The American electorate finds it hard to warm up to Mitt Romney. Theories abound as to why — his stiff hair, his stiff delivery, his business jargon, his Mormon faith. These may all be contributors. But the deeper reason may be that he represents a befuddling and powerful new economic force that voters have never seen before in a presidential campaign: talent that gets rich by managing money.
For most of the 20th century, politicians’ relationship to labor was pretty simple. Democratic candidates fought to protect labor against predatory capital, and Republican candidates protected capital so it could create economic growth and jobs.
The waters muddied late in the 20th century, when the relationship between labor and capital changed. As management guru Peter Drucker predicted in 1976, American workers eventually owned the means of production through their pension funds, so the interests of labor were no longer entirely at odds with the interests of capital.
But if labor and capital had shifted from opposite sides of the table to an uneasy alliance, who was now on the other side? It was a new economic force: talent.
Until the mid-1970s, capital kept a tight lid on the power of talent — the unique, differentiated labor that drives many organizations. Movie talent was reined in by the studio system, in which a 1950s Screen Actors Guild president and later U.S. president, Ronald Reagan, toiled. Sports talent was reined in by the “reserve clause” in players’ contracts that prevented athletes from leaving the team that owned their rights. And chief executive talent worked for a pittance compared to today’s chief executives. Talent was simply paid as relatively high-end labor, with its salaries unrelated to the value it created for the enterprises that employed it.
Then, in the 1970s, talent woke up, attaching its compensatory fate to the prosperity of the business for which it toiled. Movie stars and directors started to demand — and receive — a percentage of a film’s box office revenue or profit. Athletes collectively demanded — and received — a share of the gross revenue of their sports leagues. And chief executives started to insist that they get paid based on how much they increased the stock price for shareholders.
As chief executives were paid more and more, capital complained, labor concurred, and President Bill Clinton responded by trying to limit the way in which chief executive talent extracted value from the companies they led. In 1993, Congress passed a bill that limited to $1 million the amount of a chief executive’s salary that a corporation could deduct for tax purposes. The measure was meant to prevent chief executive talent from capturing value that otherwise would have gone to shareholders. As is often the case, the law didn’t quite work the way it was intended: Limiting chief executives’ cash compensation simply spurred a greater use of stock option compensation. The competition for top talent meant that companies needed to find a way to pay them, one way or another.