The Wiki Man

Technology and the winner-takes-all effect

9 March 2017

3:00 PM

9 March 2017

3:00 PM

I was exchanging emails with someone the other day and signed off with the sentence ‘let me know when you are next in London’ or words to that effect. It then occurred to me that I had absolutely no idea where in the world my correspondent lived. This interested me. Because it occurred to me that I could write the sentence ‘next time you are in London’ to more or less anyone in the world without it sounding ridiculous. Of how many other cities is that true? New York, certainly. But then it gets difficult. Paris or Singapore? Well, at a pinch. It wouldn’t work for Perpignan, say, or Bourton-on-the-Water.

This thought experiment helps explain why the many people (including me) who once naively assumed that the internet would make geographical location irrelevant have seen ourselves proved diametrically wrong. (In the late 1990s a shrewd friend of mine in Palo Alto even bought a secluded lakeside plot in the Rockies on the assumption that in ten years’ time he could live there more or less permanently: no such luck.)

In fact digital connectivity increases rather than reduces the drive towards urban concentration. By greatly extending the range, ease and frequency with which people can form networks, it increases the number of people who need to meet each other in person: such meetings increasingly concentrate in the world’s few megahub cities. So the draw of London is magnified still further.

This distortion happens at a smaller scale everywhere, of course. If you have two offices, with ten employees in Liverpool and six in Preston, you will find that over 90 per cent of all meetings take place in Liverpool. But at a larger scale things get more extreme.

When technology and globalisation break down the buffer of geography entirely, the winner-takes-all effect intensifies. An early manifestation of this came with the invention of the gramophone: in an era of live performance, there was a good living to be made as the fifth best tenor in Denmark; when the gramophone appeared, one man, Caruso, earned the lion’s share of worldwide royalties.

If you ever wondered why so many of the world’s packaged goods brands have their origins in the American Midwest of the late 19th century, it’s the same effect at work. Before the advent of the railways, the United States was home to thousands of smaller regional brands. The railways killed this diversity, with the winners overwhelmingly being manufacturers close to the rail hub in Chicago.

Such power laws are sometimes described as the Pareto Principle or the 80:20 rule, — the maxim being that, say, 20 per cent of a company’s customers account for 80 per cent of its sales, or that 20 per cent of a country’s citizens typically own 80 per cent of the land. But this understates reality. In reality the three most successful tenors might earn 95 per cent of recording fees. Or, as happens now, two or three European cities might attract the majority of overseas property investment. What’s wrong with Lisbon or Rome?

Likewise, the mean salary of an author hasn’t changed much since the 1950s. That sounds reassuring — until you remove J.K. Rowling and Dan Brown from the total. Every other author is poorer in adjusted terms than their 1950s equivalent.

If the world seems increasingly mad to you, spare a nod for Vilfredo Pareto, after whom the effect was named. Unusually for an economist, he did at least live in accordance with his theories: his final years were spent secluded in an Alpine chalet with a mistress and 20 Persian cats. My guess is that he started off with five mistresses and 100 cats before deciding that 20 per cent of these would give him 80 per cent of the pleasure.

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