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TEDSalon NY2014

Nick Hanauer: Beware, fellow plutocrats, the pitchforks are coming

August 6, 2014

Nick Hanauer is a rich guy, an unrepentant capitalist — and he has something to say to his fellow plutocrats: Wake up! Growing inequality is about to push our societies into conditions resembling pre-revolutionary France. Hear his argument about why a dramatic increase in minimum wage could grow the middle class, deliver economic prosperity ... and prevent a revolution.

Nick Hanauer - Venture capitalist, author
Nick Hanauer has become an important voice in the raging debate on inequality — and his provocative argument is aimed at his fellow plutocrats. Full bio

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Double-click the English subtitles below to play the video.
You probably don't know me,
00:13
but I am one of those .01 percenters
00:15
that you hear about and read about,
00:18
and I am by any reasonable definition a plutocrat.
00:20
And tonight, what I would like to do is speak directly
00:24
to other plutocrats, to my people,
00:27
because it feels like it's time for us all
00:30
to have a chat.
00:33
Like most plutocrats, I too am a proud
00:35
and unapologetic capitalist.
00:37
I have founded, cofounded or funded
00:40
over 30 companies across a range of industries.
00:43
I was the first non-family investor in Amazon.com.
00:47
I cofounded a company called aQuantive
00:50
that we sold to Microsoft for 6.4 billion dollars.
00:53
My friends and I, we own a bank.
00:57
I tell you this — (Laughter) —
00:59
unbelievable, right?
01:02
I tell you this to show
01:03
that my life is like most plutocrats.
01:07
I have a broad perspective on capitalism
01:09
and business,
01:13
and I have been rewarded obscenely for that
01:15
with a life that most of you all
01:18
can't even imagine:
01:21
multiple homes, a yacht, my own plane,
01:23
etc., etc., etc.
01:25
But let's be honest: I am not the
smartest person you've ever met.
01:30
I am certainly not the hardest working.
01:33
I was a mediocre student.
01:35
I'm not technical at all.
01:37
I can't write a word of code.
01:38
Truly, my success is the consequence
01:41
of spectacular luck,
01:44
of birth, of circumstance and of timing.
01:47
But I am actually pretty good at a couple of things.
01:51
One, I have an unusually high tolerance for risk,
01:56
and the other is I have a good sense,
02:01
a good intuition about what will happen in the future,
02:03
and I think that that intuition about the future
02:06
is the essence of good entrepreneurship.
02:09
So what do I see in our future today,
02:12
you ask?
02:15
I see pitchforks,
02:17
as in angry mobs with pitchforks,
02:19
because while people like us plutocrats
02:23
are living beyond the dreams of avarice,
02:29
the other 99 percent of our fellow citizens
02:32
are falling farther and farther behind.
02:35
In 1980, the top one percent of Americans
02:38
shared about eight percent of national [income],
02:40
while the bottom 50 percent of Americans
02:43
shared 18 percent.
02:46
Thirty years later, today, the top one percent
02:48
shares over 20 percent of national [income],
02:51
while the bottom 50 percent of Americans
02:55
share 12 or 13.
02:57
If the trend continues,
03:00
the top one percent will share
03:02
over 30 percent of national [income]
03:04
in another 30 years,
03:06
while the bottom 50 percent of Americans
03:08
will share just six.
03:10
You see, the problem isn't that we have
03:12
some inequality.
03:14
Some inequality is necessary
03:16
for a high-functioning capitalist democracy.
03:18
The problem is that inequality
03:22
is at historic highs today
03:23
and it's getting worse every day.
03:27
And if wealth, power, and income
03:30
continue to concentrate
03:33
at the very tippy top,
03:35
our society will change
03:37
from a capitalist democracy
03:39
to a neo-feudalist rentier society
03:41
like 18th-century France.
03:44
That was France
03:46
before the revolution
03:50
and the mobs with the pitchforks.
03:51
So I have a message for my fellow plutocrats
03:53
and zillionaires
03:56
and for anyone who lives
03:58
in a gated bubble world:
03:59
Wake up.
04:01
Wake up. It cannot last.
04:03
Because if we do not do something
04:06
to fix the glaring economic inequities in our society,
04:08
the pitchforks will come for us,
04:13
for no free and open society can long sustain
04:16
this kind of rising economic inequality.
04:20
It has never happened. There are no examples.
04:23
You show me a highly unequal society,
04:25
and I will show you a police state
04:27
or an uprising.
04:29
The pitchforks will come for us
04:31
if we do not address this.
04:33
It's not a matter of if, it's when.
04:35
And it will be terrible when they come
04:38
for everyone,
04:42
but particularly for people like us plutocrats.
04:44
I know I must sound like some liberal do-gooder.
04:49
I'm not. I'm not making a moral argument
04:52
that economic inequality is wrong.
04:54
What I am arguing is that rising economic inequality
04:57
is stupid and ultimately self-defeating.
05:02
Rising inequality doesn't just increase our risks
05:05
from pitchforks,
05:08
but it's also terrible for business too.
05:10
So the model for us rich guys should be Henry Ford.
05:15
When Ford famously introduced the $5 day,
05:19
which was twice the prevailing wage at the time,
05:23
he didn't just increase the productivity
05:26
of his factories,
05:28
he converted exploited autoworkers who were poor
05:30
into a thriving middle class who could now afford
05:33
to buy the products that they made.
05:36
Ford intuited what we now know is true,
05:39
that an economy is best understood as an ecosystem
05:43
and characterized by the same kinds
05:47
of feedback loops you find
05:49
in a natural ecosystem,
05:52
a feedback loop between customers and businesses.
05:53
Raising wages increases demand,
05:57
which increases hiring,
06:00
which in turn increases wages
06:03
and demand and profits,
06:05
and that virtuous cycle of increasing prosperity
06:07
is precisely what is missing
06:12
from today's economic recovery.
