TEDSummit 2019
Nick Hanauer: The dirty secret of capitalism -- and a new way forward
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Rising inequality and growing political instability are the direct result of decades of bad economic theory, says entrepreneur Nick Hanauer. In a visionary talk, he dismantles the mantra that "greed is good" -- an idea he describes as not only morally corrosive, but also scientifically wrong -- and lays out a new theory of economics powered by reciprocity and cooperation.
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
I am a capitalist,
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and after a 30-year career in capitalism
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spanning three dozen companies,
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generating tens of billions
of dollars in market value,
of dollars in market value,
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I'm not just in the top one percent,
I'm in the top .01 percent of all earners.
I'm in the top .01 percent of all earners.
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Today, I have come
to share the secrets of our success,
to share the secrets of our success,
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because rich capitalists like me
have never been richer.
have never been richer.
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So the question is, how do we do it?
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How do we manage to grab
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an ever-increasing share
of the economic pie every year?
of the economic pie every year?
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Is it that rich people are smarter
than we were 30 years ago?
than we were 30 years ago?
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Is it that we're working harder
than we once did?
than we once did?
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Are we taller, better looking?
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Sadly, no.
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It all comes down to just one thing:
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economics.
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Because, here's the dirty secret.
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There was a time
in which the economics profession
in which the economics profession
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worked in the public interest,
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but in the neoliberal era,
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today,
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they work only for big corporations
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and billionaires,
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and that is creating
a little bit of a problem.
a little bit of a problem.
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We could choose to enact economic policies
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that raise taxes on the rich,
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regulate powerful corporations
or raise wages for workers.
or raise wages for workers.
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We have done it before.
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But neoliberal economists would warn
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that all of these policies
would be a terrible mistake,
would be a terrible mistake,
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because raising taxes
always kills economic growth,
always kills economic growth,
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and any form of government regulation
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is inefficient,
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and raising wages always kills jobs.
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Well, as a consequence of that thinking,
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over the last 30 years, in the USA alone,
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the top one percent has grown
21 trillion dollars richer
21 trillion dollars richer
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while the bottom 50 percent
have grown 900 billion dollars poorer,
have grown 900 billion dollars poorer,
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a pattern of widening inequality
that has largely repeated itself
that has largely repeated itself
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across the world.
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And yet, as middle class families
struggle to get by
struggle to get by
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on wages that have not budged
in about 40 years,
in about 40 years,
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neoliberal economists continue to warn
that the only reasonable response
that the only reasonable response
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to the painful dislocations
of austerity and globalization
of austerity and globalization
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is even more austerity and globalization.
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So, what is a society to do?
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Well, it's super clear to me
what we need to do.
what we need to do.
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We need a new economics.
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So, economics has been described
as the dismal science,
as the dismal science,
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and for good reason,
because as much as it is taught today,
because as much as it is taught today,
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it isn't a science at all,
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in spite of all
of the dazzling mathematics.
of the dazzling mathematics.
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In fact, a growing number
of academics and practitioners
of academics and practitioners
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have concluded that neoliberal
economic theory is dangerously wrong
economic theory is dangerously wrong
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and that today's growing crises
of rising inequality
of rising inequality
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and growing political instability
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are the direct result
of decades of bad economic theory.
of decades of bad economic theory.
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What we now know is that the economics
that made me so rich isn't just wrong,
that made me so rich isn't just wrong,
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it's backwards,
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because it turns out
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it isn't capital
that creates economic growth,
that creates economic growth,
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it's people;
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and it isn't self-interest
that promotes the public good,
that promotes the public good,
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it's reciprocity;
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and it isn't competition
that produces our prosperity,
that produces our prosperity,
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it's cooperation.
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What we can now see is that an economics
that is neither just nor inclusive
that is neither just nor inclusive
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can never sustain the high levels
of social cooperation
of social cooperation
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necessary to enable
a modern society to thrive.
a modern society to thrive.
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So where did we go wrong?
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Well, it turns out
that it's become painfully obvious
that it's become painfully obvious
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that the fundamental assumptions
that undergird neoliberal economic theory
that undergird neoliberal economic theory
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are just objectively false,
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and so today first I want to take you
through some of those mistaken assumptions
through some of those mistaken assumptions
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and then after describe where the science
suggests prosperity actually comes from.
suggests prosperity actually comes from.
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So, neoliberal economic
assumption number one is
assumption number one is
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that the market is
an efficient equilibrium system,
an efficient equilibrium system,
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which basically means that if one thing
in the economy, like wages, goes up,
in the economy, like wages, goes up,
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another thing in the economy,
like jobs, must go down.
like jobs, must go down.
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So for example, in Seattle, where I live,
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when in 2014 we passed
our nation's first 15 dollar minimum wage,
our nation's first 15 dollar minimum wage,
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the neoliberals freaked out
over their precious equilibrium.
over their precious equilibrium.
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"If you raise the price
of labor," they warned,
of labor," they warned,
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"businesses will purchase less of it.
