In last nights X-Factor, Louis Walsh blurted out a truth. In praising Alexandra’s audition he commended her “good attitude.” This draws attention to a key feature of human capital-intensive businesses. In these, the question for management is: how can we gain power over other people’s human capital?
In the music industry, they do this by looking for pliant wannabes – people with “good attitude.” Artists who’ll get drunk or stoned, or who’ll make “difficult” uncommercial albums or just walk away are little use. Louis Walsh and Simon Cowell aren’t looking for the next Syd Barrett, Brian Wilson, Skip James, Prince, Hank Williams or even Prince or George Michael. They want someone they can manipulate.
Their ideal is Elvis. From the point of view of the record business, the great thing about him wasn’t (just) his looks, charisma or musicianship. It was his gullibility.
And herein lies the problem – for us consumers at least. The combination of genius and gullibility is rare. Most great artists are difficult – meaning difficult to exploit. What the music industry prefers is someone bland but manipulable. The impressionable wannabe, desperate for fame, is therefore a better bet than the risky original artist. And if this wannabe is good only for one album, the industry doesn’t care. There’ll always be another impressionable gullible youngster who can shift record to 13-year-olds.
In the music industry, then, shysters like Walsh and Cowell can control human capital – hence making money for themselves – by manipulating wannabes, to the exclusion of good artists.
In other businesses, management has other solutions to the problem of how to control human capital.
In films, the solution is to rely upon animation or CGI tricks rather than big-name actors. The former might be expensive, but they are reliable and don’t walk away.
In dead trees, it means a reliance upon celebrity gossip rather than insightful reporting. Wannabe journos who are prepared to root through celebrities’ dustbins are easier and cheaper to employ than investigative reporters or good columnists.
In TV, it has led to a proliferation of reality TV. The great thing about Wife Swap or Big Brother is that these formats are owned by the production companies. They don’t demand multi-million pound salaries or threaten to walk out.
Luigi Zingales (pdf) has described ways in which other firms can control their human capital.
There are, however, two general points here.
First, in the “new economy” - by which I mean those areas where human capital is important relative to physical capital - management has a new role. In the old economy, management functioned as the agent of the suppliers of capital, and as the controller of physical capital. In the new economy, its function is to design ways of disempowering suppliers of human capital.
Second, sometimes, such ways cannot be found; most football clubs are bad investments precisely because boardrooms have insufficient control over players. In some cases, the only solution to this is to abandon capitalistic ownership structures. It’s no coincidence that legal and medical practices – where human capital is all-important – are often worker co-ops.