Sunday, September 23, 2007

Scalable Professions: Big rewards for the same amount of work

I recently read an interesting book called The Black Swan by Nassim Nicholas Taleb. Most of the book centers around the concept of fat tails. It is a bit of a dive into philosophy as well, which in my humble opinion made it tedious in parts. Overall though, it is a great read if you have some spare time. One part that was particularly interesting was a discussion about "scalable professions." Scalable professions are the ones that have big upside for the same amount of work no matter how many zeros start to follow the first $.

As I was browsing the Forbes 400 this weekend John Arnold struck me as the quintessential example of someone with a scalable career. At 33, he was the youngest member of the Forbes 400 this year. He has parlayed some good success in his Enron days and $8 million that came with it into a rather large fortune of $1.5 bil; greater than the GDP of Sierra Leone (population ~6 mil). John is an energy trader and his profession is highly scalable since it would require roughly the same amount of work to run a $100k portfolio as he would to run his $3 billion Centaurus Energy portfolio.

Non-scalable professions include dentists, doctors, and pretty much any profession where the rewards are directly tied to the time you put in. Taleb points out that it is the existence of scalable professions that has led to such a lopsided distribution of wealth in the world. It really does make one wonder. What happens when no one wants to be a doctor, or a lawyer, or a teacher because they could use their time and effort to get into more scalable careers? I don't have any profound answers as to what should be done about wealth distribution worldwide (though Jeffrey Sachs does) or how we keep people motivated to enter necessary but non-scalable professions, but if you do feel free to leave them in the comments. If you have some time read The Black Swan and spend a few minutes thinking about it.


Anonymous said...

Thank you for a good explanation of scalable and non-scalable careers. I saw this term in a book review of the Black Swan. While I haven't had a chance to read the book, I knew it had significance.

To answer your question, I don't believe there is a risk that everyone will go towards nonscalable careers.

First, a lot of our training is set up for non scalable careers, from trades to professions.

Second, most people seek the obvious or the comfortable, and nonscalable careers provide that.

Third, a lot of people can still make a lot of money in non scalable careers, such as doctors.

Fourth, scalable careers are not easy to find, they are not obviously defines, and where they are, they are competitive to get into. So competition and the need of a livelihood will determine what happens.

Anonymous said...

Does it seem reasonable that scalable professions are only possible because the vast majority of people have non-scalable professions? Otherwise, were would the money come from? For example company owners (i.e. stock owners)
are dependend on the output of workers (non scalable) and demands for their product (mostly created by income from people in non scalable professions).

So maybe for a given population size you could only have a finite percentage (maybe around 0-10%) of scalable professions.