TEDSalon NY2014
Nick Hanauer: Beware, fellow plutocrats, the pitchforks are coming
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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
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
Double-click the English transcript below to play the video.
00:13
You probably don't know me,
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but I am one of those .01 percenters
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that you hear about and read about,
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and I am by any reasonable definition a plutocrat.
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And tonight, what I would like to do is speak directly
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to other plutocrats, to my people,
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because it feels like it's time for us all
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to have a chat.
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Like most plutocrats, I too am a proud
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and unapologetic capitalist.
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I have founded, cofounded or funded
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over 30 companies across a range of industries.
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I was the first non-family investor in Amazon.com.
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I cofounded a company called aQuantive
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that we sold to Microsoft for 6.4 billion dollars.
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My friends and I, we own a bank.
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I tell you this — (Laughter) —
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unbelievable, right?
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I tell you this to show
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that my life is like most plutocrats.
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I have a broad perspective on capitalism
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and business,
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and I have been rewarded obscenely for that
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with a life that most of you all
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can't even imagine:
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multiple homes, a yacht, my own plane,
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etc., etc., etc.
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But let's be honest: I am not the
smartest person you've ever met.
smartest person you've ever met.
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I am certainly not the hardest working.
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I was a mediocre student.
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I'm not technical at all.
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I can't write a word of code.
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Truly, my success is the consequence
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of spectacular luck,
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of birth, of circumstance and of timing.
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But I am actually pretty good at a couple of things.
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One, I have an unusually high tolerance for risk,
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and the other is I have a good sense,
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a good intuition about what will happen in the future,
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and I think that that intuition about the future
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is the essence of good entrepreneurship.
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So what do I see in our future today,
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you ask?
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I see pitchforks,
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as in angry mobs with pitchforks,
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because while people like us plutocrats
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are living beyond the dreams of avarice,
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the other 99 percent of our fellow citizens
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are falling farther and farther behind.
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In 1980, the top one percent of Americans
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shared about eight percent of national [income],
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while the bottom 50 percent of Americans
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shared 18 percent.
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Thirty years later, today, the top one percent
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shares over 20 percent of national [income],
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while the bottom 50 percent of Americans
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share 12 or 13.
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If the trend continues,
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the top one percent will share
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over 30 percent of national [income]
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in another 30 years,
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while the bottom 50 percent of Americans
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will share just six.
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You see, the problem isn't that we have
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some inequality.
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Some inequality is necessary
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for a high-functioning capitalist democracy.
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The problem is that inequality
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is at historic highs today
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and it's getting worse every day.
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And if wealth, power, and income
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continue to concentrate
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at the very tippy top,
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our society will change
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from a capitalist democracy
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to a neo-feudalist rentier society
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like 18th-century France.
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That was France
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before the revolution
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and the mobs with the pitchforks.
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So I have a message for my fellow plutocrats
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and zillionaires
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and for anyone who lives
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in a gated bubble world:
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Wake up.
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Wake up. It cannot last.
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Because if we do not do something
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to fix the glaring economic inequities in our society,
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the pitchforks will come for us,
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for no free and open society can long sustain
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this kind of rising economic inequality.
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It has never happened. There are no examples.
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You show me a highly unequal society,
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and I will show you a police state
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or an uprising.
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The pitchforks will come for us
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if we do not address this.
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It's not a matter of if, it's when.
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And it will be terrible when they come
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for everyone,
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but particularly for people like us plutocrats.
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I know I must sound like some liberal do-gooder.
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I'm not. I'm not making a moral argument
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that economic inequality is wrong.
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What I am arguing is that rising economic inequality
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is stupid and ultimately self-defeating.
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Rising inequality doesn't just increase our risks
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from pitchforks,
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but it's also terrible for business too.
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So the model for us rich guys should be Henry Ford.
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When Ford famously introduced the $5 day,
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which was twice the prevailing wage at the time,
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he didn't just increase the productivity
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of his factories,
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he converted exploited autoworkers who were poor
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into a thriving middle class who could now afford
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to buy the products that they made.
