Duke University Alumni Magazine

hilip Cook, acting chair of Duke's Sanford Institute of Public Policy and current ITT public policy professor, has done ground-breaking social science research on sex (how government funding affects abortion rates) and drugs (the impact of crack on youth violence; whether consumption taxes prevent alcohol-related deaths). So in 1995, when he published The Winner-Take-All Society with co-author Robert Frank, it made sense that Cook would tackle, among other things, rock and roll.

     "The reward structure common in entertainment and sports, where thousands compete for a handful of big prizes at the top, has now permeated many sectors of the economy," he and Frank write. Cook contends that such a system presents a problem: Namely, that our nation is worse off if too many people compete in such "longshot" fields, like singing, and that more and more professions like law, bond trading, and dentistry now behave like these "superstar markets."

     If 1,000 people aspire to pop careers, for example, one will become Whitney Houston and earn $10 million a year while 999 will end up waiting tables for $20,000 a year. According to the Cook argument, if those same 1,000 people took more "normal" but less spectacular careers as $50,000-per-year building managers and teachers and airline mechanics and nurses, the economy and society would be much better off. (To put a number on it, the "boring" people would earn $50-million to the $30- million total of Whitney-and-the-waiters.)

     Cook does not agree with the popular mantra that such entertainers aren't worth the money, an argument usually voiced by an indignant public when athletes sign multimillion-dollar contracts. Nobody is worth that much money, we say. But they are worth the money in a purely economic sense. "The San Francisco Giants offered Barry Bonds a $43,750,000 contract," Cook writes, "not because team owner Peter Magowan was stupid, but because Bonds' presence helped fill the stands and land a more lucrative TV contract." (This was back in the old days of 1992, when a top baseball player couldn't get much more than $40 million.)

     The Winner-Take-All Society is a new way of explaining America's growing income inequality and, as such, it's gotten a great deal of attention from the likes of ABC's World News Tonight, The Newshour with Jim Lehrer on PBS, and Washington Post columnist David Broder. Accolades came from all over the world: Business Week wrote, "Frank and Cook break new ground by linking the win-at-all-costs mentality to economic and cultural problems," while The Observer (of London) called it "One of the most influential books of recent times."

     The success surprised Cook. "I felt this wouldn't be much different than anything else I'd written, that is to say, sunk without a trace," he says with a laugh. "But we had good timing. There were a lot of stories on wage inequality and record corporate profits, and economists were not coming through with crisp explanations. Then President Clinton started using the phrase 'winner take all' in all his speeches--we still haven't figured out why--and the bully pulpit lends a lot of free publicity."

     Cook, who, like Clinton, is fifty-one, waves to a shelf, where there are editions of his book in Portuguese, Korean, and Mandarin (with a cover illustration showing a bowl, the Eastern tradition of communal eating, with giant silverware in it, representing the greedy Western capitalist who takes more than his fair share). "The success is relative," he says. "People say they saw you on TV and if you're rude enough to ask 'What did I say?' they scratch their heads."

     Cook and Frank got the notion for The Winner-Take-All Society from, of all things, sweatshirts. "We had the impression in the late Eighties that many students on campus would wear their Duke and Cornell sweatshirts around, and this seemed to be a benefit perceived by students. When we went to school, no one would wear that stuff. But now it had become a powerful signal that you had survived a very special process."

     Why has the book struck a chord? Polls show that while the overall economy is cruising along, there seems to be a crisis of confidence, usually related to growing income inequality and job insecurity. Culprits? Economists and pundits have offered several: the rise of technology, the decline of manufacturing, a culture of excuse, immigration, lousy schools, or the global economy.

     Cook and Frank, a Cornell economist, came up with a wholly different spin. "Winner-take-all markets have increased the disparity between the rich and poor," the pair writes. "They have lured some of our most talented citizens into socially unproductive, sometimes even destructive tasks. In an economy that already invests too little in the future, they have fostered wasteful patterns of investment and consumption." To put it closer to home, too many would-be teachers and scientists stare at the wall of Duke's Career Service Center and see only lucrative listings for Goldman Sachs.

     Some commentators say that it's unjust for those at the top of superstar markets to earn such astronomical sums. Others shoot back that giant salaries are simply the free market at work, and therefore disturbing it would breed inefficiency--a theory with which Cook and Frank disagree. "We wanted to point out that instead of a conflict between efficiency and justice, they actually go together," Cook says. "The dogma is the great tradeoff, but it's not. Too much concentration at the high end of the income distribution hurts the economy."

