Greedy Goblin

Thursday, May 20, 2010

What is NOT the mysterious skill?

While I have a formulated idea what is the mysterious binary quality that make most rich people rich, I won't tell it until I can prove it. The proof is on the way. However at first a clarification picture of what I mean: there are two kind of people, those who has the mysterious quality and those who do not. Of course neither kind of people are clones, they vary by skill and luck, so their income forms two bell curves. The income distribution is the sum of these bell curves. Please note that it's just an illustration picture without no quantitive data. It just shows that there can be "magical skill" people in the lower income ranges and there are some really high IQ or really hard grinding "ordinary people" in the high income range.

To my first "fishing" post, there came two major kind of alternative explanation to the "magic quality theory". One is inherited wealth and power aka "it's not what you know, it's who you know". It states that power and money belongs to a privileged group, you get rich and powerful if you born there and stay poor if you born elsewhere (besides a few extremes who make a group jump). I have several arguments against this view:
  • The French (and several other European) revolution and the exile of Europeans to the American colonies, forming the USA. The medieval countries were described exactly like the above. If you born as a nobleman, you were rich and powerful, if you born as a peon, you died as a peon. It was not just a custom. Being a nobleman or a peon was a legal term, you had less legal rights as peon. There was no democracy, the decisions were made by the council of noblemen and the king, the noblest of nobles. Yet, they lost their power to common people in the revolutions and by their peons running away to the American colonies where they could be free men. How could this happen? I mean the peons inherited no wealth and power, how could they assemble a force that could defeat the nobles who born with these? The only explanation is that inheriting money and power does not help you if you have no "magic quality" and having "magic quality" allows you to gain power and wealth.
  • Lottery winners end up poor. Google is your friend, the newspapers are full of these stories. Obviously not all winners fall to poverty. But even a single lottery winner who lives on food stamps is enough to break the "inherited wealth" theory. They had much more money than 99.9% of the people inherit. And they ended up broke. They had every chance to remain rich. Hell, they could be rich by putting the money into a low interest rate bank account and the interests would support them for the rest of their lives! How could they end up broke?!
  • Exiles from failed or terrible countries (like those who left Hungary after the fall of the anti-communist revolution in 1956) are all poor. None of them has anything besides their clothes. Yet, after a period of time, their income represents their old one. I mean those who were rich before exile are rich again, those who were poor are still poor.
I'd like to emphasize that I do not claim that family background is not crucial to being rich or being poor. It is. The rich man's child will be rich in most cases. But not because he inherited money from his parents. He inherited the "magical quality" and that will make him rich.


The second claim is that the non-normal distribution of income is the product of the logarithmic function of income vs skill. These people claim that 2x more "skill" gets you not 2x but A^2 income, where A is some big number. The top manager has 2-3 times better management skills, yet he gets 400x more salary. While it is obviously true, it's not an explanation, just a description that demands explanation.

At first, if performance would be an exponential function of skill (whatever it is), then highly paid employees would create highly performing companies. Yet many companies went down or bankrupted despite having highly paid managers. The bankrupcy is an unquestionable proof of the lack of manager skills. Yet they were paid with high figures. I claim that salary is the function of "magical-ness" and more or less unconnected from actual performance (read: a magical person gets high salary even if he is completely useless).

Secondly, the salary is the market price of the work, therefore it's the function of supply and demand. The price of the manager's job depend on not only how much the manager is needed, but also on how good is the management supply. The great example is the glyph market of WoW. While an average player would pay 200G+ for a glyph if he'd have no choice, glyphs go for 3-6G, because there is oversupply. Why would the company owner pay six figures to a manager if he could find an almost-as-good manager for much times less?

If management jobs pay well, then the rational choice for everyone is to learn management, creating an oversupply for managers, dwarfing the price of manager workforce.

Also, such exponential income have not been observed in the technical expert field. The best engineers or doctors do not make 400x more than an ordinary one, despite their expert skills. They make more, but not much more, exactly because the employer can kick the expert and hire and almost as good for less, or 2 averages to do one expert's job.