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Ford intuited what we now know is true,
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that an economy is best understood as an ecosystem
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and characterized by the same kinds
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of feedback loops you find
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in a natural ecosystem,
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a feedback loop between customers and businesses.
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Raising wages increases demand,
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which increases hiring,
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which in turn increases wages
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and demand and profits,
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and that virtuous cycle of increasing prosperity
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is precisely what is missing
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from today's economic recovery.
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And this is why we need to put behind us
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the trickle-down policies that so dominate
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both political parties
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and embrace something I call middle-out economics.
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Middle-out economics rejects
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the neoclassical economic idea
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that economies are efficient, linear, mechanistic,
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that they tend towards equilibrium and fairness,
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and instead embraces the 21st-century idea
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that economies are complex, adaptive,
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ecosystemic,
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that they tend away from
equilibrium and toward inequality,
equilibrium and toward inequality,
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that they're not efficient at all
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but are effective if well managed.
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This 21st-century perspective
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allows you to clearly see that capitalism
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does not work by [efficiently] allocating
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existing resources.
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It works by [efficiently] creating new solutions
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to human problems.
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The genius of capitalism
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is that it is an evolutionary solution-finding system.
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It rewards people for solving
other people's problems.
other people's problems.
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The difference between a poor society
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and a rich society, obviously,
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is the degree to which that society
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has generated solutions in the form
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of products for its citizens.
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The sum of the solutions
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that we have in our society
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really is our prosperity, and this explains
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why companies like Google and Amazon
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and Microsoft and Apple
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and the entrepreneurs who created those companies
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have contributed so much
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to our nation's prosperity.
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This 21st-century perspective
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also makes clear
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that what we think of as economic growth
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is best understood as
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the rate at which we solve problems.
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But that rate is totally dependent upon
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how many problem solvers —
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diverse, able problem solvers — we have,
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and thus how many of our fellow citizens
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actively participate,
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both as entrepreneurs who can offer solutions,
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and as customers who consume them.
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But this maximizing participation thing
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doesn't happen by accident.
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It doesn't happen by itself.
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It requires effort and investment,
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which is why all
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highly prosperous capitalist democracies
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are characterized by massive investments
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in the middle class and the infrastructure
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that they depend on.
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We plutocrats need to get this
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trickle-down economics thing behind us,
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this idea that the better we do,
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the better everyone else will do.
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It's not true. How could it be?
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I earn 1,000 times the median wage,
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but I do not buy 1,000 times as much stuff,
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do I?
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I actually bought two pairs of these pants,
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what my partner Mike calls
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my manager pants.
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I could have bought 2,000 pairs,
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but what would I do with them? (Laughter)
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How many haircuts can I get?
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How often can I go out to dinner?
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No matter how wealthy a few plutocrats get,
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we can never drive a great national economy.
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Only a thriving middle class can do that.
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There's nothing to be done,
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my plutocrat friends might say.
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Henry Ford was in a different time.
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Maybe we can't do some things.
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Maybe we can do some things.
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June 19, 2013,
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Bloomberg published an article I wrote called
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"The Capitalist’s Case for a $15 Minimum Wage."
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The good people at Forbes magazine,
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among my biggest admirers,
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called it "Nick Hanauer's near-insane proposal."
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And yet, just 350 days
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after that article was published,
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Seattle's Mayor Ed Murray signed into law
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an ordinance raising the minimum wage in Seattle
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to 15 dollars an hour,
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more than double
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what the prevailing federal $7.25 rate is.
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How did this happen,
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reasonable people might ask.
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It happened because a group of us
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reminded the middle class
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that they are the source
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of growth and prosperity in capitalist economies.
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We reminded them that when
workers have more money,
workers have more money,
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businesses have more customers,
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and need more employees.
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We reminded them that when businesses
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pay workers a living wage,
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taxpayers are relieved of the burden
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of funding the poverty programs
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like food stamps and medical assistance
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and rent assistance
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that those workers need.
