The Third Pillar: How Markets and the State Leave the Community Behind

by Raghuram G. Rajan

Perhaps more important than hard work and a good education, technological change helps explain the rise in inequality at the very top – it has created a ‘winner-take-most’ economy. When a farmer wants his fruit plucked, the more workers the better (until the orchard becomes overcrowded). Each worker contributes, no matter how unskilled and how many fruits he picks, and can be paid accordingly. On the other hand, if the farmer wants to listen to music, one good fiddler is far preferable to ten mediocre ones. Furthermore, for such activities, the larger the accessible market, the more the performer will get paid. As markets expand and become more integrated across the world, and communication becomes easier, the best singers and sportsmen can use myriad channels to reach households everywhere. While there is still some charm in watching a live performance by a moderately talented local artist in a small local theatre, more of the household budget increasingly goes to watching supremely talented international superstars. Sherwin Rosen, the Chicago economist who first analysed the growing superstar economy, noted that Elizabeth Billington, the star of the London Opera in the 1801 season, earned between £10,000 and £15,000.38 When adjusted for inflation, that would imply an income of between £680,000 to £1 million, or between $825,000 and $1.25 million today. In comparison, Forbes reports that Taylor Swift, the top-earning music diva, pulled in $170 million in 2016, while Adele...

Winner takes all phenomenon