Good at finding the best talent:
1. Highly paid professional sports (those who care can play them in high school)
2. Finance and management consulting (lots of people from top schools consider these careers, and we get enough, even if non-elites are somewhat “locked out”)
3. Nerdy tech stuff (so many people are exposed to this at a young age and can be autodidactic)
…Bad at finding the best talent:
4. Education and teaching and religious leaders
5. Humanities scholars
6. Journalists
I wrote relevant essays on this topic twenty years ago. In From Allocating Capital to Allocating Talent, I wrote,
The optimum size for a firm may depend on how it solves the talent allocation problem. If senior executives can allocate talent wisely over a wide set of problems, then the firm can be large. If senior executives only can allocate talent wisely over a narrow set of problems, then the firm will need to be small.
That is one little nugget in an essay that contained insights that people are getting credit for “discovering” even now.
Another essay was Effective Tournaments.
The tournament for choosing CEO’s of large, established corporations probably is less effective than the academic tournament. It appears to me that idiosyncratic personal connections, timing, and luck play a big role in determining who gets to be a major CEO. By idiosyncratic personal connections, I mean relationships, such as country-club memberships, that do not affect the ability of the CEO to run the business profitably. Relationships with customers or suppliers are pertinent, rather than idiosyncratic.
I probably would not stick with that view today. I have since become more skeptical about the academic world. With increased specialization, each sub-field is controlled by a relatively narrow cadre of professors. This makes academics less of an open tournament than it was fifty years ago. I think that academic success today tends to have a much higher component of conformity and a corresponding lower component of skill.
Also, the CEO tournament is enhanced by the fact that there is churn among major companies. Fifty years ago, Jeff Bezos could never have become CEO of a major company. He still could never have become CEO of Wal-Mart, but he did the equivalent by growing Amazon. These companies that come from nowhere to turning into giants really strengthen the CEO tournament. It is a phenomenon that you do not see in Europe, and so my guess is that the CEO tournament is much less effective there.
I really like this sentence from that essay:
To be effective, a tournament must behave like an experiment with repeatable results.
If you ran the talent-selection experiment multiple times, would the same people rise to the top? In professional sports, I am inclined to think “yes.” In finance and management consulting, I am not so sure. In entrepreneurship, I am inclined to say “yes.” I know there is a lot of luck involved, but there are many, many decisions to be made, and the more decisions that are involved, the more opportunity there is for skill to triumph over luck. I made that sort of argument in another classic essay, The economics of Pop-Tarts.
I don’t know how to use my model to deal with all of the occupations listed in Tyler’s post. For example, I don’t think of the fields of teaching and education as tournaments.
Tyler’s 4 and 5 seem…curious. Seems like those fields don’t attract a ton of talent in the first place, and teacher’s unions, tenure systems, and ideological gatekeepers distort any sort of meritocratic advancement, pretty badly in a lot of places.
Oh, I missed where he switched to “bad at finding the best talent.” I thought it was a continuous list.
“2. Finance and management consulting (lots of people from top schools consider these careers, and we get enough, even if non-elites are somewhat “locked out”)”
Nope. They are largely playing with other people’s money. OTOH, someone who uses their own money to get to the top is more likely to be a true talent, especially if sustained.
Steve
Professional sports, as a field of endeavor, is, indeed, a model of meritocracy. It is interesting to conjecture why that model is not used more widely.
“Fifty years ago, Jeff Bezos could never have become CEO of a major company. He still could never have become CEO of Wal-Mart, but he did the equivalent by growing Amazon.”
I don’t quite understand this. Didn’t Sam Walton pretty much do the exact same thing as Jeff Bezos ~50 years ago? Except that he was probably less-qualified as a CEO.
Well said. The point I was trying to make is that if there is no churn among top corporations, then the CEO tournament would exclude many strong potential players. The possibility of new entry helps make the CEO tournament much more effective. But the example of a closed CEO tournament is not the U.S. fifty years ago. It is Europe more recently.
Looking at your list of good and bad at acquiring talent, it is obvious the one thing that good acquiring talent has that not good have:
The top pay is exceptionally good.
The other aspect of …Bad at finding the best talent : (I don’t necessarily agree with journalist)
The job qualities are suppose be fulfulling outside of money compensation and in the past they benefited from a poorer labor market/society. So these position have little to offer people looking for money. Like at priest in which they get good talent in 1800s because most people were poor farmers with 4 surviving kids. And often the youngest boy had no opportunities and the church (or military) was there best course for a roof over their heads. In terms of teachers I go back Tyler Cowen point 1950 – 1980 education benefited from an enforced sex discrimination labor market. (I am assuming there was a generation lag after 1965.)
It appears to me that idiosyncratic personal connections, timing, and luck play a big role in determining who gets to be a major CEO.
That seems a lot like life period. Or say like Major League Managers. For instance, Casey Stengel seemed a complete genius with the New York Yankees from 1949 – 1960 but his managerial tenure elsewhere was terrible. (It helps to have Mickey Mantle & Yogi Berra but he really did seem like genius winning 5 straight World Series in the middle of talent transition period of 1949 – 1953.)
My guess the picking of CEOs have improved a lot compare to pre -1970 realities (where bloodlines or golf memberships were more important) but little has changed since 1999 when 90% CEOs seemed like geniuses with growing profits of the economy. And the process has not changed that much the last generation but it is now more of a CNBC circus because companies like the publicity and CNBC needs to fill ~18 hours of TV time a day.
” I go back Tyler Cowen point 1950 – 1980 education benefited from an enforced sex discrimination labor market.”
Nope. The average teacher ability was largely unchanged from the era of mostly women and minorities to the following era. There was a huge drop in the number of women from the top echelons going into teaching, but it was offset considerably by the increased number of mid-tier smart men becoming teachers. So the average only dropped a tad.
And these days, teachers have better numbers than 1980-200 since in 2002, the credential tests were upgraded. Since there’s no resultant boost in outcomes and the raised test requirements kept out blacks and minorities, though, expect them to drop.
Because there is, alas, vanishingly little evidence that smart teachers lead to better academic outcomes, and consistent evidence that black teachers improve outcomes for black kids. I suspect there’s a basement, but we haven’t found it yet.
You can’t efficiently allocate talent when there’s not universal agreement on what it looks like. Actors and teachers both aren’t guaranteed to have talent rewarded, although at least teachers pay consistently.