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Thousands of low-wage workers
will lose their jobs.
will lose their jobs.
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The restaurants will close."
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Except ...
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they didn't.
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The unemployment rate fell dramatically.
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The restaurant business in Seattle boomed.
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Why?
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Because there is no equilibrium.
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Because raising wages
doesn't kill jobs, it creates them;
doesn't kill jobs, it creates them;
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because, for instance,
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when restaurant owners are suddenly
required to pay restaurant workers enough
required to pay restaurant workers enough
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so that now even they
can afford to eat in restaurants,
can afford to eat in restaurants,
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it doesn't shrink the restaurant business,
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it grows it, obviously.
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(Applause)
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Thank you.
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The second assumption is
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that the price of something
is always equal to its value,
is always equal to its value,
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which basically means
that if you earn 50,000 dollars a year
that if you earn 50,000 dollars a year
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and I earn 50 million dollars a year,
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that's because I produce
a thousand times as much value as you.
a thousand times as much value as you.
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Now,
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it will not surprise you to learn
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that this is a very comforting assumption
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if you're a CEO paying yourself
50 million dollars a year
50 million dollars a year
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but paying your workers poverty wages.
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But please, take it from somebody
who has run dozens of businesses:
who has run dozens of businesses:
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this is nonsense.
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People are not paid what they are worth.
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They are paid what they have
the power to negotiate,
the power to negotiate,
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and wages' falling share of GDP
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is not because workers
have become less productive
have become less productive
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but because employers
have become more powerful.
have become more powerful.
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And --
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(Applause)
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And by pretending that the giant imbalance
in power between capital and labor
in power between capital and labor
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doesn't exist,
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neoliberal economic theory
became essentially
became essentially
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a protection racket for the rich.
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The third assumption,
and by far the most pernicious,
and by far the most pernicious,
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is a behavioral model
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that describes human beings
as something called "homo economicus,"
as something called "homo economicus,"
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which basically means
that we are all perfectly selfish,
that we are all perfectly selfish,
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perfectly rational
and relentlessly self-maximizing.
and relentlessly self-maximizing.
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But just ask yourselves,
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is it plausible that every single time
for your entire life,
for your entire life,
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when you did something
nice for somebody else,
nice for somebody else,
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all you were doing
was maximizing your own utility?
was maximizing your own utility?
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Is it plausible that when a soldier jumps
on a grenade to defend fellow soldiers,
on a grenade to defend fellow soldiers,
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they're just promoting
their narrow self-interest?
their narrow self-interest?
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If you think that's nuts,
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contrary to any reasonable
moral intuition,
moral intuition,
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that's because it is
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and, according to the latest science,
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not true.
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But it is this behavioral model
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which is at the cold, cruel heart
of neoliberal economics,
of neoliberal economics,
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and it is as morally corrosive
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as it is scientifically wrong
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because, if we accept at face value
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that humans are fundamentally selfish,
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and then we look around the world
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at all of the unambiguous
prosperity in it,
prosperity in it,
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then it follows logically,
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then it must be true by definition,
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that billions of individual
acts of selfishness
acts of selfishness
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magically transubstantiate
into prosperity and the common good.
into prosperity and the common good.
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If we humans are merely
selfish maximizers,
selfish maximizers,
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then selfishness
is the cause of our prosperity.
is the cause of our prosperity.
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Under this economic logic,
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greed is good,
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widening inequality is efficient,
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and the only purpose of the corporation
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can be to enrich shareholders,
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because to do otherwise
would be to slow economic growth
would be to slow economic growth
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and harm the economy overall.
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And it is this gospel of selfishness
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which forms the ideological cornerstone
of neoliberal economics,
of neoliberal economics,
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a way of thinking
which has produced economic policies
which has produced economic policies
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which have enabled me and my rich buddies
in the top one percent
in the top one percent
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to grab virtually all of the benefits
of growth over the last 40 years.
of growth over the last 40 years.
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But,
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if instead
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we accept the latest empirical research,
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real science, which correctly
describes human beings
describes human beings
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as highly cooperative,
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reciprocal
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and intuitively moral creatures,
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then it follows logically
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that it must be cooperation
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and not selfishness
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that is the cause of our prosperity,
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and it isn't our self-interest
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but rather our inherent reciprocity
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that is humanity's economic superpower.
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So at the heart of this new economics
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is a story about ourselves that grants us
permission to be our best selves,
permission to be our best selves,
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and, unlike the old economics,
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this is a story that is virtuous
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and also has the virtue of being true.
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Now,
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I want to emphasize
that this new economics
that this new economics
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is not something I have personally
imagined or invented.
imagined or invented.
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Its theories and models
are being developed and refined
are being developed and refined
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in universities around the world
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building on some of the best
new research in economics,
new research in economics,
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complexity theory, evolutionary theory,
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psychology, anthropology
and other disciplines.
and other disciplines.
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And although this new economics
does not yet have its own textbook
does not yet have its own textbook
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or even a commonly agreed upon name,
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in broad strokes
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its explanation of where prosperity
comes from goes something like this.
comes from goes something like this.