     In other words, liberals and conservatives both have it wrong. The problem with the economy isn't greedy executives who take too much of the profits. They're worth the money. It's actually the also-rans who hurt American productivity. "By themselves, the superstar salaries have contributed little to rising inequality," Cook and Frank write. "The really important new source of inequality has been the escalating earnings of the near rich--the salespeople, administrators, accountants, physicians, and millions of other minor league superstars who dominate the smaller niche markets of everyday life." Superstar fields suffer from overentry. "They tend to attract too many of the best and brightest," says Cook. "The bottom line is that the rewards are out of proportion to utility."

     The book could be called supply-side economics turned on its head. Supply side says lower taxes, let the rich become richer, and their spending will drive the economy for the rest of us. Cook says economic reality is the opposite: The lure of lavish prizes in so many professions distorts the economy. Therefore, they argue, we need a more progressive tax system (the rich pay more). "We cannot expect an invisible hand to mitigate the economic and social ills that spring from winner-take-all markets," he writes. "Higher taxes on the top prizes would curb overcrowding in [these] markets."

     It's a boring solution, but seemingly the only one on the horizon, which may be why the issue of wealth distribution wasn't an issue in the presidential campaign after Pat Buchanan dropped out--neither Bob Dole nor Clinton had any bright ideas. Former Secretary of Labor Robert Reich has pushed enormous investment in training. Cook replies, "That wouldn't affect income distribution at the top. Earners making over $100,000 have doubled in the last decade, controlling for inflation. Training won't get at that issue." In fields like litigation, Cook endorses more specific solutions, like tort reform.

Cautionary Cook: finding economic dangers in the lure of lavish prizes Photo: Ron Ferrell

ut why do we need solutions now? Hasn't it always been that the best get the most? Yes, but there used to be a close correlation between how much better you were and how much more you were paid. "I like to use the ballad of John Henry, the steel-driving man," Cook says. "He was the strongest man, the best with a hammer--let's say 10 percent better than the next best guy," and he got paid 10 percent more. (Cook, like all economists, loves to quantify everything; the book, however, is free from jargon and exceptionally readable, by social-science standards.)

     Today, Cook is saying, John Henry would be the Michael Jordan of steel drivers, endorsing some brand of hammer for Sears, competing against an engine on some ESPN2 TV special, and not a giant who earned $1.10 a day instead of a buck. The economic point is that a tiny edge in today's economy is worth a huge additional premium. Imagine you're shopping for a brain surgeon to remove a baseball-sized mass from your head. Wouldn't you pay twice as much for a surgeon who was considered to be even 10 percent better than the others?

     "We're not proposing any radical changes in basic economics," Cook says. "But we're basically saying, if you're trying to understand the distribution of earnings, the human-capital story only takes you so far. It omits context. If you grow twice as many crops as your neighbor, you make twice as much. But that metaphor doesn't work well in intellectual markets. One real celebrity isn't the same thing at all as two minor celebs."

     Naturally, the Frank-Cook theory has come under some fire. Few argue with the basic premise of Cook's work; the much more controversial question is how much it matters. Some economists, like John Kenneth Galbraith, have argued "Not much." After all, the impact of winner-take-all markets is mitigated by the fact that people will only beat their head against the wall for so long. If you audition for Juilliard and fail, perhaps you'll practice and try again next year. But then you'll move on to a more "normal" career. Cook would reply that many career decisions are "sticky." If too many people go through medical school, it's hard to reverse that investment. They're stuck (one reason that the government is now paying some schools to take fewer students).

     A New York Times review called the book "a major contribution to the debate about the causes and consequences of inequality in America," but cited it as "a one-size-fits-all explanation" where "many readers will find some of their remedies worse than the disease." The Financial Times points out that Cook and Frank sometimes avoid an underlying cause--that the proliferation of U.S. lawyers, for example, has to do with a national culture of litigiousness. Sherwin Rosen, the economist who invented the concept of superstar markets, further wonders who can "plausibly estimate how many lawyers are too many?" If no one can, he queries, how could intervention be efficient?

     Another attack came from the Southern Economic Journal. "Salary is not the only important factor in choosing a career, and national income is not the only measure of social welfare," it argues. "Is it correct to label it 'socially wasteful' for someone to play basketball on high-school and college teams, with the hope of reaching the NBA? Perhaps that person enjoys playing basketball. Frank and Cook characterize an activity as socially wasteful if it does not immediately increase tangible goods output in an economy."

