Death of the Middle Class Debate: Daniel Priestley v Nick Hanauer (Transcript)

And I basically said, “I can’t play by the rules that I grew up in. I have to learn the rules of this new economy, this digital economy pretty quickly, or else I’m going to be displaced and disrupted and I don’t have a fallback position.” I didn’t come from any form of wealth or money. I also didn’t take on any venture capital. I self-funded, bootstrapped my own businesses by cobbling together credit cards and things like that.

And I think one of the things that I really truly believe is that we are in very big danger at the moment — that if more people can’t participate in the benefits of capitalism, they’re going to do crazy things and vote in socialism. And the pitchforks will come, and inequality is going to be a toxic corrosive force in the economy. So I’m a capitalist who wants lots of people to benefit from capitalism. That’s been my whole shtick forever. And I just want to include more people in the benefits of capitalism before we do dumb things.

The Real Enemy: Megacorps and Mega Funds

STEVEN BARTLETT: And I guess the question therefore is how do we do that? The prevailing narrative, and I think one of the most dominant narratives, is we need to tax people like us a lot more. What’s your view of that, Daniel?

DANIEL PRIESTLEY: So it’s very easy to have a bad guy of a rich person. You could imagine this billionaire rich person — Nick maybe could be a bad guy, and you could sort of do that. When I look at the economy and what’s draining it out, it’s harder to conceptualize, but we have these mega corporations and we have these mega funds.

So here in the UK, all the houses are being bought up by BlackRock, a massive private equity fund that wants the entire population to be a rental class forever. And our Prime Minister has walked down Downing Street hand in hand with the CEO of this big fund saying, “Yeah, come in and buy up stuff and financialize houses.” And that is causing a lot of trouble.

And then you’ve got big companies like Microsoft, like Amazon, and they say, “Hey, we want to do business in your country, but we don’t want to pay tax there. We want to pretend that we’re in Luxembourg, or we want to pretend that we’re in Ireland, and we’re going to send something from a British warehouse to our British consumer, but we’re not really in Britain at that time, so we don’t pay tax.” And then you’ve got Starbucks that says, “We want to do business and sell coffee next to a mum and dad family business coffee shop, but we have to pay this license fee for the Starbucks logo and that has to go to Bermuda.”

So when I look at who’s hollowing out the middle class, you’ve got massive megacorp businesses that are absolutely bigger than we could have ever conceived them to be — they’re as big as nations now. And you’ve got megacorp funds which are also trillion-dollar funds.

And one thing I’m worried about is that a lot of people think that a guy like me, who’s basically a dynamic entrepreneurial person, or even a billionaire like Nick, is the enemy. When you get a James Dyson who invents a cool vacuum cleaner and sells a lot of them, that’s not the enemy. When you get Paul McCartney who writes a bunch of songs and becomes a famous Beatle and makes $1 billion, that’s not the enemy. The enemy is the financialization of our homes. The enemy is big megacorps that don’t want to pay tax. And that’s where we need to be a little bit more nuanced and clear about who’s hollowing out the middle class and how do we make policy choices to make sure that doesn’t happen.

STEVEN BARTLETT: So you’re saying taxing the rich isn’t the answer?

DANIEL PRIESTLEY: Taxing the rich is like a headline that creates enemies who aren’t actually the enemies.

STEVEN BARTLETT: But so let’s just say in the UK then — if you were Prime Minister, would you increase the tax rate on the top 1%?

DANIEL PRIESTLEY: You could do that for political reasons because it would make people feel good, but it won’t change the economy. What needs to happen is we need a thriving entrepreneurial class. Small businesses are the answer. The biggest mistake the UK government is making is they don’t see that the 5.7 million small businesses are their biggest asset — that we could get those going, that we could create an entrepreneurial uplift that would create jobs and it would create better opportunities. I would definitely curb the issue that we’re having with these mega funds, and I would definitely stop pretending that Amazon is in Luxembourg and Google’s in Ireland. So those sorts of things I would definitely do.

The Wages Problem: Nick Hanauer on Trickle-Down Economics

STEVEN BARTLETT: What about yourself, Nick? Do you want the top 1% to pay more taxes? Is that important?

NICK HANAUER: It is not true that the richest people in the United States pay a lot of tax, because the American tax system is riddled with loopholes that allow the richest citizens to pay taxes at a rate of one half of what ordinary people pay. I absolutely believe that in a high-functioning democracy, the wealthiest citizens will pay taxes equal to or greater than the typical citizen. And that is just objectively not the case in the United States.

STEVEN BARTLETT: As a percentage.

NICK HANAUER: As a percentage. And I think that is table stakes in making an economy function and a democracy go. But it is not the biggest problem. The problem is wages.

Here’s the most important socioeconomic fact in the United States: the median full-time worker today earns in the range of $60,000 a year. If that person had maintained their same share of the economy since 1975, instead of earning $60,000 a year, they’d earn close to $120,000 a year. That effect, by the way, goes up to the 90th percentile. If you earned $180,000 in 2018, 2020 — if you would maintain your same share of GDP, instead of earning $180,000, you’d earn like $250,000 a year.

So in the United States, over 50 years, the only people who benefited directly from economic growth and productivity gains were the people in the top 10%, and the majority of benefit went to the top 1%. And that is the problem. That is trillions of dollars a year that used to be wages for ordinary Americans and now ends up in the pockets of the richest people, utilizing precisely the mechanisms that Dan just outlined.

What we have done is we have massively tilted the economic playing field, which once favored small and medium-sized businesses and local companies, towards these giant corporations. We used to have an economy that actively encouraged small businesses and entrepreneurship.