06:14
And this is why we need to put behind us
06:19
the trickle-down policies that so dominate
06:24
both political parties
06:28
and embrace something I call middle-out economics.
06:29
Middle-out economics rejects
06:33
the neoclassical economic idea
06:35
that economies are efficient, linear, mechanistic,
06:38
that they tend towards equilibrium and fairness,
06:42
and instead embraces the 21st-century idea
06:45
that economies are complex, adaptive,
06:48
ecosystemic,
06:52
that they tend away from
equilibrium and toward inequality,
06:54
that they're not efficient at all
06:57
but are effective if well managed.
06:59
This 21st-century perspective
07:03
allows you to clearly see that capitalism
07:06
does not work by [efficiently] allocating
07:08
existing resources.
07:12
It works by [efficiently] creating new solutions
07:14
to human problems.
07:20
The genius of capitalism
07:21
is that it is an evolutionary solution-finding system.
07:24
It rewards people for solving
other people's problems.
07:29
The difference between a poor society
07:34
and a rich society, obviously,
07:37
is the degree to which that society
07:40
has generated solutions in the form
07:43
of products for its citizens.
07:45
The sum of the solutions
07:47
that we have in our society
07:49
really is our prosperity, and this explains
07:51
why companies like Google and Amazon
07:54
and Microsoft and Apple
07:56
and the entrepreneurs who created those companies
07:58
have contributed so much
08:01
to our nation's prosperity.
08:05
This 21st-century perspective
08:07
also makes clear
08:10
that what we think of as economic growth
08:13
is best understood as
08:15
the rate at which we solve problems.
08:17
But that rate is totally dependent upon
08:20
how many problem solvers —
08:23
diverse, able problem solvers — we have,
08:27
and thus how many of our fellow citizens
08:29
actively participate,
08:32
both as entrepreneurs who can offer solutions,
08:34
and as customers who consume them.
08:38
But this maximizing participation thing
08:41
doesn't happen by accident.
08:46
It doesn't happen by itself.
08:47
It requires effort and investment,
08:49
which is why all
08:53
highly prosperous capitalist democracies
08:55
are characterized by massive investments
08:59
in the middle class and the infrastructure
09:01
that they depend on.
09:04
We plutocrats need to get this
09:07
trickle-down economics thing behind us,
09:09
this idea that the better we do,
09:12
the better everyone else will do.
09:14
It's not true. How could it be?
09:16
I earn 1,000 times the median wage,
09:20
but I do not buy 1,000 times as much stuff,
09:24
do I?
09:27
I actually bought two pairs of these pants,
09:28
what my partner Mike calls
09:31
my manager pants.
09:33
I could have bought 2,000 pairs,
09:35
but what would I do with them? (Laughter)
09:38
How many haircuts can I get?
09:41
How often can I go out to dinner?
09:44
No matter how wealthy a few plutocrats get,
09:48
we can never drive a great national economy.
09:52
Only a thriving middle class can do that.
09:55
There's nothing to be done,
10:01
my plutocrat friends might say.
10:03
Henry Ford was in a different time.
10:07
Maybe we can't do some things.
10:10
Maybe we can do some things.
10:12
June 19, 2013,
10:15
Bloomberg published an article I wrote called
10:19
"The Capitalist’s Case for a $15 Minimum Wage."
10:23
The good people at Forbes magazine,
10:27
among my biggest admirers,
10:30
called it "Nick Hanauer's near-insane proposal."
10:33
And yet, just 350 days
10:37
after that article was published,
10:41
Seattle's Mayor Ed Murray signed into law
10:43
an ordinance raising the minimum wage in Seattle
10:46
to 15 dollars an hour,
10:50
more than double
10:52
what the prevailing federal $7.25 rate is.
10:53
How did this happen,
10:58
reasonable people might ask.
10:59
It happened because a group of us
11:02
reminded the middle class
11:03
that they are the source
11:05
of growth and prosperity in capitalist economies.
11:06
We reminded them that when
workers have more money,
11:10
businesses have more customers,
11:13
and need more employees.
11:15
We reminded them that when businesses
11:17
pay workers a living wage,
11:20
taxpayers are relieved of the burden
11:23
of funding the poverty programs
11:24
like food stamps and medical assistance
11:26
and rent assistance
11:29
that those workers need.
11:31
We reminded them that low-wage workers
11:33
make terrible taxpayers,
11:36
and that when you raise the minimum wage
11:38
for all businesses,
11:40
all businesses benefit
11:43
yet all can compete.
11:44
Now the orthodox reaction, of course,
11:47
is raising the minimum wage costs jobs. Right?
11:49
Your politician's always echoing
11:52
that trickle-down idea by saying things like,
11:55
"Well, if you raise the price of employment,
11:58
guess what happens? You get less of it."
12:00
Are you sure?
12:03
Because there's some contravening evidence.
12:05
Since 1980, the wages of CEOs in our country
12:09
have gone from about 30 times the median wage
12:14
to 500 times.
12:16
That's raising the price of employment.
12:18
And yet, to my knowledge,
12:22
I have never seen a company
12:25
outsource its CEO's job, automate their job,
12:27
export the job to China.
12:31
In fact, we appear to be employing
12:33
more CEOs and senior managers than ever before.
12:35
So too for technology workers
12:38
and financial services workers,
12:42
who earn multiples of the median wage
12:44
and yet we employ more and more of them,
12:46
so clearly you can raise the price of employment
12:48
and get more of it.
12:53
I know that most people
12:55
think that the $15 minimum wage
12:58
is this insane, risky economic experiment.
13:00
We disagree.
13:04
We believe that the $15 minimum wage
13:06
in Seattle
13:08
is actually the continuation
13:09
of a logical economic policy.
13:11
It is allowing our city
13:14
to kick your city's ass.
13:16
Because, you see,
13:19
Washington state already has
13:20
the highest minimum wage
13:22
of any state in the nation.
13:23
We pay all workers $9.32,
13:25
which is almost 30 percent more
