April 24, 2014
What the sacking of David Moyes tells us about our modern economyPosted in Behavioural Economics · 30 comments ·
Sport is the ultimate winner- takes-all economy where the difference between first and second place is huge. No one remembers runners-up. It is all about glory – or glory and riches – and no one wants to be second best. This is why Moyes’ exit was so abrupt; Man Utd have come to expect better and there can be no room for sentiment in the economics of sport.
And in sport there are massive differences between players who are ostensibly as good as each other.
On Monday I saw one of the most opportunistic goals scored for years. It was scored by a St Patrick’s Athletic player called Chris Forrester against Drogheda. The skill that it took to execute was sublime and far better than some of the dross served up in the English Premiership. Yet Forrester is paid much less in a year than Premiership footballers are paid for a week. Are the journeymen who turn out for the mid-table English sides one hundred times more talented than Forrester? No way. Yet they get paid as if they were. This is because they are playing in the Premiership and Forrester is playing in the League of Ireland. The more the Premiership dominates, the more this gap will widen and the more Sky dishes will be sold and the more money will flow into England and out of the Irish league.
This winner-takes-all dynamic exists in all sorts of other areas of economics. Think about Harry Potter and the world of publishing or technology. Is JK Rowling a much better writer than the thousands who are writing books? Probably not! Was Mark Zuckerburg’s idea so different from all the other social media entrepreneurs? Probably not, but he is the billionaire.
Think of the Bar in Ireland. Some barristers get paid a fortune and others barely survive. Why? It is because down in the Four Courts the winner takes all. The difference between being good and being best is enormous. The same goes in the world of fashion and architecture. The best get paid multiples of the rest.
This has always been the case in “rock ‘n’ roll”. Consider all the bands that started out at the same time as U2. Lots of them must’ve been as good initially as U2, but they didn’t make it. As time went by, the gap between U2 and the rest widened and widened and U2 emerged as the winners.
This is the world of David Moyes, Jose Mourinho and all the other football, basketball and, latterly, rugby managers. They play to win. They play with lots of money and if they are successful they are rewarded, if not they are gone. If rich football club owners want to play with their own cash, so be it. But what happens when this winner- takes-all economy reaches into other areas of our society? What happens is the rich get much richer.
Last month, Oxfam reported that the top five families in the UK owned more wealth than the bottom 12.5 million people in Britain. Another report found that the number of people in the world with more than $1 million to invest soared to a record of 12 million in 2012. According to Reuters, “the aggregate wealth of this group hit a new high, too – $46.2 trillion – a 10pc increase over the previous year”.
What is particularly striking is that the very, very rich are doing best of all. The ranks of the ultra-rich – people with investable assets of at least $30 million – surged 11pc. So this tiny subgroup of the world’s mega-millionaires is expanding at a faster rate than mere millionaires.
This means that a tiny group of 111,000 people account for 35.2pc of the entire wealth of all the world’s millionaires taken together.
A recent book by Thomas Picketty shows that in America “the richest 1pc appropriated 60pc of the increase in US national income between 1977 and 2007″. The book argues that there is no reason to believe that economies will have a tendency towards equality; in fact, the opposite is true. But what is driving this winner-takes-all economy?
Over recent decades, technological change, globalisation and active changes in the taxation of capital have led to a dramatic increase in the return to capital and international brands that stand out. Over time, more and more money flows into these arenas and away from others.
As the winner-takes-all economy develops, it is hard to distinguish between the talented and the lucky. Some people are just in the right place at the right time. As the gap between 1st and 2nd widens, swathes of what used to be the middle classes fall behind and get priced out of markets like the housing market. This dislocation is made all the more acute by the fact that we in the media write about rich people and celebrities and this further focuses the attention of the average person on the very things that they by definition can’t have. This process can be incredibly negative in a way that was not the case in our parents’ age and is more severe for our children as they are bombarded with messages about winners.
The treatment of Moyes was abrupt, but he is in a high-stakes game. More worrying is the way the rules of that game are reaching other areas of the economy, raising the stakes for everyone.