Basically what we call neoliberalism — this set of ideas around economic cause and effect that came into force in the ’70s and ’80s, Reaganomics, Thatcherism, all this stuff — cut taxes for rich people, deregulate powerful people, and suppress the wages for working people. Basically trickle-down economics. Those policies went into effect in the ’70s, ’80s, and ’90s. And what happened is a huge shift in concentration from smaller businesses to bigger businesses, and a huge shift in income from ordinary Americans to the very rich. And that’s the core of the problem.

And of course, I think rich people should pay their fair share. It is ridiculous for somebody who makes half a billion dollars a year to pay a 15% tax rate, while somebody who makes $200,000 a year pays 40%. I just think that’s stupid and wrong, which is the case in the United States. May not be the case here in the UK, but the bigger problem is wages. And if you want to get the economy back on track, you have to address that problem.

Optionality and Entrepreneurship as the Solution

STEVEN BARTLETT: Dan, you say that optionality and entrepreneurship will do more to raise wages than any government policy.

DANIEL PRIESTLEY: Yeah. I believe that optionality is the most important thing. When someone has lots of options, then they don’t accept terrible conditions.

STEVEN BARTLETT: Give me some color on that.

The Power of Optionality and Workers’ Rights

DANIEL PRIESTLEY: Well, if I have 10 companies that are wanting to hire me, I’m going to choose the best option. But if I live in a town where there’s only one employer, like let’s say there’s one massive company that employs people and you either work for that company or you’re unemployed, then I have to accept whatever they’re dishing out.

So the most important thing in creating better quality of life is optionality. We need lots of optionality. One of the options that I want people to have is I want us to teach entrepreneurship in schools so that people have the option to start a family business as one of their options. They may not take that option, but at least it’s not a mysterious black box that they just don’t understand. To understand that that would actually be one of their options.

Also, let’s say you had no minimum wage, but if you had 10 employers and a limited pool of people who are available to work at those companies, they’re going to have to bid against each other to create better and better working conditions and better and better pay. So you kind of only need to have minimum wages when there’s not enough optionality. If there’s enough optionality, it pushes everything up.

STEVEN BARTLETT: Is that your view as well?

The Theory of Marginal Productivity

NICK HANAUER: I agree with the spirit of that. It just turns out that is never the case. So there’s a lot of economic theory that sounds a lot like that, but it exists in an imaginary world where people have power and optionality, and in the real world that actually doesn’t ever exist.

By way of example, there’s a principle of economics called the Theory of Marginal Productivity. Have you heard of that?

STEVEN BARTLETT: No.

NICK HANAUER: So that’s a theory that is embedded in the center of economics, which says that because markets are efficient, the amount of money you earn reflects precisely the contribution that you make to it.

STEVEN BARTLETT: Okay. So if I earn $15,000 a year, that’s because I’m giving $15,000 of value to the world.

NICK HANAUER: Value in the world. Okay.

STEVEN BARTLETT: Correct.

NICK HANAUER: And if I earn $500 million a year rubbing money together to make more money, that is an accurate reflection of the value I’m creating in the world.

STEVEN BARTLETT: Which is really central to capitalism, isn’t it?

NICK HANAUER: It is absolutely central to capitalism and is central to economic policymaking. But here’s the thing. If you understand where that came from, it gives you pause.

So in 1879, a guy named Henry George writes a book called Progress and Poverty in the United States. And basically it’s the first book about the rich stealing from the poor. And this book isn’t just a bestseller, it is the bestseller in the history of the United States. And the powers that be freak out.

And JPMorgan brings this guy, John Bates Clark, to Columbia University, which is sort of the home of Wall Street and stuff like that in New York, and says, “Fix this.” And so John Bates Clark writes a book called The Distribution of Wealth, in which he invents this idea called the Theory of Marginal Productivity, which asserts this idea. But he says the quiet part out loud in the book. He says, “Look, we have to prove to working people that no matter how much they make, whether it’s a little or a lot, it reflects their value. Because if they conclude that their work is worth more than they are paid, they will revolt and kill us all. And that would be bad.”

And that idea, will not surprise you to learn, was very attractive to a bunch of rich people and got swept up into economics and today is a core idea in economic theory. And it would be true potentially if markets were perfectly efficient and all this optionality existed. But there has never been a case where that has been true. It has materially harmed the welfare of most people because, as Dan says, your ability to earn is related to your power to negotiate, not some magical number that the market decides.

DANIEL PRIESTLEY: And it’s how easy you are to replace. Because if I run an ad for a job and 400 people apply for the job, which really does happen — I know this happens for you, Steven — essentially you run an ad and 400 people apply. So you don’t think about raising the wage because 400 people applied and they’re all really super qualified people. And this happens all the time in the UK right now.

NICK HANAUER: Happens everywhere. And there are almost zero circumstances where workers have more power than owners. Even Adam Smith in The Wealth of Nations outlined this asymmetry of power. And the thing is, if you persuade people that what they earn is all they’re worth, then you’ve created this narrative that makes rich people richer and everybody else poorer.

Policy Solutions: Minimum Wage and Beyond

STEVEN BARTLETT: So what’s the solution here? Is it to put a higher minimum wage on society?

NICK HANAUER: Well, that’s a policy solution. But if you really want to solve the problem, the starting point is getting people to understand economics in a way that actually reflects how the economy actually works, not this stylized invention dating back to 1787 that, if you take seriously and enact policy on the basis of it, the only thing that can happen is that the rich will get richer and the poor will get poorer, which is the story of the last 50 years.

STEVEN BARTLETT: So what is the policy solution?

NICK HANAUER: A policy solution is most definitely to apply a standard which requires companies to pay people a living wage. So the minimum wage is a perfect example of a great policy. Another policy in the United States, which is really, really important, is the overtime threshold — which I don’t know whether you have here in the UK. But it’s the salary threshold below which you automatically get paid overtime, which is time and a half here too.

