Pearls of Wisdom: Refragmentation? No, it’s a Winner-Take-All Economy

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Refragmentation?  Really?

Paul Graham writes that one advantage of being old is that you can see change happen in your lifetime. I am only about five years older than he is, and I have seen a lot of change, but not exactly the same changes that he has seen.

Graham writes that some temporary forces (the second world war, and the social movements of the 1950’s and 1060’s) caused our society to be more level at that time than any time before or after. That is true, Americans who are trying to get ahead today are facing a very different nation that were their parents and grandparents.

Graham’s venture capital operation, Y-Combinator (YC), has helped many people start new businesses over the past few years. Nowadays when a college student says he or she is planning to become a “founder” of a new business, organizations like YC and others make that is a reasonable goal by providing the seed money upfront, even without a clear purpose or product for the new venture. (Side note: In my day the idea that someone was planning to start a business, but had no particular business in mind would have been at least a little peculiar.) However, I disagree with Graham’s idea that business and commerce in the United States is becoming more fragmented than it was during the 1960’s (when both he and I were born).

Graham writes that the 20th century belonged to the big scaleable businesses like General Electric, General Foods, and General Motors, and IBM.

When Graham was a teenager deciding that everything around him was crap, I was a college student, excited about getting an interview with Tom West’s team at Data General (who Tracy Kidder wrote about in Soul of the New Machine). Was the work that Bill Joy and Ken Thompson were doing at Berkeley in the 1970’s less innovative than the thousand of PHP/MySQL/Apache web sites all running on Amazon web services today? Was the IBM where Fred Brooks created OS/360 less innovative that the Microsoft that created today’s most popular operating system? (and IBM actually has more employees now than it did then). I was in the room when thousands of people at the MGM Grand started cheering when Dave Cutler walked to the podium to talk about the next version of DEC’s VMS operating system.

Outside the realm of software, I remember vacations during my teenage year, staying in quaint little bed-and-breakfast’s in each place our family went. Last year I was on a trip in obscure little towns in Scotland, walking into farm houses, and seeing AirBnB on computers as I walked in. When I was younger I loved to walk down the avenues in Manhattan shopping at all the little bookstores that I loved. Now, I can count on my fingers the number of bookstores after Barnes and Nobles. In the 1970’s and 80’s there were dozens of car service companies. Now we just use Uber.

Who besides General Electric would you call for jet engines, or large scale electric power generation equipment? The three biggest automobile manufacturers still account for a majority of all cars made in the world. There are a lot of important things that we use every day, which can not be created by any number of smart guys with web-servers.

I don’t see refragmentation; I see the winner-take-all economy.  A few decades ago, there was plenty of room for the tenth best car service or the twentieth best restaurant, or the seventh best book store. Not any more. Just as popular music people learned a generation ago, in an industry where the work of the top person can be copied the second best person can end up with zero. That is the real change brought about by the technology that Paul Graham helped create. Today’s businesses depend even more on scale than did the giant businesses of the 1950’s. Yes, there are a few people among us who will come up with the next billion dollar idea and revolutionize another industry, but for many people, today’s economy offers a lot less than what our parents had.

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