The "magical quality" theory explains it well: since this quality is not described, you can't learn it. I mean there is a system that makes you a good engineer or doctor called university. If you are not an idiot or a lazy punk, you can become an engineer or doctor if you want to. So if the price of engineer work increase, more and more people will choose to learn engineering, increasing engineer supply, decreasing salaries.

On the other hand the key quality in management is not what the management school teaches. It teaches technical know-how, that anyone can learn, and knowing them does not make anyone a good manager (not knowing them make them fail though). Having the "magical skill" makes you good manager. Since "magical people" are rare like battered hilt, it's a seller's market. The buyers must pay up high to catch one of the few "magical people". Despite the insane salaries and the common will to become manager, there is no supply increase, since there is no school for a "non-magical" person to become "magical".


The things I claim and want to prove with this series:
  • A "magical quality" exists and defines who get rich and poor, who is successful and who is a failure
  • There is obviously no magic. What makes this "skill" "magical" is not being scientifically described yet. As an example some people were "magically immune" to diseases. Of course after research it became clear that no magic is involved, they simply had a genetic variation that produced immunoglobulins against that disease.
  • If we could describe this "magical quality", we could reproduce and spread it, making everyone "magical", the same way as doctors can reproduce these immonoglobulins and give them to others as medicine or make the body produce them by stimulating it via vaccination.
  • "Magical people" have no idea what they have. They have it and feel it natural. They can't describe it more than you could describe how do you see, and their attempts to teach people to be like them fail the same way as you'd fail if you'd try to "teach" a blind man to see. Curing blindness can only come from fully understanding how an eye works and fixing the bad eye of the blind.
  • We can make certain conclusions that need only the existence of "magical quality" as a black box, without knowing what is inside.

51 comments:

Alrenous said...

Once it's described we could theoretically spread it...except that socials violently resist the idea that the skilled people actually deserve their success. There's that skill (or skills) and also anti-skills.

Learning that skill requires admitting that it would produce success, and in the battle between success and ego, the definition of social is someone for whom the ego wins. (Construing 'ego' broadly.)

Anonymous said...

Great post! I would think this magical skill has something to do with creativity and innovation, skills that many intelligent people do not necessarily possess.

Crombach said...

Well actually there are heaps and heaps of more or less scientific explanation to your 'magical assets' theory. Depending where you want to go with your argumentation, try 'tacit knowledge' or 'implicid knowledge'.
You should be aware though that mono-causal explanations tend to be less satisfying. If you want to know e.g. why exilants turn to be 'rich' again, turn to Bordieu, as he describes multiple forms of 'capital' (economic, social and cultural) and their interdependencies. But I do not think you like his theory, because it is a 'class' theory and very sociological.

Kevan Smith said...

Holy crap, Gevlon, are you _really_ claiming there is a genetic reason people are rich? That's pretty much not a good hypothesis. If i distorted it, please clarify.

Gevlon said...

@Alrenous: the situation is not that bad. Remember that socials learnt to use toilet, to read, write, car driving and so on. While your "success vs ego" idea is right, you forget that for socials "ego" depends on peer opinions and success increase peer opinions.

@Kevan Smith: holy crap you can't read! It's a skill, a piece of INFORMATION that could be taught to anyone (except mental patients).

Sven said...

Gevlon. your glyph analogy with managers isn't a good one. There is provably no difference between different glyphs supplied by different people. The same isn't true of different managers.

As for your questions of: "Why would the company owner pay six figures to a manager if he could find an almost-as-good manager for 10 times less?", it depends on what you mean by "almost as good". Whilst you probably intend this to be a rhetorical exaggeration (10% less is a more realistic figure), the underlying question still needs to be answered.

If the expected difference in outcomes is greater than the difference in money paid, it's a good decision. Let's imagine a simple case where manager A delivers 100% performance for $1M salary and B delivers 95% performance for $900K. If your company makes over $2M per year in profits, you make more money by preferring A to B: the increased profits more than offset the increased salary.

You're going to have to work hard to convince me there is a "magic factor" involved here. Right now it looks like a simple consequence of markets and competition.

Gevlon said...

@Sven: the explanation is with the technical skill. The salaries are not so insane, despite a good tech expert makes actually the profit. The manager simply supports it. Its the engineers and not managers who made Microsoft, Apple or the oil companies rich, yet you don't see such high salaries at them (unless they are also managers).

