In the firmament, winners take all

A global 'star system' is developing, in which pay differentials are wider than ever. But there is a downside

It has been a good week for society's winners in the worlds of pop music, finance and sport. This year's list of top earners among the British pop stars had Phil Collins making pounds 24.3m, Elton John pounds 12.7m and Eric Clapton pounds 5.9m. It was bonus time in the City, with 20 of the London staff at the US investment bankers Goldman Sachs collecting about pounds 1m apiece on top of their salaries. And NBC, the American television group, signed a deal paying $2.3bn for the US Olympic television rights till 2008 - a sum that demonstrates the pulling power in world media of Olympic athletes, and which will eventually be reflected in appearance and broadcasting fees paid to the most successful.

There is a common thread here. These three diverse fields of human endeavour have all seen an astonishing widening of pay differentials during the past 20 years. The gap between the competent but unextraordinary performer and the tiny handful of stars has never been greater.

Certain types of business, including entertainment and sport, have long rewarded their stars generously. Indeed, I have written here about the Pavarotti factor: the handful of people who are so outstandingly talented that they are able to command vastly more than the next rank of performer. But now they are being joined by a second group, people who are simply highly skilled in various activities and who have managed to propel themselves to star status.

Look at any professional activity - the law, management, medicine, education - and the tendency is for people who are seen as exceptional to earn a great deal more than those who are perceived as "less good".

The usual explanation is to see this process in political terms: we have become a greedier society, with greater rewards to "fat cats" - a trend encouraged by the free-market right, which has been the dominant political force of the past 15 years in both the US and Britain.

But the "star system" phenomenon is too widespread for this political explanation to be fully credible. The driving force is economic: seismic changes are taking place in the world economy which mean that the "best" people (in the sense that the market deems them to be best) are capturing an ever larger share of the earnings cake.

The whole phenomenon is charted in a book just out in the US, The Winner- Take-All Society, by Professors Robert Frank and Philip Cook (The Free Press, $25). Their thesis is that the practice of handing out disproportionate rewards for small differences in performance is spreading from a small number of professions to many other activities, with disastrous social consequences.

The authors write principally in terms of the US, where the star system extends more widely than in the UK. So it would be wrong to take their analysis and transfer it undiluted to Britain. Nevertheless they are on to something important. We are subject to the same forces and many of our stars sell to the world market in the same way as top Americans.

There seem to me to be three quite separate forces at work, which the authors note but do not clearly differentiate. First, an ever more complex world economy genuinely does need greater and greater skills in its workforce. Second, the combined effect of technology and the international media has both created a global demand for "stars" and made it possible for those stars to deliver their product to a world market. And third, large social changes have produced a society in which distribution of the spoils has become more important than the generation of wealth.

Is there any great problem with this development? There is surely nothing wrong with highly skilled people being highly rewarded for their work. We need, as far as is possible, to train and encourage more such people. There is surely nothing wrong with the creation of stars if those stars give pleasure to millions, as stars of entertainment and sport do. So why would the authors of The Winner-Take-All Society warn of "disastrous social consequences"?

One reason is that it distorts people's aspirations. Too many people are sucked into an attempt to reach stardom, despite the fact that mathematically the vast majority will fail and will end up miserable as a result.

Another reason is that a society that places more and more emphasis on the division of the economic spoils, rather than the creation of wealth, ends up simply inflating the pay of an ever-spreading constellation of "stars". It is thus economically inefficient.

This applies less to the outstandingly talented than to the highly skilled. Consider a court case. The winner does usually take all. So it is worth paying any amount to obtain the best barrister rather than the second best, because the best will win. Hence the extraordinary escalation of legal costs taking place throughout the world.

Similarly, the cost of takeover battles, with the enormous fees paid to investment bankers and other advisers, might be seen as an example of "winner" fees for an activity which, in the short-term at least, does not increase, but merely redistributes wealth. Pop stars give pleasure, but do lawyers and takeover specialists?

Or take a third example. The star system is well-developed in American education, where the handful of world-class universities and business schools are paying very high salaries to attract star lecturers who will underwrite their brand name. The result is that the cost of higher education in the US has rocketed, as increased costs have to be passed on to students in fees.

It is a million miles from explaining a phenomenon to justifying it, and still further from explaining to developing ways of countering such a powerful force. But there are some things that can be done. The most obvious is to improve the supply of highly skilled people. We cannot readily increase the supply of Pavarottis, but we can do something about the supply of skilled professionals in all walks of life. Government does have a role here.

If the principal driver of the winner-takes-all phenomenon is, however, global economic trends rather than domestic political ideologies, it becomes clear that politicians can do relatively little to intervene.

Maybe in the end the answer is in our own hands, and our own heads: we must learn to place a far greater value on individuality - the wonderful cultural and intellectual variety of the world - not the mass-produced and globally consumed "celebrity" upon which we have allowed ourselves to become hooked.