DANIEL PRIESTLEY: Yeah, 48 hours here. 48 hours is the upper limit of a working week.

NICK HANAUER: Okay, so in the United States it’s 40 hours. So if you work more than that, you get paid overtime. And so that standard used to apply to virtually every worker in America in 1970, 1965. Today that standard applies to less than 10% of workers.

Now why does that matter? Because people like me, on a scale of tens of millions, have turned three 40-hour-a-week jobs into two 60-hour-a-week jobs and pocketed the difference. You may be doing that here, right? You put gummy bears in the lunchroom and a ping pong table and you force people to work 60 hours a week, and then you can have two employees instead of three. If you do that 30 million times, you’ve taken 10 million jobs out of the workforce.

Technology, Ownership, and the Hollowing Out of the Middle Class

STEVEN BARTLETT: So do you agree with this, Daniel, this approach?

DANIEL PRIESTLEY: Not as much. Here’s the issue. I agree with it at one level, but almost every solution that Nick has recommended, the UK has had for the last 20 years. So we have a minimum wage that is pegged to two-thirds of the median and it ratchets up. We’ve got 28 days’ worth of paid holiday every year. We’ve got sick leave. We’ve got maternity and paternity leave. We’ve got the ability — and it’s very, very difficult to fire someone if they’ve been with you for more than 6 months.

So we have this unbelievable set of workers’ rights, and all of these recommendations from minimum wage right through to how to handle employment. Yet we have the most unhappy population. Our economy’s not growing. We have a million young people out of work. No one’s hiring at the moment. So those conditions have not created runaway prosperity. And that gives me pause to think something deeper is going on.

The reason that I think this is that we need to make more participation in capitalism. Capitalism is about ownership. You have to own an asset. And if you don’t own anything, if you’re just selling labor in the current economy with digital and AI and robots and all this sort of stuff — the real reason that wages are where they are is that the rules of the economy have shifted.

Technology has cut out all the middlemen. Technology has hollowed out the middle class. We used to go to the video store and the video rental store used to have 12 people working there, and now we just go to Netflix. We used to go to our little local retailer and buy a CD, and now we just go to Spotify. We just go to Amazon. So it’s hollowed out all of those supply chains that used to create amazing jobs.

The value of labor has been eroded because it’s very easy to outsource labor to another country. It’s very easy to simplify a job down to automated parts using technology. So the fundamental value of actual labor has diminished because of technology. Technology has reduced the actual utility of this thing that we call labor for 90% of people.

STEVEN BARTLETT: And it’s only going to get worse with AI.

DANIEL PRIESTLEY: And with AI and with robots, it’s going to go down. So if you simply say, “Oh, this is about lifting work standards,” you’re going to miss the point that we can’t compete with technology. Technology is better at this stuff than we are.

And the answer, the solution, is ownership. Everyone in this economy needs to own stuff. We need to own a house. We need to own a family business. We need to own shares in the companies that are growing. You cannot outrun this. This is like trying to run against someone who’s in a car and they say, “Oh, you just need nicer shoes.” No, the shoes won’t change things. We’ve already tried nicer shoes in the UK economy and it’s made no difference. Everyone’s miserable. So that’s where you and I would disagree.

Comparing the US and UK Economies

NICK HANAUER: I mean, both things can be true. The minimum wage in the United States is $7.25 an hour or $2.13 plus tips. It’s a third of what it is here in the UK.

DANIEL PRIESTLEY: Okay. But you have twice the disposable income that we have. Your median wage is 1.5 to 2 times what our median wage is. We’re now a poor country relative to the US. And even though your minimum wage is terrible and horrific and inhuman, it’s magically done it. Your country and your citizens are so much richer than ours.

NICK HANAUER: Yeah. Except if you consider that out of that median wage, you have to take $20,000 a year to pay for healthcare.

DANIEL PRIESTLEY: I think adjusted, it’s still 30% better, even adjusted.

NICK HANAUER: I think if you look at the OECD data, it would be interesting. We might be able to look it up. I can’t remember, but I bet you it’s about 10% different.

STEVEN BARTLETT: Even when you subtract out-of-pocket healthcare costs and insurance premiums, the average American worker still takes home significantly more money than the average UK worker. The average US salary is around $74,000. The average UK salary is around roughly $50,000. Americans pay heavily for healthcare — the average employee in America pays about $6,000 to $8,000 a year in premiums and out-of-pocket costs. Brits do not pay for healthcare because of the NHS.

If a US worker makes $74,000 and spends $8,000 on healthcare, they are at $66,000 before relatively low taxes. The UK worker starts at $52,000 before relatively high taxes. The bottom line is the gap in base salaries and tax rates is simply too large for UK free healthcare to close. The US wins on pure disposable income per person.

NICK HANAUER: Yeah, there’s no doubt the US has had a much more successful economy than the UK. Brexit being, a catastrophe.

The Squeeze on Small Businesses

DANIEL PRIESTLEY: Can I push back on one thing though with the minimum wage? The companies that hollowed out the middle class are big tech companies, big finance companies, those mega corporations. And I agree with you, they can afford to pay their workers more money.

One of the issues that I’m concerned about is that in the UK, the majority of businesses that do pay minimum wage — like a friend of mine owns a pub, and that pub has razor-thin margins. It’s losing money. He’s not taking any money out of it. He’s massively impacted by taxes and minimum wage.

So the companies that I see that are the ones who have to pay minimum wage workers and give people the on-ramp into the economy — pubs, little retailers, mum-and-dad businesses — these are the ones that really do get squeezed out of the economy. They have razor-thin margins, and you put more pressure on them. You say you’ve got more government regulations, you’ve got more taxes, and now you’ve got more minimum wages, and they just go, “I’ve had enough, I can’t do it.”

