Nick Hanauer at the SIC conference in Seattle.
On October 16, 2014, Austin Williams writes on Geek Wire:
Seattle venture capitalist Nick Hanauer says an economic revolution is coming, and you better get ready for it. Even as the Dow surges toward 17,000 — making the rich even richer — the rabble-rousing Hanauer says that unemployment and underemployment remains “stubbornly high.”
“Your fellow citizens are starting to notice, and they are starting to get angry,” said Hanauer, speaking today at the Seattle Interactive Conference. “And this trend, unfortunately, is going to get worse before it gets better. And they are going to get angrier and angrier at me, and at you.”
That anger eventually will turn into full-scale revolt, and Hanauer notes: “Revolutions turn out to be terrible for the technology business.”
The aQuantive co-founder and early investor in Amazon.com believes that capitalism works best when it creates incentives for people to solve real human problems — not accumulate capital.
In his keynote speech today, he looked around the room of innovators and asked a series of questions.
“What if instead of a few hundred innovators in the room here today there were 1000s? What if instead of 1000s there were millions? What if every child born on this planet with the aptitude to do what we do grew up with the same opportunity to fully participate in our economy in the way that we do? How could this not be a more richer and more prosperous world”
He contends that capitalism works, but not in the way we typically think about it.
“Where we have gone wrong is misidentifying how and why capitalism works. It is this fundamental misunderstanding that have fostered the policies that have directly led to a vicious cycle of stagnant wages and stagnant demand,” Hanauer said during his keynote speech
Echoing a familiar refrain, Hanauer said that the trickle down theory—which relies on regulations to help the wealthiest retain their wealth in hope that it eventually flows to the rest of the people — does not work. The policies only create inequality, he said.
“Rising inequality is toxic to growth,” he said. “High levels of inequality exclude people — both as innovators and customers — diminishing both innovation and demand,” he said.
Hanauer argued that that polices that maximize the participation of everyone in the economy is the only way that our economy will grow — one of the reasons why a thriving middle class is so important to a prosperous capitalistic economy.
“Prosperity is not trickled down from the top,” he said. “It is built from the middle out”
Hanauer is a big supporter of Seattle’s historic $15 minimum wage, which was approved earlier in 2014. He hopes this will give more people the resources to participate more effectively in the economy.
Hanauer — who as a venture capitalist has backed companies such as Insitu, Seeq, Modumetal and Real Self— also gave a little bit of feedback to the entrepreneurs in the crowd. He noted that capital is no longer the regulating factor to innovation, pointing out that some may find the assertion “heretical.” In the 21st century, he says capital “chases innovation.”
Furthermore, it just doesn’t take as much money to fund billion-dollar ideas as it did during the steel mill era, noting that the first venture rounds for Amazon.com and aQuantive were just $1 million.
“Just look around this conference, there is no shortage of capital. The room is stuffed with it. What we have, and I hate to say it, is a shortage of talent and ideas. I could tell you as a venture capitalist — and I mean this in the nicest possible way. I can ensure you that I don’t fund your startup, it is not because I don’t have enough money. It is because you suck. That’s mean, I know. But if you put together a good enough team around a great idea, capital will beat a path toward your door.”
Nick Hanauer does a fine job of describing the correct role of businesses to contribute to society by creating and making available products and services that improve people’s lives in tangible ways. But still Hanauer has always couched this purpose in the ability of businesses to “provide employment that enables people to afford the products and services of other businesses.” Unfortunately, this is limited one-factor thinking––jobs and labor input––that fails to acknowledge the far more powerful engine of creating and making available products and services––productive non-human capital assets––the result of constant technological invention and innovation. Face it, employment is not sufficient enough to secure economic prosperity for the majority of Americans when the reality is that tectonic shifts in the technologies of production eliminate jobs and devalue the worth of labor. What is essential to redefine capitalism is to empower EVERY citizen to become an owner of the wealth-creating, income-producing capital assets that result in the creation of products and services that improved people’s lives.