13:27
than the federal minimum of 7.25,
13:29
but crucially, 427 percent more
13:32
than the federal tipped minimum of 2.13.
13:36
If trickle-down thinkers were right,
13:39
then Washington state should
have massive unemployment.
13:42
Seattle should be sliding into the ocean.
13:45
And yet, Seattle
13:48
is the fastest-growing big city in the country.
13:51
Washington state is generating small business jobs
13:55
at a higher rate than any other major state
13:59
in the nation.
14:01
The restaurant business in Seattle? Booming.
14:03
Why? Because the fundamental law of capitalism is,
14:07
when workers have more money,
14:12
businesses have more customers
14:13
and need more workers.
14:15
When restaurants pay restaurant workers enough
14:17
so that even they can afford to eat in restaurants,
14:20
that's not bad for the restaurant business.
14:24
That's good for it,
14:26
despite what some restaurateurs may tell you.
14:28
Is it more complicated than I'm making out?
14:33
Of course it is.
14:35
There are a lot of dynamics at play.
14:36
But can we please stop insisting
14:38
that if low-wage workers earn a little bit more,
14:40
unemployment will skyrocket
14:43
and the economy will collapse?
14:44
There is no evidence for it.
14:46
The most insidious thing
14:48
about trickle-down economics
14:49
is not the claim that if the rich get richer,
14:51
everyone is better off.
14:54
It is the claim made by those who oppose
14:55
any increase in the minimum wage
14:58
that if the poor get richer,
15:00
that will be bad for the economy.
15:02
This is nonsense.
15:04
So can we please dispense with this rhetoric
15:06
that says that rich guys like me
15:10
and my plutocrat friends
15:12
made our country?
15:15
We plutocrats know,
15:18
even if we don't like to admit it in public,
15:20
that if we had been born somewhere else,
15:21
not here in the United States,
15:24
we might very well be just some dude standing barefoot
15:26
by the side of a dirt road selling fruit.
15:29
It's not that they don't have good
entrepreneurs in other places,
15:32
even very, very poor places.
15:35
It's just that that's all
15:37
that those entrepreneurs' customers can afford.
15:38
So here's an idea for a new kind of economics,
15:43
a new kind of politics
15:47
that I call new capitalism.
15:49
Let's acknowledge that capitalism
15:52
beats the alternatives,
15:54
but also that the more people we include,
15:56
both as entrepreneurs and as customers,
16:00
the better it works.
16:03
Let's by all means shrink the size of government,
16:06
but not by slashing the poverty programs,
16:09
but by ensuring that workers are paid enough
16:12
so that they actually don't need those programs.
16:14
Let's invest enough in the middle class
16:17
to make our economy fairer and more inclusive,
16:20
and by fairer, more truly competitive,
16:24
and by more truly competitive,
16:27
more able to generate the solutions
16:29
to human problems
16:32
that are the true drivers of growth and prosperity.
16:34
Capitalism is the greatest social technology
16:39
ever invented
16:42
for creating prosperity in human societies,
16:44
if it is well managed,
16:47
but capitalism, because of the fundamental
16:49
multiplicative dynamics of complex systems,
16:52
tends towards, inexorably, inequality,
16:54
concentration and collapse.
16:58
The work of democracies
17:02
is to maximize the inclusion of the many
17:05
in order to create prosperity,
17:09
not to enable the few to accumulate money.
17:12
Government does create prosperity and growth,
17:16
by creating the conditions that allow
17:19
both entrepreneurs and their customers
17:23
to thrive.
17:25
Balancing the power of capitalists like me
17:27
and workers isn't bad for capitalism.
17:30
It's essential to it.
17:34
Programs like a reasonable minimum wage,
17:35
affordable healthcare,
17:38
paid sick leave,
17:40
and the progressive taxation necessary
17:41
to pay for the important infrastructure
17:45
necessary for the middle class like education, R and D,
17:47
these are indispensable tools
17:51
shrewd capitalists should embrace
17:54
to drive growth, because no one benefits from it
17:56
like us.
18:00
Many economists would have you believe
18:01
that their field is an objective science.
18:04
I disagree, and I think that it is equally
18:07
a tool that humans use
18:10
to enforce and encode
18:12
our social and moral preferences and prejudices
18:14
about status and power,
18:17
which is why plutocrats like me
18:21
have always needed to find persuasive stories
18:23
to tell everyone else
18:27
about why our relative positions
18:29
are morally righteous and good for everyone:
18:33
like, we are indispensable, the job creators,
18:37
and you are not;
18:42
like, tax cuts for us create growth,
18:44
but investments in you
18:47
will balloon our debt
18:49
and bankrupt our great country;
18:51
that we matter;
18:53
that you don't.
18:55
For thousands of years, these stories were called
18:58
divine right.
19:00
Today, we have trickle-down economics.
19:02
How obviously, transparently self-serving
19:06
all of this is.
19:10
We plutocrats need to see
19:11
that the United States of America made us,
19:14
not the other way around;
19:17
that a thriving middle class is the source
19:18
of prosperity in capitalist economies,
19:21
not a consequence of it.
19:23
And we should never forget
19:26
that even the best of us in
the worst of circumstances
19:29
are barefoot by the side of a dirt road selling fruit.
19:32
Fellow plutocrats, I think it may be time for us
19:38
to recommit to our country,
19:41
to commit to a new kind of capitalism
19:43
which is both more inclusive and more effective,
19:46
a capitalism that will ensure
19:50
that America's economy remains
19:52
the most dynamic and prosperous in the world.
19:55
Let's secure the future for ourselves,
19:59
our children and their children.
20:01
Or alternatively, we could do nothing,
20:03
hide in our gated communities
20:06
and private schools,
20:09
enjoy our planes and yachts
20:11
— they're fun —
20:13
and wait for the pitchforks.
20:16
Thank you.
20:18
(Applause)
20:19