Also, management work is very easily partitioned: instead of 1 man manages 100 employees, 2 can manage 50. Yet the "modern" company structure lacks middle management and goes for company merges and not splits.

While your 100 vs 95% manager example is good, it's not an explanation but something that depends explanation.

I mean, if the 100% manager gets $1M and the 95% manger gets NOTHING (since he is not employed even for 900K), he would be very motivated to become better. By improving he could reach higher, reaching the point where the profit % loss is low enough that he can compensate with lower salary. That point he becomes competitive, and the oversupply dwarfs the price.

The solution is exactly the "magic skill". The manager "borns" to be 95% and he can't do anything to become 95.5%. He IS a 95% manager.

Kevan Smith said...

Oh, I can read:

"The rich man's child will be rich in most cases. But not because he inherited money from his parents. He inherited the "magical quality" and that will make him rich."

I'm chalking this one up to your ESL. I understand it now.

Andru said...

It is probably financial education.

A lottery winner is basically given a fortune, with no knowledge how to use it.

A kid born rich doesn't exactly have the opportunity to waste his wealth in the first year of his life.

Okrane S. said...

Are you trying to pull a rabbit out of the hat and claim that anti-socials have the magical quality?

Anyway, I believe its all about "leadership". Some people are born leaders, and some are not. The top manager will be the one that knows quite well the human spirit, is able to get others to support him, is able to convince and manipulate others.

Throw in some technical skills in there and you got yourself a 6 figure salary...

Anonymous said...

I think "mysterious quality" is the concept of economics.
I Believe economics comes in nature.
Some people are just born with it.

People without it can try to learn it, but they will never get beyond text books.

Gevlon said...

@Okrane: "leadership" is a word. It must be filled with everyday duties that the leader does. Theoretically everything they have can be taught to other people.

"Born with it" is synonime for "magical". You are actually not arguing with me.

tobbelobb said...

The more I read about your “magical quality”, the more it sounds like an attribute we use to call “talent”. I will refer to it as talent from this point on. In addition, I would like to emphasise a little on something I feel is relevant here: How to earn reward.
At first I need to introduce some more terms: startingpoint, effort, luck and skill
Startingpoint is simply the life you were born into; we all start off with somewhat different resources available to us.
Effort is kind of self explanatory, the point is that we can control it ourselves.
Luck is an unpredictable variable that has some impact on the outcome of our actions.
Skill needs a little more explanation. I like to think that there are two basic components in skill; talent and knowledge (this is why I feel this is relevant for you). If one of these are zero the outcome will be zero, and therefore I say “talent*knowledge=skill” is a fair assumption. However, talent can never be completely zero even though it can be very close, so you can never have completely zero skill.
Now for the point I’m trying to make; how do we earn ourselves reward, which I expect is what we all want.
I believe in a formula much like “StartingPoint+Skill*Effort*Luck=Reward”. Of course this is a simplification, it is most certainly more depth to this subject. If any of the multipliers are zero the outcome will be zero, but only Effort can be completely zero.
My point is: Anyone can get whatever reward they want, but they have to adapt their effort to the factors that is not theirs to master. Those who are born rich have a shorter way to what they want, those who are lucky or skilled(knowledge*talent) will get there faster, and the others(Morons) will have to put up increased effort to get the same reward. The problem for M&S is that in addition to being morons, they are also slackers who will never increase their effort, and as such be stuck at “the plane of eternal suck”.
PS: When reward is capped(like in WoW) the differences in reward will be smaller as the skilled, hard working people with luck can’t get more, they can only get it faster.

Anonymous said...

Gevlon poses a few questions in his post. I provide some possible answers below:

1) If power begets power, how did European nobles seemingly lose their power?

Gevlon is incorrectly conceptualizing "power" as a univariate quantity. While it is true that the European nobles did have more social status and wealth, these are not the only forms of power available; agitated mobs with pitchforks proved this quite well. In times of peace, money is a good approximation of power; in turbulent times it is as Mao said, "power flows out of the barrel of a gun." The European underclass was able to harness their power to, in some cases, seize control from the existing ruling class.