And the companies that hollowed out the middle class — the Microsofts, the Googles, the Amazons, the Starbucks — they go, “Yeah, we can absorb it.” And also they’re not paying tax anyway, so they’ll just kind of do that.

The Progressive Minimum Wage and Small Business Pressures

NICK HANAUER: So one of the things that you could do, one of the things that we recommend is that you impose these standards progressively, that the biggest companies have to pay the highest minimum wage. Medium-sized companies pay slightly less and small businesses pay less. But even within that context, ensuring that everyone pays enough for people to have enough money to continue to buy stuff. I mean, it’s fine and good to say, “Look, I don’t want to pay high wages in my pub,” but surely the people working in the pub should make enough money so that they can go to the pub themselves and buy a beer, right? You have to— the National Restaurant Association in America is famous for this. They want everybody in America to be able to go to a restaurant and eat, except for the people who work in the restaurants.

STEVEN BARTLETT: Right. Can I just say something with your friend that owns the pub as well? Say you own Starbucks. You own a pub. I’m a worker. If you’re going to pay me more because you have this progressive minimum wage and you’re going to pay less, I’m sorry, Daniel, I’m not going to apply for the job. I’m going to want to go work at Starbucks. So is there not an issue where you’re not going to be able to attract talent because you’re not going to be able to pay them as much?

DANIEL PRIESTLEY: There are many reasons why you would work for a small business as opposed to a megacorp.

STEVEN BARTLETT: But I’m saying you’re paying me £4 minimum wage, he’s paying me £8. Does he not end up getting all the best talent?

DANIEL PRIESTLEY: He might get the best talent. And also for my pub, I might be able to match £8, right? So maybe it works that I just pay £8. But I’m not necessarily legislated to pay £8. So here’s the thing.

NICK HANAUER: Look, as a small business owner, there are all sorts of techniques that you can use to retain people.

STEVEN BARTLETT: You’re going to have more optionality. As a big company? Yeah, because you are going to definitely pay me more.

NICK HANAUER: Well, being bigger is always better. It is absolutely true that that high standard will put pressure on throughout the economy. But the small pub owner is also going to benefit from the fact that all these people now earn so much more that they can afford to go to the pub and buy stuff.

So one of the interventions that I was part of in the United States was the $15 minimum wage. We cooked that up in Seattle, Washington. And so I spoke to many, many small business owners who were absolutely terrified by this because, look, we are all business owners, right? And so you can do a calculation in seconds about the risks and the expenses of higher wages. But what you cannot calculate is the benefit of living in, of operating your company in a regime where everyone earns more, right? And the benefits that accrue to you from that.

Look, a ham sandwich in Somalia costs 25 cents. It costs $25 in Switzerland. What kind of economy do you want to live in?

The Squeeze on Small Businesses

STEVEN BARTLETT: So what were you going to say about your friend?

DANIEL PRIESTLEY: Well, the friend who owns the pub, his pub is actually full most nights of the week. They have lots of people going there. The issue is taxes and costs. He’s got a big government. In the UK, we have all of these things. Like everything that you’ve mentioned, we have it and we’ve had it for 25 years. We don’t have an affluent middle class that’s been created. We have an eroded middle class.

So the actual numbers here is that my friend’s— he took no money himself and the pub lost £180,000 last year. And it’s because of VAT. And he feels like he’s carrying the weight of training people in their first job. He’s creating jobs as one of the only employers in his little town. And also he didn’t create this mess. Amazon and Microsoft and Google and Facebook and big funds, they are sucking money out of the economy.

NICK HANAUER: Yes. We’re in violent agreement about this.

DANIEL PRIESTLEY: So I just feel like the issue is, I really want to make sure that we’re super clear that small businesses are currently squeezed here in the UK. I don’t know what it’s like in the US.

NICK HANAUER: It’s the same in the US.

DANIEL PRIESTLEY: They are so squeezed and they are squeezed by big tech and now AI has come along. They feel like they have to learn this new thing and they have to start posting on LinkedIn 45 times a day using AI posts or else they’ll get drowned out, and they have to edit videos and become a TikToker as well. So it’s all of this constant pressure caused by this tech sector and these big funds.

One of the biggest threats to my friend’s pub is that a big American private equity fund wants to buy the pub and turn it into a block of flats. So they want to financialize this community asset and he’s trying to fight to keep his pub. So what I don’t want to have is big government create a new framework that basically squeezes small family businesses even harder. They’re already losing 2 pubs a day here. They go out of business and then we end up with big corps, big funds who can afford to absorb it and they own everything.

And I also want to be clear that the reason people are struggling is they don’t own anything. It’s not because of working conditions. They don’t own anything. And if they don’t own anything—

Ownership, Wages, and the Limits of Stock Options

NICK HANAUER: It would be wonderful if everybody owned something. But ownership starts with earning enough money so that you can save money so that you can begin to own something. One of the lessons that we learned was that trying to give stock options to everyone in a company often doesn’t work. It’s a catastrophe. Because for 90% of the workers in a company, their concerns are immediate and they don’t value stock options.

DANIEL PRIESTLEY: And if you give them the choice between cash or stock options, they choose cash.

NICK HANAUER: It’s not even close. So again, I agree with the sentiment. It’s just that I have never seen, and I do not believe there is an existence proof for it working on planet Earth.

What certainly worked great in the United States for 40 or 50 years was a set of standards that required companies to fairly split the value they create with their employees through a variety of mechanisms. Unions, which can be problematic for sure, but labor standards like the minimum wage and the overtime threshold and so on and so forth, coupled with a set of policies to discourage consolidation and discourage the kind of exploitation that you have, I think, very smartly articulated, so that we can have a dynamic economy.