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Nick Hanauer - Venture capitalist, author
Nick Hanauer has become an important voice in the raging debate on inequality — and his provocative argument is aimed at his fellow plutocrats.

Why you should listen

Nick Hanauer has founded, co-founded and funded more than 30 companies across a range of industries, with a pretty notable record of success. As a few highlights, he cofounded a company called aQuantive that sold to Microsoft for $6.4 billion, and was the first non-family investor in Amazon.

Meanwhile Hanauer, a “proud and unapologetic capitalist,” has also been looking closely at society’s growing inequality gap, and the consequences it holds for our shared destiny — and the ultimate fate of our democracies. In 2007, he and civic activist Eric Liu co-wrote the book The True Patriot, an examination of progressive patriotism. This was followed by 2011’s The Gardens of Democracy, also with Liu, a vision for “growing” good citizens.

In 2013, Hanauer published a commentary in Bloomberg BusinessWeek proposing a $15 minimum wage (a suggestion that Seattle acted on this year). Early in 2014, he and Eric Beinhocker published "Capitalism, Redefined." In the summer of 2014, Hanauer published a much-shared essay in Politico that suggests, if societal inequality is allowed to grow unchecked, modern societies could start looking an awful lot like pre-Revolutionary France.

He is working on a new book, due out in 2015.

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