2) If wealth begets wealth, how do lottery winners become poor?

This should be obvious to somebody that regularly chronicles the behavior of "morons and slackers". Stupid is as stupid does. The fact that a small number of wealthy people become poor does not disprove the (statistical) fact that the wealthy tend to stay wealthy.

3) If wealth begets wealth, how do some refugees become wealthy?

While some refugees may bring only their clothes with them to a new country, this is not all they bring. Things such as education, training, motivation and experience are a form of (cultural) capital that these individuals can use to improve their lives. Wealth does not only mean money.

4) Why does pay not scale linearly with skill?

In many fields, the rewards for being the best are considerably greater than those for being second best. Only the fastest runner gets the gold medal at the Olympics, no matter how narrow the victory was. In the bidding process for many government contracts, only the best proposal gets the contract. Scientific theories that are slightly better than previous ones win awards; ones that are worse garner little recognition. As a result, producing top results is highly valued and the value of marginal increases in skill is greater than would be expected in a linear model.

I have a prediction: whatever Gevlon's "magical quantity" is, it will be sufficiently underspecified as to be untestable.

bobturkey said...

Ability to dream and set goals.

Discipline to work towards those goals.

Its hard, but not complicated.

It has very little to do with genetics or managerial skill.

Gobble gobble.

Okrane S. said...

@Gevlon

I agree that what the leader "does" can be taught, however, the way the leader gets chosen to lead is not.

I am referring to the fact that in any group of people, one of them will tacitly be the leader which everyone will follow, women will like, and men will bow down their heads before him. Call it the alpha male if you will.

That is innate.

The Gnome of Zurich said...

"At first, if performance would be an exponential function of skill (whatever it is), the GDP of the countries would grow exponentially, as people gain more and more skill. Well, it doesn't."

That's a pretty bold claim. Where's your evidence? I could show you an awful lot of evidence that GDP *does* grow exponentially in general. Look at the graph of any country over time. Yes there are recessions or depressions, and sometimes countries fall apart and GDP crashes completely -- but you can also look at a world GDP graph which accounts for this. Growth is slower, and it was slower still before the 1800s or so, but it's still exponential.

If something grows 1%/year it's exponential. Exponential growth doesn't have to look fast in the moment.

Anonymous said...

I'd daresay that it's not a magical skill... This question can be best approached by realizing that society does not reward people for the amount of work they do, or how well they do their work, but for the amount of value that work generates for society (Or, to be more precise, the company).

A director at a multi-billion corporation... Generates more value then a director at one that employs 80 people - even if he does a half-assed job, as long as his division isn't losing money.

But how do you get a job like that? Networking.

It's why the children of rich people tend to stay rich. They benefit from their parent's network. It's why some rich immigrants become rich - because they had the capability to network successfully once, it's not too difficult for them to do so again.

Replace "Magic" with "Networking" in your post, and it'll be well-grounded in something that we all understand.

Gevlon said...

@Gnome of Zurich: definitely good point. However while I tried to prove that the base of the GDP (1.01 with 1% growth) must be the same as the average reward vs skill graph, I found much better evidence. The text is changed, good luck against the new idea!

Gevlon said...

@last anonymous: if "networking" is the skill, then why there is no "how to network" books and "networking major" in university. "Networking" is not at all magical.

Tonus said...

There are indeed "how to network" books out there. There is probably an endless supply of books claiming to have found that magical skill and how YOU can harness it in order to become rich and famous.

This will be interesting to follow. My own belief is that there is no single quality or circumstance that can be reliably counted on for success/failure. There are factors that can influence things one way or another (family wealth, personal confidence, a good mentor, etc). Successful people use a combination of those, consciously or otherwise.

I don't think that this is like the disease example. It's not that we don't know about success, it's that we can't boil it down to something as simple as "take antibiotics for your sore throat." I think that the 'magical skill' of any specific successful person can be vastly different from that of any other, because it is a number of factors and not just one single quality or circumstance.

Putra said...

The easy answer is that this "magical quality" is a combination of -

1) Knowing what needs to be done. (eg. technical skills, financial knowledge, networking to gather information)

2) The ability to get OTHERS to do what needs to be done for you. This is a combination of networking, charisma, leadership and communication.