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So, market capitalism
is an evolutionary system
is an evolutionary system
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in which prosperity emerges
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through a positive feedback loop
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between increasing amounts of innovation
and increasing amounts of consumer demand.
and increasing amounts of consumer demand.
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Innovation is the process
by which we solve human problems,
by which we solve human problems,
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consumer demand is the mechanism
through which the market selects
through which the market selects
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for useful innovations,
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and as we solve more problems,
we become more prosperous.
we become more prosperous.
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But as we become more prosperous,
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our problems and solutions
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become more complex,
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and this increasing technical complexity
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requires ever higher levels
of social and economic cooperation
of social and economic cooperation
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in order to produce
the more highly specialized products
the more highly specialized products
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that define a modern economy.
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Now, the old economics
is correct, of course,
is correct, of course,
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that competition plays a crucial role
in how markets work,
in how markets work,
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but what it fails to see
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is that it is largely a competition
between highly cooperative groups --
between highly cooperative groups --
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competition between firms,
competition between networks of firms,
competition between networks of firms,
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competition between nations --
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and anyone who has ever run
a successful business knows
a successful business knows
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that building a cooperative team
by including the talents of everyone
by including the talents of everyone
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is almost always a better strategy
than just a bunch of selfish jerks.
than just a bunch of selfish jerks.
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So how do we leave neoliberalism behind
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and build a more sustainable,
more prosperous
more prosperous
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and more equitable society?
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The new economics suggests
just five rules of thumb.
just five rules of thumb.
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First is that successful economies
are not jungles, they're gardens,
are not jungles, they're gardens,
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which is to say that markets,
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like gardens, must be tended,
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that the market is the greatest
social technology ever invented
social technology ever invented
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for solving human problems,
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but unconstrained by social norms
or democratic regulation,
or democratic regulation,
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markets inevitably create
more problems than they solve.
more problems than they solve.
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Climate change,
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the great financial crisis of 2008
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are two easy examples.
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The second rule is
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that inclusion creates economic growth.
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So the neoliberal idea
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that inclusion is this fancy luxury
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to be afforded if and when we have growth
is both wrong and backwards.
is both wrong and backwards.
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The economy is people.
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Including more people in more ways
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is what causes economic growth
in market economies.
in market economies.
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The third principle
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is the purpose of the corporation
is not merely to enrich shareholders.
is not merely to enrich shareholders.
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The greatest grift
in contemporary economic life
in contemporary economic life
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is the neoliberal idea that
the only purpose of the corporation
the only purpose of the corporation
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and the only responsibility of executives
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is to enrich themselves and shareholders.
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The new economics must and can insist
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that the purpose of the corporation
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is to improve the welfare
of all stakeholders:
of all stakeholders:
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customers, workers,
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community and shareholders alike.
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Rule four:
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greed is not good.
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Being rapacious
doesn't make you a capitalist,
doesn't make you a capitalist,
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it makes you a sociopath.
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(Laughter)
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(Applause)
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And in an economy as dependent
upon cooperation at scale as ours,
upon cooperation at scale as ours,
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sociopathy is as bad for business
as it is for society.
as it is for society.
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And fifth and finally,
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unlike the laws of physics,
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the laws of economics are a choice.
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Now, neoliberal economic theory
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has sold itself to you
as unchangeable natural law,
as unchangeable natural law,
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when in fact it's social norms
and constructed narratives
and constructed narratives
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based on pseudoscience.
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If we truly want a more equitable,
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more prosperous
and more sustainable economy,
and more sustainable economy,
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if we want high-functioning democracies
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and civil society,
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we must have a new economics.
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And here's the good news:
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if we want a new economics,
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all we have to do is choose to have it.
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Thank you.
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(Applause)
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Moderator: So Nick,
I'm sure you get this question a lot.
I'm sure you get this question a lot.
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If you're so unhappy
with the economic system,
with the economic system,
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why not just give all your money away
and join the 99 percent?
and join the 99 percent?
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Nick Hanauer: Yeah, no, yes, right.
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You get that a lot. You get that a lot.
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"If you care so much about taxes,
why don't you pay more,
why don't you pay more,
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and if you care so much about wages,
why don't you pay more?"
why don't you pay more?"
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And I could do that.
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The problem is,
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it doesn't make that much difference,
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and I have discovered a strategy
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that works literally
a hundred thousand times better --
a hundred thousand times better --
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Moderator: OK.
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NH: which is to use my money
to build narratives and to pass laws
to build narratives and to pass laws
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that will require
all the other rich people
all the other rich people
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to pay taxes and pay their workers better.
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(Applause)
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And so, for example,
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the 15-dollar minimum wage
that we cooked up
that we cooked up
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has now affected 30 million workers.
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So that works better.
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Moderator: That's great.
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If you change your mind,
we'll find some takers for you.
we'll find some takers for you.
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NH: OK. Thank you.
Moderator: Thank you very much.
Moderator: Thank you very much.
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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