“The Rise (and Likely Fall) of the Talent Economy”

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The U.S. economy has gone through a fundamental shift: Most of America’s biggest companies now make profits from managing talent rather than from exploiting natural resources.

That’s a dramatic change in a relatively short period of time. As Roger L. Martin, former dean of the Rotman School of Management at the University of Toronto, explains in “The Rise (and Likely Fall) of the Talent Economy,” in the October 2014 Harvard Business Review, natural resources were the most valuable assets a century ago. For example, Standard Oil needed hydrocarbons, and U.S. Steel needed iron ore and coal.

As recently as 50 years ago, 72 percent of the top 50 U.S. companies by market capitalization still owed their positions to the control and exploitation of natural resources, but the shift from natural resources to talent had begun, as exemplified by IBM, which held the fourth spot.

Natural resources played almost no role in IBM’s success; instead, its intensively creative employees — its scientists and engineers, its marketers and salespeople — were at the heart of its competitive advantage and drove its success in the marketplace. The same could be said for Eastman Kodak, Procter & Gamble, and Radio Corporation of America, all businesses whose success was built on talent.

By 2013, more than half the top 50 companies were talent-based, including three of the four biggest: Apple, Microsoft, and Google. Only 10 owed their position on the list to the ownership of resources.

Not coincidentally, at the same time that talent has become a corporation’s greatest asset, the salaries of chief executives have skyrocketed.

Through the 1970s the CEOs of large, publicly traded U.S. companies earned, on average, less than $1 million in total compensation (in current dollars) — not even a tenth of what they earn today. In that era, the situation was similar across the talent classes, from professional to scientific to athletic to artistic.

After 1980, however, it seemingly became essential to motivate people financially to exercise their talent. Skilled leaders saw a major boost in income for two reasons:

High earners kept more money. The top marginal rate plummeted from 70 percent in 1981 to 28 percent in...

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