Public speaking skills are almost a MUST, if only to be able to INSPIRE others to achieve your goal for you - they'll believe that they're doing something that benefits THEMSELVES when they work towards achieving YOUR goal.

This doesn't only apply to your subordinates - one with "magical qualities" will easily climb the ranks (eg the corporate ladder) because his superiors believe that promoting him is in their best interests.

Klepsacovic said...

Google books: network people, and at least ten pages show up, and they're not all about computers. There's no major in networking because networking by itself is not always useful, it's a multiplier of existing ability. However there are classes, seminars, and related majors such as business, communications, management, etc.

Networks spread information to those in them, giving a huge advantage. They spread opportunities. Sometimes they offer financial support and investment.

Anonymous said...

The "Magical people" concept reminds me of Nietzsche's "creator" concept: you're either one of them and you matter or you're commoner and you don't matter. However, Nietzsche didn't explain how one becomes creator, just what creator is.

Brian said...

I'm fairly capable at my job as a reliability engineer at a major corporation. I'm also fairly sociable. I get good raises and reviews.

An older (+15 years) colleague of mine who is at least as good at his job as a reliability engineer, but lacks social skills, gets awful reviews and no raises. I would contend that, in 15 years, I will have significanty passed his wage and standing in the company. Not because of job skill, but because of networking skills.

My take-away from this (very limited) "case study": Social skills are very important in corporate success.

Brian said...

Also, being a reliability engineer, I will contend that in the past week or two you have shown FAR too much love to normal deviations. Not many things in real life are best fitted by the bell.

Lupius said...

Lottery winners become poor for one reason: having been poor their whole life, their brain is incapable of fully comprehend the magnitude of their new found wealth. They win a millions dollars, and they start spending the money as if they had 10 million dollars.

SirFWALGMan said...

"I'd like to emphasize that I do not claim that family background is not crucial to being rich or being poor. It is. The rich man's child will be rich in most cases. But not because he inherited money from his parents. He inherited the "magical quality" and that will make him rich."

No sure I agree with that. There are a ton of examples of filthy rich people with morons for kids who just get drunk and spend daddies money. I guess the "Magic" there is reaching escape velocity.

Samus said...

I won't speak to why the people at the top are at the top, but I can tell you the biggest reason the scale of income is so exponential.

You are assuming the higher ups want to pay employees as little as possible. This is not the case at the higher level. A president wants a VP to make $10 million, even if he is terrible at his job, because if a VP makes $10 million, a president should be making $20 million.

Every execute will do everything they can to raise the salaries of the other executives, because theirs will have to go up too.

Eaten by a Grue said...

There is no way you are going to arrive at a meaningful answer to this by just thinking about it a little bit and blogging your thoughts.

Much has been written on this subject, backed by empirical data, real world statistics and research. If you would start where some of this research has left off, that might be interesting, but it appears you are starting from scratch and dubbing the many factors that cause success the "magic quality" and seeing where that goes.

This isn't an question of how to make gold, or running a dungeon undergeared, where you can capably assess the situtation, because you have good first hand knowledge of it, and there isn't much more to it than that. This is something much bigger, and your knowledge of it is far from complete.

tyra said...

@last anonymous: if "networking" is the skill, then why there is no "how to network" books and "networking major" in university. "Networking" is not at all magical.



Actually, in the United States, there are. there's no specific major, but there are books/seminars for it. We even have even have courses to teach people how to network better (state university at new york).





Looking at it from an American view, it sounds like you're looking for either drive or intelligence. It's hard to tell from your post. Personally i'm leaning towards 'drive' (which in this sense of the word is synonymous with motivation). Intelligence will get you nowhere if you don't want to use it. I see relatively normal people fail miserably in college every day, because they have no drive to study/go to class/do anything not "fun".



Whether it's better to live that way or not, is probably debateable. Personally, i'd be very bored if all i ever did was party and drink.

Sven said...

Gevlon

Manager B doesn't receive nothing, he receives a lesser job (either with his company or another), which pays less.

