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Last Updated: Sunday, 7 November, 2004, 04:14 GMT
The 'superstar' effect
by Mukul Devichand
BBC Panorama

From accountants who earn almost 3 million a year to footballers on up to 100,000 a week - in almost every field, Britain now has its high-earning superstars.

But many economists say we shouldn't try and change this -- this explosion in income at the top is just part and parcel of being in the hi-tech global economy.

"Big Mutha Truckers" is a best-selling car racing game in stores around America - but it was designed in Gateshead.

"The video games market is now bigger than Hollywood," says Paul Jobling of Eutechnyx, the company which designed the game. "We are a global business," he said. "We sell these products all over the world."

Software like this is part of the new "Weightless Economy" which can include whole swathes of moneymaking activities - financial services, TV shows, sports and entertainment.

These are industries in which Britain is succeeding globally - and it has the high income superstars to prove it.

Superstar incomes

Professor Danny Quah
Professor Quah says an elite is good for us all

So why is this new "Weightless" hi-tech economy more likely to lead to a few people making more money than everyone else?

Economists have an answer: it's called the "Superstar" effect.

"Weightless" products like CDs, computer games, TV shows and financial services can be sent all around the world for little or no extra cost - so in theory there is no limit to the amount of profit that can be made.

The result is superstar incomes for those who design and market a few globally successful products - but little for those whose products don't quite make it.

So should we be happy about Britain's "Superstar" economy? Panorama asked the experts.

Danny Quah is a professor at the London School of Economics and expert on the "weightless economy."

He approves of the "Superstar" effect because everyone benefits from the advances in society that the top one per cent of earners create.

Everyone benefits

We will all be a happier society when we celebrate the triumphs of those who are successful around us
Professor Danny Quah

He told Panorama: "We get better pharmaceutical products, we get better music, we get better video entertainment, we get better science, we get better computer software. It benefits all of us."

"Take the Olympics. Every four years Olympic records fall. Every four years we have a performer like Kelly Holmes that all of us can take collective national pride in."

"Athletic performances improve from competing for the same prize."

"When all of us are already benefiting from advances in technology, advances in the state of science and knowledge that are being pushed forward by this top one per cent, it is to the benefit of all of us," he said.

"They advance the state of technology in society, they push economic growth, and we all draw benefit from that."

And Professor Quah disagrees that it's unfair to let a few winners become high-earning superstars.

Losing out

Professor Robert Frank
Professor Robert Frank says we need people to aspire to normal jobs
"It's not clear that it would be better for the rest of us...for people to stop trying to become superstars," he said.

"One thing that we need to take into consideration is that if we don't allow people to participate in this Winner Takes All type of an economy, then we've shut doors in their face."

"We've not allowed them to reach possibly their full potential. We will all be a happier society when we celebrate the triumphs of those who are successful around us. Our attitude to today's winners should be one of celebration."

Critics like American economist Professor Robert Frank of Princeton University argue that the "Superstar Effect" is in fact a "Winner Take All" effect.

The superstar effect
Around a third of the money released by President Bush's tax cuts went to households in America's top one per cent income group
Source: Tax Policy Center (Brookings Institution/Urban Institute)

It means that a few people will be financial winners and the rest of us may lose out.

He says that the influential super rich elite has created an unequal society, with a serious effect on the average person.

He argues the system we used to have in sport - where a few winners walk away with almost all the rewards - has now spread across the economy.

After all there is only one footballer as popular as David Beckham, or one winner at Wimbledon - and he said the same is now true for computer programmers, accountants, lawyers, journalists, academics and almost any other occupation.

The down side is that people's hard work does not guarantee them a high income - unless they manage to become one of the few winners in their field.


Life has just become gratuitously nasty for many people in the middle
Professor Robert Frank

He said that it seems every child today wants to be a superstar footballer, pop star or rich investment banker.

"There are other tasks to be done, rather than being a superstar," Professor Frank told Panorama.

He said the danger is that we will have "fewer people available as engineers, as classroom teachers, as people to design products that people use."

And people don't just want to earn like Beckham - they want to spend it like Beckham. "There's some kind of a luxury fever at work," he said.

"So if somebody buys a $50,000 dollar watch - the people in the middle don't say 'oh my goodness I need to get a $40,000 dollar watch' but there are people just below the top who, if they want to sort of be a player in the same game now, they've got to spend a little more."

"And then there are people just below them who spend more and so step by step it cascades all the way down the income ladder."

"We see people in the middle who feel like they can't participate in their social groups if they can't spend $3 or $4 on a cup of coffee, and that's a lot more than people used to spend."

"Life has just become gratuitously nasty for many people in the middle; there are problems that people have to deal with now that didn't exist before."

Poverty is the problem

So globalisation and the "superstar" effect may be creating a more unequal society in Britain - but Professor Quah says that's not the problem.

"Focusing on inequality conceals the fact that it is poverty that is the problem," he said.

"When I am poor, and I can't get food, or heat and hot water, or basic health care for my family, life is truly miserable and wretched. But that is because I am poor and I can't afford these necessities, not because someone somewhere else has just joined the queue for a 500 haircut."

Professor Quah said that while inequality may be increasing in Britain, nearly everyone here is getting richer. He said this wasn't true for the poor in the developing world - and it's this poverty abroad that should concern us more.

"If we really want to alleviate suffering, we in the developed world need to be doing everything we can to help those very poor in South Asia and sub-Saharan Africa grow their economies," he said. "You are much more likely to be living in wretched poverty if you live in a poor country, than if you live in an unequal society."

And Professor Quah argues that the best way to achieve growth in developing countries is to allow the "superstar effect" to spread there too - even if it brings a new top one per cent high-earning elite.

"Pretty much the only way we have seen countries become prosperous is through their peoples being rewarded for being creative and innovative, and delivering goods and services to the rest of society around them," he said.

"That's your one per cent right there."

Winner takes all Britain
02 Nov 04 |  Panorama
Call for tax on the super rich
07 Nov 04 |  Panorama
High earners at a high price?
07 Nov 04 |  Panorama
10 facts: The super rich
07 Nov 04 |  Panorama
The one per cent shopping list
07 Nov 04 |  Panorama
Britain's elite earners
07 Nov 04 |  Panorama
Your comments
07 Nov 04 |  Panorama

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