DANIEL PRIESTLEY: The only difference that happened back in the time that you’re describing, where workers had to be included, is that it was nearly impossible for a company to outsource their customer success team to the Philippines, and it was nearly impossible for a company to come up with a piece of software that would do 80% of the heavy lifting of a job. And one of the issues that we have right now is that when you put a lot of pressure on all sorts of companies, we’re living in the age of AI and robotics where essentially one of the options that companies have is just the option, “Well, we’ll just outsource the labor to another country. We’ll automate it. We’ll simplify it.” Okay. But those—

NICK HANAUER: The rules that enabled people to do that were written by the same people who are consolidating industries and taking advantage. I mean, you don’t have to live in a world like that. There are other ways to organize the world. The neoliberals promised that free trade was going to make all of us richer. And what it did is it flooded our markets with cheap stuff from China. But it is absolutely not clear that it made people’s lives better.

DANIEL PRIESTLEY: Made Chinese people’s lives—

NICK HANAUER: It made Chinese people’s lives better, but it certainly didn’t make people in the UK’s life better, and it certainly didn’t make people in the United States’ life better. And so you could have imagined approaching that in a fundamentally different way. I guarantee you that if the United States could go back and do it again, we would’ve rethought it.

Sovereign Wealth Funds and Ownership Models

DANIEL PRIESTLEY: We would’ve rethought it. There are a few ownership models that I think are important that could be looked at. Number one is a sovereign wealth fund. So countries like Norway and Singapore, they own natural assets in a sovereign wealth fund. And essentially every citizen therefore owns a piece of some asset. It’s a very successful model. It seems to work so incredibly well that it’s dangerously well. Half of London is now owned by the Qatari sovereign wealth fund, the Norwegian sovereign wealth fund. We’re literally losing all of our property to the sovereign wealth funds of the world. So the sovereign wealth fund model is incredibly powerful.

STEVEN BARTLETT: So just for someone that doesn’t know what that is, you have natural assets within the country owned in part by the state.

DANIEL PRIESTLEY: So the UK did a stupid thing. We discovered the North Sea — back in the ’80s, I think it was — and Norway had half and we had half of this North Sea oil. And the Norwegians said, “Hey, we’ll just own this in a fund that all of our citizens will benefit from and that will be a state-owned fund. And then we’ll take the profits of that, we’ll reinvest it into assets and every citizen will benefit from those assets.” And the UK said, “We’ll just sell a license to British Petroleum.”

NICK HANAUER: We’ll make the rich people richer.

DANIEL PRIESTLEY: Yeah. Australia is so stupid. We have all this incredible natural resource, no sovereign wealth fund. Britain, when we took over the whole world — or 25% of the world — we operated sovereign wealth funds called the East India Trading Company and all this sort of stuff. And basically our business model was sovereign wealth funds for many, many years.

STEVEN BARTLETT: So sovereign wealth funds, number one.

DANIEL PRIESTLEY: So that would be one. The other one is to put shares into babies’ names. So when a baby’s born, you have a piece of the stock market, like $1,000 worth of shares. It’s a baby bond idea.

STEVEN BARTLETT: And Trump’s doing both of these things, isn’t he? Sovereign wealth fund and the baby bond. He’s calling it the Trump Fund or something.

NICK HANAUER: Yeah. Well, they’re experimenting with some version of this right now.

DANIEL PRIESTLEY: Yeah. So if a baby, by the time they hit 18, has had 18 years of compounding of owning that asset, then by the time they hit 18, they’re literally getting an asset that they can then turn into another asset if they want to. That’s pretty powerful.

The Financialization of Housing

DANIEL PRIESTLEY: And then the biggest issue is the financialization of houses. So if you take the value of a house, about half the value of the house is what you might call the utility value of the house, which is it’s a house to live in and I want to live in it. And then the other half of the value is the financial speculation value of the house, which is how much value does a fund have if we can rent this out to people for the rest of their lives?

STEVEN BARTLETT: I looked at the BlackRock thing and it said the idea that BlackRock is buying up UK homes is a myth. They are a financier, not a landlord. They provide loans and debt facilities to property developers, but they do not directly own or manage residential housing stock.

DANIEL PRIESTLEY: Oh, Lloyds Bank is buying 70,000 UK homes to rent forever?

STEVEN BARTLETT: The number of single-family homes BlackRock directly owns and manages in the UK is zero. Okay. But he’s right.

NICK HANAUER: Yeah. I don’t know what the details are, but this is a private equity thing that’s going on in this country and in the United States right now.

STEVEN BARTLETT: Yeah. In the United States, I’ve heard a lot about BlackRock buying up single-family homes.

NICK HANAUER: I’m not sure what the entities are. It may be true.

DANIEL PRIESTLEY: I don’t know what structures they come up with to do it at arm’s length.

NICK HANAUER: Yeah, but I guess you kind of own it if you’re financing it as well, or you loaned it to a subsidiary or somebody else, whatever it is. But the meta point here is that homes used to be owned by people.

DANIEL PRIESTLEY: Yeah. And they bought them to live in.

The Rental Class and Wealth Inequality

NICK HANAUER: Yeah. And one of the nefarious things that’s going on in the West, driven by neoliberal consensus that the only purpose of the economy is to make rich people richer, is this idea that private equity should buy all these homes and turn ordinary people into this rental class.

STEVEN BARTLETT: Just to confirm, yeah, Lloyds Bank are doing that through something called Citra Living. They’re buying up thousands of new-built homes and apartments to act as a direct private corporate landlord. They view the structural shift away from home ownership towards long-term renting as a major profit opportunity for them. Yes, that’s it, right?

DANIEL PRIESTLEY: They want to have a permanent rental class. Yeah, that people never— “you’ll own nothing and be happy” is the idea. And people are not like that. People love to own stuff.