The problem is that the distribution of company sizes is not itself normal. Axtel describes it as following a Zipf distribution, which means that the salary justified for running a running such an organisation is likely to be similarly distributed, i.e. not in proportion to skill.

Now, you're right to say that this non-normal distribution of company sizes also needs to be explained, but that isn't something that's likely to be caused by a magic power of individuals, but rather the way market dynamics such as cost of entry, benefits of market share etc interact.

I should point out that I am not suggesting that manager B is incapable of improving or that manager A has attributes that will forever put him on top. What matters is where they stand at any given time, as the statistics you are dealing with are instantaneous snapshots of income, not graphs of lifetime earnings. It's perfectly possible that in five years time, manager B may have developed or manager A declined such that their relative worth has changed. However, the distribution of rewards available is likely to remain similar, so the income statistics will remain unchanged.

Sven said...

@All

There's been a great deal of research into whether particular traits or behaviours make people good leaders (see heret for some good references).

However, no consistent links between success and particular attributes have been found. This suggests that any such relationship is weak at best.

Eric-Wubbo Lameijer said...

I've been studying talent (at least in science) for about 1.5 years now, so in a shameless act of self-promotion, you might want to occasionally take a peek at my blog about it, "The Science Talent Project" (blogs.nature.com/ericwubbo). Some of the posts, for example a recent one on 'Genius Time Management' could be relevant for your own theories.

In science, at least, the amount of citations someone receives is definitely not Gaussian, but following a kind of power law. Simonton in his book "Origins of genius" explains that by 'emergenesis': to really belong to the top, one needs to have a lucky combination of qualities, which singly are not very useful. Of course one should not postulate multiple 'magic qualities' where one would do, but at least Mehrabian's study of success (Beyond IQ: Broad-Based Measurement of Individual Success Potential or "Emotional Intelligence"') suggests at least three contributing, independent factors: emotional stability, goal-directedness and physical attractiveness. And the differences between eminent scientists and failed scientists consist of a rather complex set of behaviours and habits (Correlations Between Avocations, Scientific Style, Work Habits, and Professional Impact of Scientists. Robert S. Root-Bernstein; Maurine Bernstein; Helen Garnier).

On why many poor people remain poor? They simply have been raised by poor parents, and have learned from them not to question authority, have been gifted the worldview that they will not succeed anyway so they'd better not waste time trying, and that study and hard work are less important than relaxation and enjoyment. Good books: "Outliers" (Malcolm Gladwell), "Talent is Overrated" (Geoff Colvin) and "Developing Talent in Young People" (Benjamin Bloom).

And of course, I'll continue to follow this blog with extreme interest...

fellcrow said...

Where are you getting the information to make these graphs? How do you sort the "magical" people from the ordinary people? You can not just guess that X amount of rich people have this "magical" trait while the others are just ordinary people with a good work ethic or something.

Anonymous said...

Dable says:
I rarely put any comments here but I like the current topic and would over you my two cents on the subject.

First, I could only agree on your conclusion that a magical quality (completely disagree that to be called talent) does exists and it makes the difference. However, I believe that managers and successful people DO know very well what is this magical quality but they are unwilling to share because they are going to loose their uniqueness. I perfectly understand them as people need to be governed. They are sheep and they should remain such and carry on their shoulders the ones who have what it takes to excel.

Second @Gevlon, About your comment: "Its the engineers and not managers who made Microsoft, Apple or the oil companies rich, yet you don't see such high salaries at them (unless they are also managers)." In one word - You wish to believe so because you are part of these engineers (so am I). However, if you look objectively you will see that this is not true. Bill Gates was a mediocre programmer but outstanding manager and businessman. His, book are must read material for any manager. Also look at apple story Steve Jobs was the manager and Steve Wozniak was the brilliant engineer and look now who is reacher (who knows what happened to the third guy). The examples like this can go on forever where I really recommend reading the story about Logitech and the invention of the mechanical mouse. Besides, do you know how many good inventions are lost because no one with managerial skills was there to sell them. In my closest entourage I have at least 4 examples of inventions that could have made their inventors rich and only one that actually became but he is more a businessman than a scientist.