     Asked about the "newness" of the application of superstar theory--Do more people want to become athletes because they can earn unbelievably huge salaries instead of just plain huge?--Cook replies, magnitude matters. "Part of the attraction is the celebrity as defined by money, where we judge people by how enormous their earnings are. With lotteries where one week the jackpot hits $100 million, for example, people come in from out of state to play; where for only $5 million, still an extraordinary amount of money, they don't. So there is sensitivity to giant numbers. Though it's true a high-school boy turned down $1.9 million from the Yankees so he could pursue college. But maybe if they'd offered him $5 million...."

     The winner is not necessarily the best. "In chess or sprinting, the best are the winners, but if you're talking about complicated competitions, externalities come into play," Cook says. "Beta video, the qwerty keyboard, Microsoft Windows--if you look at the evolution of a species, you see gerry-rigged arrangements. History matters. An early advantage is magnified."

ook's own history began on a farm near Buffalo. He attended the University of Michigan, a family school, then went to Berkeley on a National Science Foundation fellowship. "It was the last couple of years of tumult of that era, pretty exciting times," Cook recalls. Asked whether he was an observer or participant, he replies, "Primarily an observer, but there were no observers. We were a generation with little respect for the old way. We'd wake up in our apartment, look out, and the National Guard had arrived; we took our baby and headed for the hills. Or you'd be in a lecture on some technical issue and outside there was a ROTC demonstration, with tear gas flying back and forth, screams and shouts, and a professor telling you that you had to stay if you cared about your education. Of course, we all fled."

     In 1973, Cook arrived at Duke with his Ph.D., becoming one of the first faculty hires of the new public-policy graduate program devised by Joel Fleishman. He and and his wife, Judy Walmsley Cook Ph.D. '79, a clinical psychologist, have two children. He is a popular professor in the department, the sort who puts the "scientist" back into social scientist. That is, he examines an issue, makes a hypothesis, tests it, and lets the evidence point the way. If the conclusion doesn't square with the prevailing ideology, so be it. Every social scientist claims to do this; in reality, some are driven by ideology.

     Cook's current research will probably prove to be controversial. One study examines how the availability of state funding affects abortion rates. "North Carolina had a nice little natural experiment, a period where an appropriation was inadequate and there were a few months where there was effectively no public money for abortion," he says. "There was a remarkable drop in the number of procedures statewide, about a third, and we're still looking into exactly what happened."

     He's worked on a number of contentious issues. He studied lotteries and pointed out the now widely-known fact that they're regressive--poorer, less educated people tend to play more. He found that dropout rates among African Americans are no higher than those of whites, when controlled for family circumstances--they don't cut more classes, miss more school days, or have parents who meet less often with teachers. And his study of death-penalty cases found that it's twice as expensive to convict and sentence a murderer to death than to impose twenty years to life in prison. "Common sense says it's cheaper to supply a few jolts of electricity than to shell out the equivalent of tuition at Harvard for incarceration for the next twenty years. But when all the costs are weighed, just the opposite is true." The death penalty is more expensive, he says, because of the constitutional protections that invariably stretch out the judicial process.

     The bulk of what he does, though, has to do with violent crime. "In the late 1980s, violent crime shot up, quintupling in five years. Now we've seen a drop back down, very suddenly, like measles. The usual explanation of the root causes of crime--poverty and so forth--doesn't explain the volatility. There was very little change in poverty during that period. There was some sequence of events that brought kids into marketing crack, leading very dangerous lives, having money to buy guns. Then the contagion comes, where killing became fashionable, or perhaps it was just the infusion of guns into the neighborhood. It's all kind of murky."

     Cook's studies of gun control have been cited nationwide. He says now that, while not much has been accomplished with assault weapons--"too many loopholes, and they're not really the problem numbers-wise"--the Brady Law is making a difference, though not in the way anticipated. Gun sellers, Cook says, have been halved in number. Meanwhile, the cultural trends are pushing down gun demand. Cook recently released a study showing the percentage of gun owners dropping from 50 percent in 1970s to 40 percent now. "I'm interested in how people behave with their guns. One way to economize is, if you're afraid the police will confiscate it, don't carry it with you, don't brandish it, store it more carefully. It's not just whether you have a gun, but what you do with it."

     Why so much interest in guns, gambling, drugs? The decidedly low-key Cook laughs at a smart-aleck suggestion of repressed desire. He recalls a faculty dinner. "The provost was honoring [religion professor] Stanley Hauerwas and me; we got our chairs on the same night. The provost said, 'Isn't it great Duke is so diverse? Here we have a professor of virtue, and one of vice.' "