Solving Inequality: Two Different Views

STEVEN BARTLETT: I want to go back to the central point we were talking about, which is how do you solve this? Because you’ve got two different views on how you solve this inequality. What I find interesting is the UK has better worker rights, but it is— But you also have much less inequality here.

NICK HANAUER: I mean, just to be clear.

STEVEN BARTLETT: That is true. So the US is significantly more unequal. The US top 1% holds over 30% of the nation’s wealth compared to roughly 20% in the UK. And the US consistently ranks as the most unequal of the G7 nations. Correct. However, the US is growing much, much faster. If you look at 2019 to 2026, the US has grown over 100% faster than the UK. Yes. And the UK is vastly more protective of workers. We have the things Daniel said, like paid vacation, paid maternity leave. The UK mandates up to 39 weeks of statutory pay. The US mandates zero. Correct. Which is unbelievably horrific. Correct.

NICK HANAUER: But one of the things that happened in the UK, Steve, is Brexit. When did that happen? 2016. Yeah, but it’s the same thing. That’s taken— what has that taken? 8 or 10% out of UK growth rates. It has affected unemployment by 4%, productivity gains by 4%. I mean, the list goes on. So that owned— I mean, part of why people in the UK are feeling down is this unbelievable mistake.

DANIEL PRIESTLEY: That the country made. But it’s the same in Germany. It’s the same in Australia. Germany has unbelievable workers’ rights. Australia, unbelievable workers’ rights. In fact, the USA is the outlier of all the modern capitalist economies.

NICK HANAUER: Absolutely. But we’re confusing things.

DANIEL PRIESTLEY: People are pissed off everywhere in the world. Everywhere, yeah. That’s what I mean. Everywhere in the world. I want the pitchforks to go away as well. But these workers’ rights are not putting the pitchforks away.

Like all of this stuff, we’ve given this stuff to Australia, New Zealand, Canada, all of Western Europe, all the English-speaking democracies other than the USA. USA is the only one that has virtually no safety nets and no safeguards. Everywhere else has healthcare systems that are much more generous and welfare systems that are more generous and like maternity leave. I mean, it’s just inhumane that USA doesn’t have maternity leave.

So all of that stuff, but we’ve got all of that, but we’ve got the pitchforks here too. Yes. And this is why I’m saying I’m really zoning in on the idea that people need to own a house, they need to own a business, and they need to own shares. And it’s like if they own stuff—

Ownership, Property Rights, and Social Cohesion

NICK HANAUER: I could not agree more. And I don’t know how to get them there unless they are paid well enough to do that. Let me tell you an anecdote. During the George Floyd riots, people were burning stuff down in the United States, and there was this fantastic interview with this woman, and the reporter said, “I just cannot believe that you— why do you think people don’t have respect for property rights?” And the woman said, “They’ve got no property. We have no property. Why should I respect property rights? No one I know owns anything.”

So I am 100% with you. But I think at the core of it, the core of it is that inequality is way more than an economic inconvenience for the people that it affects. What it does is it shreds the reciprocity norm that makes social cohesion— Kindness. —and democracy possible. It’s this dog-eat-dog, you’re all on your own, grab what you can. I mean, obviously, the Trump people—

DANIEL PRIESTLEY: And burn the place down.

NICK HANAUER: That’s right. And burn the place down. Obviously, Donald Trump has created a permission structure for the worst kind of behavior, right? The worst kind of corruption. Basically, stealing has come back into style, right? And there’s all sorts of reasons that are generating this malaise, this sense of unfairness and lack of control.

And the thing is, I agree 100% with your sentiments. I really do about entrepreneurship and ownership. And at the end of the day, the cool thing about entrepreneurship is you’re in charge. Like you’re in charge here.

STEVEN BARTLETT: But not everybody can be an entrepreneur. Correct. Correct.

NICK HANAUER: And so I do think that that’s a little bit unrealistic.

STEVEN BARTLETT: The issue is that like 70% of all jobs that get created are created by small businesses.

DANIEL PRIESTLEY: And not governments, not big companies — they don’t create jobs. Small businesses create jobs. And if we just— not everyone can be an entrepreneur, but if we had 100,000 entrepreneurs who were all hiring 10 people, we’d have a million jobs and we’d have 100,000 options for people with jobs. So I don’t think that we discount the whole idea that entrepreneurship is a big part of the solution.

The Engels Pause: History Repeating Itself

Can I take us briefly back in time? This is not the first time this has happened. The K-shaped economy has happened in the Engels Pause. So the—

STEVEN BARTLETT: What do you mean by K-shaped economy?

DANIEL PRIESTLEY: So the K-shaped economy is where— a normal economy is one where everyone agrees it’s going up or down or sideways. Everyone can sort of say, “Oh yeah, roughly speaking, it’s a good economy, it’s a bad economy, it’s rising and falling like a tide.” A K-shaped economy is where it’s really good for some and really bad for others. It’s a disrupted economy. Yeah, right? So the top percentage are going up and the bottom percentage are going down.

Now the headlines that we run today are the exact same headlines that were run in the early 1800s in Britain. And it was essentially record profits for industrialists and workers haven’t had any improvements. You could almost take every grievance that we have today and you could just overlay it in the early 1800s and you get the exact same words.

One of the big solutions in the early 1800s was, “We need to export people, we need to get rid of people.” And what they did is they sent everyone to Australia. They picked up people and they put them in Australia, right? Same sort of thing — mass emigration, or whatever you call it, remigration. So they got rid of people out of the country. It was very similar, and we call this the Engels Pause, but we understand what caused it.

NICK HANAUER: 1790 to 1840. Yeah.

DANIEL PRIESTLEY: So what caused it was technology and it was this new—

NICK HANAUER: It was the Industrial Revolution.

