The defining characteristic of a pyramid scheme is that the income at each level is predominantly connected to the recruitment of new members into the scheme. Twice as many new members per unit time translates to twice as much income, roughly speaking.
In management hierarchies, that may play a certain role, but your manager in a company isn't payed proportionally to how many new employees they recruit each month (unless they are explicitly a recruiter). It is rather proportional to the amount of responsibility which often correllates to the number of reports and their reports.
In other words, oversimplified, in corporate hierarchies, the pay relates to the number of people below you, while in a pyramid scheme, it relates to the first derivative of that value.
My company gives 5k if I reference a developer that they hire. But he gets his normal salary, it’s not like he has to pay 5k, or even it’s deducted from the salary.
The problem with MLMs is that the money comes from other “members” not from sales… (Basically more than 80% of the revenue is other members and only 20% sales)
A normal company 100% of the salaries comes from sales (or shareholders, never from employees).
Why not just say "Markets are efficient at transferring money from less powerful to more powerful people." then?
> Markets are "efficient" at transferring money from "stupid" to "smart" people. Here "stupid" or "smart" is directly related to lower or higher in that information/power hierarchy.
Tangent: while this clearly applies in this context, I generally get really frustrated by this narrow way of modeling markets and by extension the economy, TBH, because it leaves out basically everything that's relevant to solving the really hard problems. Specifically, it ignores that real-life scenarios are not only strict hierarchies but complex networks that feature a ton of intransitive asymmetries (think rock-paper-scissors). Like, Buffet and Gates allegedly know about this[0] so it's not exactly obscure, and when you actually ask people on how they deal with trivial examples of it it becomes obvious that it's everywhere and people somehow try to work with it all the time[1], but whenever I hear people discuss markets it seems to be ignored. I dunno, I hope actual economists are less naive than the armchair kind (to which I certainly belong).
It kind of makes the misuse of the model feel like applying an algorithm that only works with DAGs to graphs full of cycles. It's not useless (just like how identifying DAGs is really important and useful), but when used to oversimplify complex scenarios it obscures the potential "good" cycles (virtuous ones) and "bad" ones (vicious cycles, deadlocks).
[0] https://www.quantamagazine.org/mathematicians-roll-dice-and-...
[1] https://aeon.co/essays/attempts-to-choose-the-best-life-may-...
Markets are "efficient" at transferring money from "stupid" to "smart" people. Here "stupid" or "smart" is directly related to lower or higher in that information/power hierarchy.
This hierarchy is also self-amplifying in that it grows the asymmetry gap rapidly such that it becomes a very tall/pointy pyramid. So you could call it a "pyramid scheme".
Some schemes are overt/explicit pyramid schemes where flow of value from people lower in hierarchy to people higher is explicitly structured and visible (like most MLM schemes) and some schemes are obfuscated/implicit in this aspect (like corporate job ladder with perf/promo process within employees and between employees vs founders/execs and investors).