Recently at a dinner party, Schumpeter talked to a very successful young man who was very sad. He was growing very fast at a very large hedge fund. However, his friends were making even more money in artificial intelligence, a field that he believed would soon outlast his own industry. In the company he runs, the bright light of finance shines less than before, causing his own star to dim. Our hero was experiencing one of the most powerful forces of capitalism. He was in the throes of death of status.
The modern worker is condition-ridden. (Unsplash)
The modern worker is condition-ridden. Even owners of big companies find time to post on LinkedIn, a social network that serves as a platform for bragging. If management gurus agree on one thing it’s that individuals care deeply about the position of their relatives in their company. When it is said that a business is successful because of its corporate culture, it often means that positions are distributed judiciously within its walls.
Still, our era is one of death. The status quo of capitalism—the industrial complex—has been reversed, as institutions such as universities and newspapers that once conferred prestige lose their power to do so. The complaints of people who feel cheated of their status are becoming common. In a guest essay in the New York Times this week, a television writer complained about the decline of his once-glamorous profession. “The US economy’s biggest winners fear they are sinking fast,” declared a headline in the Washington Post.
Few companies think more about status than handbag manufacturers. Yet they too have been swept away in this wave of insults. The share prices of two French luxury-goods giants, LVMH and Kering, have fallen sharply this year. Knight Frank, a posh British estate agent, compiles its own index of luxury goods such as fine wines and contemporary paintings. Its price started falling in 2022.
The luxury industry’s failure to benefit from the huge rise in stock-market wealth over the past few years is no puzzle, analysts say. During the 2010s its biggest brands became fattened by selling expensive goods only to the rich rather than to the wealthy, making its products accessible to the point of being undesirable. The woes of sportswear brand, Nike, can similarly be attributed to excessive egalitarianism, as it has prioritized leisure clothing at the expense of specific sportswear. The violent reaction to Ferrari’s first foray into electric vehicles can be explained in a similar way: The rise of cheap Chinese EVs has shattered the industry’s veil of exclusivity.
Wall Street has developed various techniques to measure the ratio’s falling position. Its banks, no longer the apex predators of finance, divide their employees neatly into “back”, “middle” and “front” offices, so that everyone knows their proper place. Woe to the first-year analyst who arrives in a shiny Hermès tie that he has not yet earned through his own sweat. Banks also maintain a complex currency of fictitious titles, whereby those stripped of their status (for example, those who are “promoted” from “Managing Director” to the professional end of “Vice President”) can pretend otherwise. Goldman Sachs, a bank whose ability to remain a top advisor on mergers for decades is due to its carefully developed position, continues to use the title of “partner” long after the partnership ends.
By contrast, Silicon Valley likes to think of itself as a classless place: Its scrappy coders work in open-plan offices creating products that anyone can use. But is there any industry whose employees fear status death more? While a lucky few in the highly publicized centers of AI laboratories publicly contemplate how they should harness their god-like power, ordinary software engineers fear that the technology will make these former masters of the digital universe obsolete. When Wally-types call themselves “investors” these days, you’re forced to guess whether they’re making money pumping fuel into AI rocket-ships or desperately trying to keep ailing software unicorns alive.
The concerns that come with rapid technological change have benefited AI labs so far. Workers are incentivized to use the technology heavily if it means their bosses consider them AI-literate assets rather than AI-illiterate costs. Yet misunderstanding the amazing power of positioning is one of the AI industry’s biggest risks. The pride with which its owners talk about the loss of white-collar jobs is an error born of a failure to appreciate how much employees want to avoid a diminution in their prestige. Some of its weirdest people consider AI an inevitable, even “worthy” successor to humans – a kind of species-wide state of death. This kind of secular debauchery will make them even less popular.
President Donald Trump is a serious victim of status death. His attacks on universities and the media have greatly damaged his position. However, Mr Trump must also be aware of the mortality of his position. It would indeed be a major let down to step down from office to become arguably the most powerful and certainly the highest-paid president in American history. The demotion from the president’s son to the former president’s son is even greater, which is probably why Mr. Trump’s eldest two are making business deals with all kinds of companies that might benefit from proximity to the White House. Thus the logic of self-enrichment depends heavily on the logic of status death.
fall upward
However, status death is not all bad news. The fear of it can be the inspiration for great things. The nagging feeling of being late to a party that’s almost over has inspired generations of entrepreneurs to leave the party and start another. Your columnist’s dinner companion has quit his job, in search of more money and, importantly, higher status.
