Inequality in a “Winner Takes All” World

Today in class, a question was asked about whether our best blog posts should be the ones we revise or should we aim to improve our mediocre ones. Professor Kimball responded that we should strive to make our best posts even better and put something out there that is worth reading. His discussion of how we live in a “winner takes all” society, which rewards the best producers of content and products, while inferior producers struggle and ultimately fail was echoed in a New York Times article “Winners Take All, but Can’t We Still Dream?” by Robert H. Frank, published just this weekend. In the article, Frank solidifies his case for a “Winner Take All” society where the best products and services dominate through access to cheap distribution channels. As Frank touches on in his article, I believe a winner-takes-all concept is an important underlying component to the rise in inequality.

First off, it is important to understand the basics of the winner-takes-all-theory. As distribution – both for physical and information goods – becomes cheaper, the best products take over as consumers have new choices and are not limited by geography or technology. As Frank describes, “In domain after domain… technology has enabled innovative business models to serve broader markets. Local accountants have been displaced by tax software, brick-and-mortar shops by Amazon.com and other online retailers. And now, there is even worry that live, in-theater HD broadcasts of Metropolitan Opera performances could displace local opera companies across the land.” When consumers have more choices than ever and lead increasingly busy lives, there is little time for anything but “the best”, whatever society believes that to be and the winners of this contest will take all.

The most important outcome of the winner-take-all concept from a theoretical standpoint is that it could be driving income inequality. As the proliferation of digital goods and service has strengthened the winner-take-all effect over the last several decades, the income of the wealthiest Americans has grown at a faster rate than middle and lower class incomes. According to the very definition of the winner-takes-all theory, the top income earners or the “winners” are taking all the income. They are the individuals with the best ideas, the best companies, the biggest customer bases, and it is incredibly difficult for these incumbents to be beat once they have succeeded in reaching this size. They are able to devote the money and resources they have accumulated to remaining successful and developing new innovations that will stifle upstart competitors.

There is no easy solution to the winner-takes-all theory’s outcome of inequality. If we believe that the theory is indeed a key driver of inequality, then it would seem there is little that can be done to unseat such a powerful force. Winner-takes-all is a symptom of a healthy capitalist system in the digital age. While I disagree with some of his analysis (as I mentioned in a previous blog post), perhaps it is time to give a second-thought to William Galston’s idea, which he outlined in a recent Wall Street Journal piece, that it is time for a new social contract, where the “losers” in society are provided for by the “winners”. That is a topic for another post, but in a winner-takes-all society, we must be open to different solutions to the inequality that is a result of the competitive process.

2 thoughts on “Inequality in a “Winner Takes All” World

  1. davus@umich.edu'davus

    The author seems to confuse equality of circumstance and equality of opportunity. In America, you are only promised the later. Income inequality isn’t a problem, it is an economic signal to the “losers” that they need to change what they are doing. The fact that they ignore the signal, thinking things will turn around fits the definition of insanity: Doing the same thing over and over again, expecting different results.

  2. jhchamot

    The inequality issue is definitely a complicated and sensitive topic in the US. But if we look at many successful capitalist economies in Europe, we see much less inequality. We also see much more education, health care, and welfare investments from governments, though. If you think about education, it is a good predictor of income. And the reality is that most people below poverty in the US don’t have much of an education. I think this country is avoiding the education and health care problem by pointing the finger at the richest. The idea that winner takes all makes sense, but I don’t think it accurately describes inequality. At least not in the US.

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