhaps the most disturbing consequence of the winner-take-all phenomenon. Of course, the Ivy League colleges have always enjoyed a stellar reputation, but today they and a few others have become the only destination of choice for the top students. The authors show how America's most gifted young people flock to just 20 or so institutions. One example: In recent years, 59% of the high school seniors recognized by the Westinghouse Science Talent Search enrolled in just seven colleges, up by more than 10 percentage points from the 1970s. But of course, not everyone--not even all the highly gifted students in the U.S.--can attend the top 20 colleges. Another big problem: Businesses, which once recruited at many universities, now concentrate their recruiting efforts on the same few. That leaves equally qualified job applicants out in the cold.

To enhance their reputations, universities even try to influence the media rankings used by students in deciding where to go, say Frank and Cook. Specifically, the authors suggest that some graduate schools try to skew BUSINESS WEEK's ranking of the top-20 business schools to move up in the survey. The authors, however, give examples only of how the survey could be manipulated, such as assigning the best professors to the students they believe will be in the BUSINESS WEEK survey's cohort. But they do not indict any specific schools.

There are problems with the authors' arguments. Maybe, they say, the economy would benefit if all those actor-waiters hung up their ambitions to pursue other careers. But would the aspiring thespians be any happier? Would America be better off if Herman Melville, a failure as a writer in his lifetime, had concentrated on his work at the U.S. Customs House rather than dreaming about the white whale? Besides, who would serve us caff latte?

Still, the thesis is generally convincing. So if the mania to be No.1 is so destructive, how do we curb it? Unfortunately, the book falls short on practical solutions. Frank and Cook say private--not public--means should do the job of restricting individual behavior. For instance, as TV shows become more violent in quest of bigger audiences, parents--not government censors--can fight back with the "V-chip," which allows them to restrict their children's viewing. And to counter any tendency toward cheating in sports, there are societal pressures and rules that are set and enforced by sports leagues.

But the authors' other solutions depend on government action. To rebalance income distribution and penalize people for ostentatious spending habits, Frank and Cook would replace the current income-tax system with a consumption tax. And they argue that legislative tort reform and changes in health-care financing would curb the incomes of lawyers and doctors and make these occupations less desirable.

The popularity of television shows such as Law & Order and ER, however, suggests that Americans are intrigued by those professions even when represented by poorly paid district attorneys and hospital residents. And changing tax laws won't stop Bobby Bonilla wannabes from working on their hitting instead of their homework. Hey, not even basketball star Michael Jordan could resist that siren song.