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We reminded them that low-wage workers
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make terrible taxpayers,
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and that when you raise the minimum wage
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for all businesses,
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all businesses benefit
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yet all can compete.
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Now the orthodox reaction, of course,
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is raising the minimum wage costs jobs. Right?
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Your politician's always echoing
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that trickle-down idea by saying things like,
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"Well, if you raise the price of employment,
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guess what happens? You get less of it."
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Are you sure?
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Because there's some contravening evidence.
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Since 1980, the wages of CEOs in our country
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have gone from about 30 times the median wage
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to 500 times.
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That's raising the price of employment.
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And yet, to my knowledge,
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I have never seen a company
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outsource its CEO's job, automate their job,
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export the job to China.
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In fact, we appear to be employing
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more CEOs and senior managers than ever before.
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So too for technology workers
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and financial services workers,
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who earn multiples of the median wage
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and yet we employ more and more of them,
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so clearly you can raise the price of employment
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and get more of it.
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I know that most people
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think that the $15 minimum wage
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is this insane, risky economic experiment.
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We disagree.
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We believe that the $15 minimum wage
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in Seattle
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is actually the continuation
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of a logical economic policy.
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It is allowing our city
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to kick your city's ass.
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Because, you see,
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Washington state already has
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the highest minimum wage
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of any state in the nation.
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We pay all workers $9.32,
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which is almost 30 percent more
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than the federal minimum of 7.25,
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but crucially, 427 percent more
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than the federal tipped minimum of 2.13.
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If trickle-down thinkers were right,
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then Washington state should
have massive unemployment.
have massive unemployment.
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Seattle should be sliding into the ocean.
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And yet, Seattle
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is the fastest-growing big city in the country.
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Washington state is generating small business jobs
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at a higher rate than any other major state
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in the nation.
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The restaurant business in Seattle? Booming.
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Why? Because the fundamental law of capitalism is,
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when workers have more money,
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businesses have more customers
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and need more workers.
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When restaurants pay restaurant workers enough
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so that even they can afford to eat in restaurants,
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that's not bad for the restaurant business.
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That's good for it,
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despite what some restaurateurs may tell you.
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Is it more complicated than I'm making out?
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Of course it is.
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There are a lot of dynamics at play.
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But can we please stop insisting
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14:40
that if low-wage workers earn a little bit more,
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14:43
unemployment will skyrocket
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and the economy will collapse?
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There is no evidence for it.
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14:48
The most insidious thing
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about trickle-down economics
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is not the claim that if the rich get richer,
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everyone is better off.
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14:55
It is the claim made by those who oppose
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any increase in the minimum wage
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15:00
that if the poor get richer,
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15:02
that will be bad for the economy.
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This is nonsense.
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1980
15:06
So can we please dispense with this rhetoric
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that says that rich guys like me
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15:12
and my plutocrat friends
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made our country?
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15:18
We plutocrats know,
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15:20
even if we don't like to admit it in public,
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15:22
that if we had been born somewhere else,
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15:24
not here in the United States,
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15:26
we might very well be just some dude standing barefoot
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15:29
by the side of a dirt road selling fruit.
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3150
15:32
It's not that they don't have good
entrepreneurs in other places,
entrepreneurs in other places,
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15:35
even very, very poor places.
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15:37
It's just that that's all
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15:38
that those entrepreneurs' customers can afford.
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15:43
So here's an idea for a new kind of economics,
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a new kind of politics
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that I call new capitalism.
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15:52
Let's acknowledge that capitalism
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15:54
beats the alternatives,
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15:56
but also that the more people we include,
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16:00
both as entrepreneurs and as customers,
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16:04
the better it works.
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16:06
Let's by all means shrink the size of government,
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16:10
but not by slashing the poverty programs,
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16:12
but by ensuring that workers are paid enough
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16:14
so that they actually don't need those programs.
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3322
16:18
Let's invest enough in the middle class
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16:21
to make our economy fairer and more inclusive,
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16:24
and by fairer, more truly competitive,
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16:28
and by more truly competitive,
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16:29
more able to generate the solutions
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to human problems
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16:34
that are the true drivers of growth and prosperity.