DANIEL PRIESTLEY: Yeah. So it was the new technology where we introduced a steam engine, we introduced a spinning loom, we introduced tractors, we introduced all of this sort of new technology, and the owners of that new technology and the people associated with that new technology went like that. They leveled up because of tech, and the people who were not part of that technology went down.

A very simple picture you might want to have in your mind is a farm that had 100 workers farming versus one farm that had a tractor. The tractor farm went like that and all the workers went like that because of technology.

NICK HANAUER: The interesting thing about the Engels Pause is that for approximately 2 generations — 50, 75 years — with the exception of the owners of capital, basically everybody else on planet Earth went backwards. It was hell. It was hell. And what happened is that over time, the political consensus changed and working people clawed back some of that value through unions, through labor standards, so on and so forth.

Tax, Capital Flight, and Corporate Accountability

STEVEN BARTLETT: So I guess the essence of what I want to get to is — something you’ve always talked about, Dan, as well — is that if you start applying pressures on these companies or entrepreneurs, they can just now get up and leave. And that was quite different from that era where we weren’t dealing with technological businesses, we weren’t dealing with IP and those things. So if you start imposing some of these measures, will these companies get up and leave and go somewhere else where market conditions are preferable? A lot of UK entrepreneurs are, as we’ve seen from some of the numbers recently, choosing to go work elsewhere. Okay.

NICK HANAUER: Yeah, I think one of the things that just needs to be acknowledged and put on the table is one of the challenges you have here is — Europe or the world has built this incredibly stupid system where you can operate a business here, take advantage of the UK’s market, take advantage of the UK’s rule of law, take advantage of the UK’s infrastructure, put your stuff in a box, move to Dubai and pay no tax, right? It’s idiotic. It’s just idiotic and suboptimizing.

As an American, I pay tax wherever I go, right? So I cannot come to a place and take advantage of it and then skirt the laws. So this is such a profound disincentive to do the right thing.

DANIEL PRIESTLEY: Well, yeah. Yes. But the real culprit is what companies can do, because US companies can do it. You can’t do it as an individual. But you can set up an office in Ireland, in Luxembourg, which is even worse. And it’s the corporations that are the bad guys, which is—

NICK HANAUER: But you have both problems, because you have UK-based entrepreneurs who are like, “Well, I can stay here and pay 40% tax or whatever it is, right? Just pop off to Dubai, run the business virtually and pay nothing.”

STEVEN BARTLETT: So what are you saying should be done with those people that do that?

NICK HANAUER: I think that UK citizens should pay UK tax wherever they go, and German citizens should pay German tax wherever they go.

DANIEL PRIESTLEY: I don’t think that will solve it because it’s not citizens, it’s corporations that are the bad guys.

NICK HANAUER: It will solve one problem. It will not— this other problem needs to be handled too.

DANIEL PRIESTLEY: The giant vampire squids of the world are companies that are pumping money out of the economies, and they’re faceless corporations that have figured out how to play this game. So for example, let’s take YouTube. YouTube is serving up a ton of videos to people all over this country and they’re running ads, but that is pretending to be in some distant place. It’s not pretending — it’s not being in the UK.

And what we used to do in the UK is we used to have a broadcast license. If you want to broadcast in the country, you pay a flat fee and you can broadcast. Why is YouTube not paying a broadcast license if they are a broadcaster effectively and running ads? They sit there and say, “Oh, but there’s this and we shift our profit through here and oh, we have to, I’m so sorry, but we have to buy our licensing from this company over in this other— Watu or whatever.” It’s like, no, no, no, we don’t care about that. It’s like, look at how many—

NICK HANAUER: If you do business in the UK, you should pay taxes in the UK.

DANIEL PRIESTLEY: It’s just as simple as: you’ve got this many views and the broadcast license for you is this much.

STEVEN BARTLETT: Okay, so do you agree on both points then — that you should tax corporations based on where their customers are consuming, and you should tax individuals irrespective of where they decide to fly off to?

The Tax Problem and Big vs. Small Business

DANIEL PRIESTLEY: Look, I think in a globalized world that we live in, an individual should be allowed to make a new life for themselves if they want to, right? So for example, I genuinely made a new life for myself in the UK 20 years ago. I came here from Australia and I don’t want to pay tax in Australia because I was born in Australia. I paid $1 million worth of tax in Australia, but I now live here. I’ve got 3 kids here and I’ve got a house here and my whole life is here. I don’t like the idea that just because I was born in Australia, it’s not possible for me to make a new life.

NICK HANAUER: But we have a tax treaty. There are ways of handling this. But this ridiculous — look, every rich person I know in Europe is playing this ridiculous game of trying to avoid taxes, right? I don’t know how you can look at that and think this is a good system.

DANIEL PRIESTLEY: But the issue is you and I both know it’s so easy to just turn this into a company game. So for example — we have to appropriately close the loopholes. But I’m seeing so many people demonize people. Like Nick, right? They go, oh, this guy, he’s a rich guy and he shouldn’t be so rich. Honestly, he’s not the problem. I’m sure you pay a bunch of taxes and also you create economic activity around you. These mega corporations do trillions of dollars out of economies.

STEVEN BARTLETT: If we take a mega corporation — think of one in your head — and we decide to tax them where their customers are. I was looking at some of the research and it says corporations rarely just absorb the tax. When countries like the UK or France introduce taxes based on local users, tech giants, like the biggest in the world, immediately raised fees and prices for the consumer and small businesses inside those specific countries to offset the cost.

NICK HANAUER: If we had a global tax system that prevented this, then they wouldn’t do it.

STEVEN BARTLETT: They couldn’t do it. If the compliance cost of tracking user locations and paying local taxes outweighs the profit from the region, companies also tend to simply block users in those countries or pull their products entirely.

NICK HANAUER: Great. And that opens up a possibility of a local company to do it.

