That may be the greatest effect, in the long run, of the forces underlying open source and blogging: finally ditching the old paternalistic employer-employee relationship, and replacing it with a purely economic one, between equals.

[1] Survey by Forrester Research reported in the cover story of Business Week, 31 Jan 2005. Apparently someone believed you have to replace the actual server in order to switch the operating system.

[2] It derives from the late Latin trepalium, a torture device so called because it consisted of three stakes. I don't know how the stakes were used. "Travel" has the same root.

[3] It would be much bigger news, in that sense, if the president faced unscripted questions by giving a press conference.

[4] One measure of the incompetence of newspapers is that so many still make you register to read stories. I have yet to find a blog that tried that.

[5] They accepted the article, but I took so long to send them the final version that by the time I did the section of the magazine they'd accepted it for had disappeared in a reorganization.

[6] The word "boss" is derived from the Dutch baas, meaning "master."

Thanks to Sarah Harlin, Jessica Livingston, and Robert Morris for reading drafts of this.

After the Ladder

Thirty years ago, one was supposed to work one's way up the corporate ladder. That's less the rule now. Our generation wants to get paid up front. Instead of developing a product for some big company in the expectation of getting job security in return, we develop the product ourselves, in a startup, and sell it to the big company. At the very least we want options.

Among other things, this shift has created the appearance of a rapid increase in economic inequality. But really the two cases are not as different as they look in economic statistics.

Economic statistics are misleading because they ignore the value of safe jobs. An easy job from which one can't be fired is worth money; exchanging the two is one of the commonest forms of corruption. A sinecure is, in effect, an annuity. Except sinecures don't appear in economic statistics. If they did, it would be clear that in practice socialist countries have nontrivial disparities of wealth, because they usually have a class of powerful bureaucrats who are paid mostly by seniority and can never be fired.

While not a sinecure, a position on the corporate ladder was genuinely valuable, because big companies tried not to fire people, and promoted from within based largely on seniority. A position on the corporate ladder had a value analogous to the "goodwill" that is a very real element in the valuation of companies. It meant one could expect future high paying jobs.

One of main causes of the decay of the corporate ladder is the trend for takeovers that began in the 1980s. Why waste your time climbing a ladder that might disappear before you reach the top?

And, by no coincidence, the corporate ladder was one of the reasons the early corporate raiders were so successful. It's not only economic statistics that ignore the value of safe jobs. Corporate balance sheets do too. One reason it was profitable to carve up 1980s companies and sell them for parts was that they hadn't formally acknowledged their implicit debt to employees who had done good work and expected to be rewarded with high-paying executive jobs when their time came.

In the movie Wall Street, Gordon Gekko ridicules a company overloaded with vice presidents. But the company may not be as corrupt as it seems; those VPs' cushy jobs were probably payment for work done earlier.

I like the new model better. For one thing, it seems a bad plan to treat jobs as rewards. Plenty of good engineers got made into bad managers that way. And the old system meant people had to deal with a lot more corporate politics, in order to protect the work they'd invested in a position on the ladder.

The big disadvantage of the new system is that it involves more risk. If you develop ideas in a startup instead of within a big company, any number of random factors could sink you before you can finish. But maybe the older generation would laugh at me for saying that the way we do things is riskier. After all, projects within big companies were always getting cancelled as a result of arbitrary decisions from higher up. My father's entire industry (breeder reactors) disappeared that way.

For better or worse, the idea of the corporate ladder is probably gone for good. The new model seems more liquid, and more efficient. But it is less of a change, financially, than one might think. Our fathers weren't that stupid.

Inequality and Risk

(This essay is derived from a talk at Defcon 2005.)

Suppose you wanted to get rid of economic inequality. There are two ways to do it: give money to the poor, or take it away from the rich. But they amount to the same thing, because if you want to give money to the poor, you have to get it from somewhere. You can't get it from the poor, or they just end up where they started. You have to get it from the rich.

There is of course a way to make the poor richer without simply shifting money from the rich. You could help the poor become more productive-- for example, by improving access to education. Instead of taking money from engineers and giving it to checkout clerks, you could enable people who would have become checkout clerks to become engineers.

This is an excellent strategy for making the poor richer. But the evidence of the last 200 years shows that it doesn't reduce economic inequality, because it makes the rich richer too. If there are more engineers, then there are more opportunities to hire them and to sell them things. Henry Ford couldn't have made a fortune building cars in a society in which most people were still subsistence farmers; he would have had neither workers nor customers.

If you want to reduce economic inequality instead of just improving the overall standard of living, it's not enough just to raise up the poor. What if one of your newly minted engineers gets ambitious and goes on to become another Bill Gates? Economic inequality will be as bad as ever. If you actually want to compress the gap between rich and poor, you have to push down on the top as well as pushing up on the bottom.

How do you push down on the top? You could try to decrease the productivity of the people who make the most money: make the best surgeons operate with their left hands, force popular actors to overeat, and so on. But this approach is hard to implement. The only practical solution is to let people do the best work they can, and then (either by taxation or by limiting what they can charge) to confiscate whatever you deem to be surplus.

So let's be clear what reducing economic inequality means. It is identical with taking money from the rich.

When you transform a mathematical expression into another form, you often notice new things. So it is in this case. Taking money from the rich turns out to have consequences one might not foresee when one phrases the same idea in terms of "reducing inequality."

The problem is, risk and reward have to be proportionate. A bet with only a 10% chance of winning has to pay more than one with a 50% chance of winning, or no one will take it. So if you lop off the top of the possible rewards, you thereby decrease people's willingness to take risks.

Transposing into our original expression, we get: decreasing economic inequality means decreasing the risk people are willing to take.

There are whole classes of risks that are no longer worth taking if the maximum return is decreased. One reason high tax rates are disastrous is that this class of risks includes starting new companies.