Saying that we need to create opportunity is not enough, Hanauer needs to define that opportunity. That opportunity must primarily focus on enriching people’s financial position and income beyond a job to include significant ownership interests in the non-human capital assets that are exponentially the principle means of production. Such capital assets are the essence of corporations formed by entrepreneurs or assemblages of people. His speech is directed to entrepreneurs, who are expected to form new corporations and develop new capital asset technologies that will improve people’s lives in tangible ways. The path to entrepreneurship usually starts small and develops, if successful, into large corporate structures. While there are always jobs created in the process, the significant participants are the company owners, who benefit from the wealth-creating, income-producing capital asset technologies they own, which along with labor’s input result in new products and services to be sold in the ecnomy. And as is typical, most corporations are, as a practical matter, narrowly owned, even with multiple rounds of venture capital (money) investment. The employed workers are just that––effectively job serfs solely dependent on their wages for income as they are not the owners.
If Hanauer really wants to redefine capitalism he should advocate for the reform of the system to provide equal opportunity for EVERY American, without the requirement of savings and equity––the 99 percent––to participate as a productive capital owner contributor and become fully functioning in the economy as a “customer with money” for the products and services produced by physical assets––advanced tools, machines, super-automated processes, robotics, computerized operative asset, etc.
The capitalism practiced today is what, for a long time, I have termed “Hoggism,” propelled by greed and the sheer love of power over others. “Hoggism” institutionalizes greed (creating concentrated capital ownership, monopolies, and special privileges). “Hoggism” is about the ability of greedy rich people to manipulate the lives of people who struggle with declining labor worker earnings and job opportunities, and then accumulate the bulk of the money through monopolized productive capital ownership. Our scientists, engineers, and executive managers who are not owners themselves, except for those in the highest employed positions, are encouraged to work to destroy employment by making the capital “worker” owner more productive. How much employment can be destroyed by substituting machines for people is a measure of their success––always focused on producing at the lowest cost. Only the people who already own productive capital are the beneficiaries of their work, as they systematically concentrate more and more capital ownership in their stationary 1 percent ranks. Yet the 1 percent are not the people who do the overwhelming consuming. The result is the consumer populous is not able to get the money to buy the products and services produced as a result of substituting machines for people. And yet you can’t have mass production without mass human consumption. It is the exponential disassociation of production and consumption that is the problem in the United States economy, and the reason that ordinary citizens must gain access to productive capital ownership to improve their economic well-being.
Under a reformed system paradigm with the focus on creating a democratic growth economy, the ownership of productive capital would be spread more broadly as the economy grows, without taking anything away from the 1 to 10 percent who now own 50 to 90 percent of the corporate wealth. Instead, the ownership pie would desirably get much bigger and their percentage of the total ownership would decrease, as ownership gets broader and broader, benefiting EVERY citizen, including the traditionally disenfranchised poor and working and middle class. Thus, productive capital income would be distributed more broadly and the demand for products and services would be distributed more broadly from the earnings of capital and result in the sustentation of consumer demand, which will promote economic growth. That also means that society can profitably employ unused productive capacity and invest in more productive capacity to service the demands of a growth economy that can produce general affluence for EVERY citizen.
Nick Hanauer, influential economists and business leaders, as well as political leaders, should read Harold Moulton’s The Formation Of Capital, in which he argues that it makes no sense to finance new productive capital out of past savings. Instead, economic growth should be financed out of future earnings (savings), and provide that every citizen become an owner. The Federal Reserve, which has been largely responsible for the powerlessness of most American citizens, should set an example for all the central banks in the world. Chairman Janet Yellen and other members of the Federal Reserve need to wake-up and implement Section 13 paragraph 2, which directs the Federal Reserve to create credit for local banks to make loans where there isn’t enough savings in the system to finance economic growth. We should not destroy the Federal Reserve or make it a political extension of the Treasury Department, but instead reform it so that the American citizens in each of the 12 Federal Reserve Regions become the owners. The result will be that money power will flow from the bottom up, not from the top down––not for consumer credit, not for credit that doesn’t pay for itself or non-productive uses of credit, but for credit for productive uses to expand the economy’s rate of growth.