So, in conclusion those people get rich because they posses this unique quality to make things happen. And this is not something your are born with , this is something that you have subconsciously built during your childhood. I will elaborate on that some other time.

fellcrow said...

@Gevlon, uh you claim there is a magical skill, and then you claim that networking can't be that skill because it isn't taught in college. So whatever this "magical" skill you speak of, we all have a chance to learn it because it will be taught at college right?

Gevlon said...

@Eric: thanks for the link, will definitely do read

@Samus: but why do stockholders tolerate this obvious thievery?

@Eaten by grue: you know I don't always play WoW. I do real research too.

Brian said...

Interesting visual graph of U.S. income distribution. Must zoom in & out!:

http://www.lcurve.org/

Wiggin said...

Why haven't you read Malcolm Gladwell's "Outliers: The Story of Sucess" yet?

He really looks into the dynamics of what makes people successful, notable, praiseworthy, etc.

I highly reccomend it.

Klepsacovic said...

Why tolerate the thievery? Because they're part of it. The highest people in the biggest companies tend to all be connected, not as some sort of vast conspiracy, but simply those who have a lot of money to invest find places to invest it.

Who is going to be the person who starts demanding lower executive pay? He's likely to be the first to get the pay cut. Attempting cuts across the board could only happen from top-down authority, government mandating it, and as much as I'd like to see lower executive pay, I'm not eager to see the larger consequences of government being able to push salaries from the bottom and the top.

Bringing pay back down would be hugely disruptive. The first company to do it would see an exodus as people went to other, higher-paying companies. They could replace them with equally competent people, but the new ones wouldn't have the same networks, so they'd be less effective.

Mushu said...

There are three things not mentioned that also have an impact (two now, since Putra & Grue hit the third one in my list):

1. luck
2. faith
3. "chutzpah" (google it)

Of course luck is a huge factor in all of this and is itself a "magical quality" that is unmeasurable yet it obviously exists. Other people were doing what Bill Gates and Steve Jobs were doing in their very beginning, yet Bill had the luck to get interviews and scrounge up the money for a plane ticket to sell his DOS (written in assembly language on the plane on the way to the meeting!) and the rest, as they say, is history.

Luck isn't always about "favoring the most informed or most knowledgable" as anyone can attest to who lost a /roll in WoW.

Faith, the immeasurable quality that allows people to believe in something SO STRONGLY to their core that it overrides all logic and even self-preservation in some cases. If you can convince someone that they are going to have some event happen to them, either good or bad, and they TRULY believe it, then it will actually happen. Some might say that is called a self-fulfilling prophecy, yet the end result is the still the same.

Chutzpah, that quality of being able to dazzle and impress people...being able to "sell ice cubes to an eskimo". That is a magical quality that can not be learned or taught - people either have it or they don't. For example, P.T.Barnum had it, and summarized it best: "there's a sucker born every minute." When you have the ability to manipulate or control other people, your own personal "power" (however you want to define that word) is increased exponentially. As shown in WoW yet again, a group can accomplish those tasks impossible for a single person to do.

I will be interested in seeing where you take this latest expository discussion...I hope it doesn't just fizzle out.

Anonymous said...

@Gevlon: "if "networking" is the skill, then why there is no "how to network" books and "networking major" in university. "Networking" is not at all magical."

Because universities usually don't try to teach people how to be successful. Theoretically, the purpose of undergraduate programs in universities is to produce good candidates for graduate studies. Practically, most universities are split between the practical demands of people using them as a Job Training School, and the demands of academia.

You can't Major in Networking, like you can Major in Business And Economics because there's not enough to it to fill 4 years of study. There are, however, plenty of books and seminars on networking.

tentacleboy said...

It's called charisma (the innate ability to lead people and to get them to work towards your own goals). Charisma is a combination of things, and it can't be fully taught as part of it is physical attractiveness as someone else mentioned. "chutzpah" from the post above me is also related to charisma.

You can teach leadership, management, networking, public speaking and so forth, but charisma is greater than the sum of its parts. Some people have it, most don't.

Anonymous said...

Anon: "However, I believe that managers and successful people DO know very well what is this magical quality but they are unwilling to share because they are going to loose their uniqueness..."