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16:39
Capitalism is the greatest social technology
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16:43
ever invented
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16:44
for creating prosperity in human societies,
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16:47
if it is well managed,
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1734
16:49
but capitalism, because of the fundamental
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16:52
multiplicative dynamics of complex systems,
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16:55
tends towards, inexorably, inequality,
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3528
16:58
concentration and collapse.
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17:03
The work of democracies
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17:05
is to maximize the inclusion of the many
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4503
17:10
in order to create prosperity,
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2977
17:12
not to enable the few to accumulate money.
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17:16
Government does create prosperity and growth,
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3100
17:20
by creating the conditions that allow
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3226
17:23
both entrepreneurs and their customers
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2891
17:26
to thrive.
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1845
17:27
Balancing the power of capitalists like me
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3184
17:31
and workers isn't bad for capitalism.
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3172
17:34
It's essential to it.
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1800
17:36
Programs like a reasonable minimum wage,
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2666
17:38
affordable healthcare,
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2014
17:40
paid sick leave,
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1303
17:42
and the progressive taxation necessary
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3419
17:45
to pay for the important infrastructure
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2196
17:47
necessary for the middle class like education, R and D,
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4051
17:51
these are indispensable tools
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2566
17:54
shrewd capitalists should embrace
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2109
17:56
to drive growth, because no one benefits from it
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3986
18:00
like us.
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18:02
Many economists would have you believe
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18:04
that their field is an objective science.
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18:07
I disagree, and I think that it is equally
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18:10
a tool that humans use
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2069
18:12
to enforce and encode
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1889
18:14
our social and moral preferences and prejudices
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3576
18:17
about status and power,
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3902
18:21
which is why plutocrats like me
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2277
18:23
have always needed to find persuasive stories
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4006
18:27
to tell everyone else
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1674
18:29
about why our relative positions
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4114
18:33
are morally righteous and good for everyone:
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4132
18:37
like, we are indispensable, the job creators,
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4275
18:42
and you are not;
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2362
18:44
like, tax cuts for us create growth,
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3386
18:47
but investments in you
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2014
18:49
will balloon our debt
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1676
18:51
and bankrupt our great country;
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2508
18:54
that we matter;
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1868
18:55
that you don't.
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2351
18:58
For thousands of years, these stories were called
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19:00
divine right.
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1448
19:02
Today, we have trickle-down economics.
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4254
19:06
How obviously, transparently self-serving
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3883
19:10
all of this is.
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1594
19:12
We plutocrats need to see
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2782
19:14
that the United States of America made us,
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2353
19:17
not the other way around;
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1684
19:18
that a thriving middle class is the source
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2838
19:21
of prosperity in capitalist economies,
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2296
19:24
not a consequence of it.
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2639
19:26
And we should never forget
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2691
19:29
that even the best of us in
the worst of circumstances
the worst of circumstances
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3695
19:33
are barefoot by the side of a dirt road selling fruit.
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5734
19:38
Fellow plutocrats, I think it may be time for us
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2614
19:41
to recommit to our country,
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2203
19:43
to commit to a new kind of capitalism
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2562
19:46
which is both more inclusive and more effective,
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4354
19:50
a capitalism that will ensure
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2058
19:52
that America's economy remains
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3161
19:55
the most dynamic and prosperous in the world.
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3386
19:59
Let's secure the future for ourselves,
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2160
20:01
our children and their children.
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2734
20:04
Or alternatively, we could do nothing,
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3048
20:07
hide in our gated communities
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2081
20:09
and private schools,
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2857
20:12
enjoy our planes and yachts
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2036
20:14
— they're fun —
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2340
20:16
and wait for the pitchforks.
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1811
20:18
Thank you.
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20:19
(Applause)
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1647
ABOUT THE SPEAKER
Nick Hanauer - Venture capitalist, authorNick 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.
Nick Hanauer | Speaker | TED.com