Quite untrue. My mother is one of those people. She is, by all accounts, an exceptional person. She's excelled in everything she's applied herself to, from doing theoretical physics research, to teaching programming at colleges, to coding, to product management, to her current job - a director of a small firm.

She has work ethic. She is intelligent. She reads people well. She also sees plenty of people occupying positions equivalent, or above her, that lack one or more of those traits.

All of them got to where they are by either luck, or networking. Who you know, not what you know.

Hard-working, intelligent people can be moderately successful. Lazy, stupid people who know how to network can also be moderately successful. Hard-working, intelligent people who know how to network are the ones who end up being extremely successful. (Which is not one of her goals, incidentally.)

Putra said...

@ Mushu

I disagree that "chutzpah" is a quality that cannot be taught. It's difficult (because finding a good teacher is so rare), but not impossible. I personally know many success stories of people who prove that.

"Faith" and "luck" are not suitable to be discussed at length, in my opinion.

True "luck" is 100% random, cannot be learned, and therefore we might as well not discuss it at length, if we're working to learn and improve ourselves.

"Faith" seems to be describing that one's "belief" can affect the reality that we live in. The stronger the "belief", the more it can "influence" reality.

This is outside the realms of our "normal" science, and therefore most of us here wouldn't be able to intelligently discuss this topic.

HOWEVER, this concept is known to those who study quantum physics - that "reality" is NOT objective, but rather subjective, and we as observers actually influence outcome merely by the act of observing.

Too far outside the scope of this forum, I'm afraid. But it's a great mind f**k :-)

Anonymous said...

There have been plenty of uncharismatic people in positions of wealth/power.

Samus said...

@Samus: but why do stockholders tolerate this obvious thievery?

The first reason should be obvious. Most people are stupid and uninformed, and stockholders are no exception.

The second reason is because it is all companies, not just a few that are doing this. It is very easy for an executive to compare his salary to the inflated salaries in other similar companies, where their executives are doing the same thing.

You can ask any CEO why he makes 400 times as much as an average employee, and he will point to every other company in the Fortune 1000 who are also paying their CEO 400 times the average. Why should he be the one that only makes 200 times?

Wes said...

I understood his take on "faith" not to be faith that something bigger than you can change the world to meet your view, but rather something more like bravado. To be successful, you have to play against the odds sometimes. As people, we make the comfortable/easy choices generally. Some people will make daring choices and lose, some will make daring choices and win. You don't read books about people who do the former, only the latter.

When Mushu says luck and faith, he's addressing this aspect. You have to roll against the numbers to be big, and the outcome has to come in your direction to succeed on that bet. Bill Gates has been thrown around already in these comments, and he's a pretty good example. The "safe" choice for him would have been to finish school, and take a job at IBM as an engineer. He took a risk, took a different path, and made it work against the odds. His "faith" was that he could do a better job than the engineers who chose the safe route.

There is comparative advantage at work there too. IBM was so focused on selling hardware that they didn't collectively recognize the value of the software. They GAVE AWAY the software to sell more hardware. Bill did see the value of a software only company. He built a company out of the hole left by IBM.

So, Opportunity, Luck, and Bravado lead to success.

--Wes

Eric-Wubbo Lameijer said...

Actually, there is something like 'luck', but also behaviour that makes some people much 'luckier' than others (has been research on that, don't have the reference here; briefly 'lucky people' pay much more attention to their environment and like to make new friends/contacts).

Anyway, Gevlon, since I couldn't finish my regular blog post because some of my scientific papers are in Leiden, I've written something on what you might call one of the (if not the) mystery factor in wealth, though interests me personally more as a factor that impacts education too, briefly, beliefs. (my conclusion after a lot of reading on talented teenagers, comparative IQtests, adoption studies and such) I'm not sure whether you'd agree, in any case you can find it here... http://blogs.nature.com/ericwubbo/2010/05/are_poor_children_taught_to_fail.html

Deepcut said...

If I had to guess by the nature of this post I would say it's superior genetics (superior in the sense of better than those around you, not of all time).

Survival of the fittest/Natural selection. Those will the skills get to pay the bills (and then some).

Contrary to popular believe, all men are NOT created equal.