STEVEN BARTLETT: Worse. Maybe better. I was thinking here about the large language models, and I was thinking about that as an example. If the UK tried to take on Gemini or ChatGPT, etc., we would be using a significantly worse technology.

DANIEL PRIESTLEY: The truth is that those megacorps, they don’t do this. They want to own the world and they want to dominate the world. They’re not interested in cutting countries out, right? None of them actually cut countries out. You think Facebook is just going to leave the UK? They’re not going to do that.

They did do that in Australia though with the news publishing business. They might do it very briefly as a way to punish political dissent. But ultimately they operate globally, they have a global business model, and essentially we just need to say, “I’m sorry, hey, you’ve had your 20, 30 years of not paying taxes anywhere, but we’re not doing that anymore.”

We are very good at coordinating when we want to coordinate. And we need to say the bad guy here is really just pulling money out of our economies and taking it to other places. And one of the reasons that the USA has become so wealthy with its stock market is because it is the end valuation where all of these vampire squids end up with their balance sheet.

STEVEN BARTLETT: If I look at what happened — it was Australia I was thinking about, but it also happened in Canada — where they passed a law called the Online News Act requiring tech giants to pay local publishers whenever Canadian users shared or viewed news links. And immediately, instead of paying the user location tax, Meta simply blocked all news content from every user in Canada because the cost of compliance just wasn’t worth the hassle for one particular market.

And you have the same thing happen with Amazon, where several US states like California tried to force Amazon to collect local sales tax simply because Amazon had independent affiliates like bloggers, etc., living in those states. And rather than dealing with the complex local tax collection, Amazon instantly terminated thousands of affiliate accounts.

NICK HANAUER: If every state required Amazon to collect local sales tax, then obviously they couldn’t do any of that. They would have to deal with it. It’s just these big corporations have a massive advantage over the jurisdictions that they’re operating in because they have so much more power and so much more flexibility.

Tilting the Playing Field Toward Small Businesses

STEVEN BARTLETT: So what is your solution then, Daniel, to solve for this inequality problem that we’re experiencing? Because you seem to be less interested in the sort of workers’ rights piece because that seems to — we’ve tried it. You’re saying we tried it.

DANIEL PRIESTLEY: Yeah. What I would like personally is I want to see way more small businesses and I want the government to favor small businesses. And essentially say, “We’re going to reduce the taxes and the pressure on the small businesses. We’re going to advantage local small businesses that are here and paying tax. We’re going to create special economic trading zones if your business is based here and is a smaller size. We’re going to basically make ourselves highly competitive for small businesses to show up and do their A-game.”

STEVEN BARTLETT: And what about big businesses?

DANIEL PRIESTLEY: Punish big businesses that are — I wouldn’t punish them.

NICK HANAUER: Just tilt the playing field — I’m 100% with him. Tilt the playing field towards smaller businesses and startups.

I’m not sure if you’ve heard about this thing that I just joined the board of called Enterprise Britain. Brent Hoberman, who does Founders Forum, and Steve Fitzpatrick, who founded OVO, just started it. It’s called Enterprise Britain. It’s a group of us who have gotten together with the express purpose of doing exactly pretty much what you describe, which is to try to make Britain an even better environment for business, mostly small and medium-sized businesses.

And one of the great challenges here is to try to find capital structures that allow small companies to turn into larger companies while remaining here and not fleeing to a better place. But I am 100% in agreement with this. And you can have an incredibly dynamic, fast-growing economy where all of the benefits flow to the people at the very top and everybody else gets screwed. And you have to do both. You have to do both.

AI, Job Losses, and the Future of Entry-Level Work

STEVEN BARTLETT: One of the most important subjects at the moment in society is artificial intelligence. We probably saw recently Eric Schmidt did a commencement speech in front of thousands of students and every time he said the word — yeah, every time he said the word AI.

One of the things that Anthropic, who are one of the leading AI companies, said recently is that entry-level jobs are at risk. And I’ve got this graph here showing the decline of entry-level job postings. I believe it was on LinkedIn, pulled from somewhere, and it shows that they’re consistently dropping and dropping and dropping.

I think about it so often. I was up late last night trying to think through some of this stuff because Anthropic released a report yesterday showing that AI models will be able to improve themselves theoretically in the future and what this might mean. How disruptive do you think AI is going to be as it relates to job losses?

NICK HANAUER: I don’t think Bernie Sanders’ latest idea is terrible.

STEVEN BARTLETT: The US will own 50% of all the AI companies.

NICK HANAUER: Yeah. It is absolutely true that AI is monetizing for free humanity’s intellectual property, and a few people are going to directly benefit from that. And I think that in the same way that Norway created a sovereign wealth fund with this enormous asset that they had, creating a sovereign wealth fund with 50% of the value created by AI and recycling that — I think it’s unclear exactly how those benefits should be recycled, but trying to find a way to make some of that value a cushion for the disruption that it will inevitably cause. I don’t think that’s a crazy idea.

STEVEN BARTLETT: It’s a good idea for China and the US. Yes. But not for anywhere else necessarily. It’s not going to help Senegal or Southampton much.

DANIEL PRIESTLEY: No, in fact, it’ll damage a lot of those places. The Philippines has benefited enormously by being the outsourced back office for a lot of small businesses that AI can now do a lot of those jobs.

One of the things that I always come back to is the idea that, say, the UK has 5.7 million businesses and we have a million unemployed people. We need one-fifth of the businesses to employ one person. AI does actually make your business better. AI is really good at helping you with your marketing. AI is great at helping you do legal contracts. There are 100 ways that AI could actually make 5.7 million businesses a little bit better to the point where they want to hire someone.

And if we can incentivize those things to happen, businesses are trained on how to use AI to their advantage, and tax breaks for small businesses that are hiring — there are actually 5.7 million businesses and 1 million unemployed people. That’s a good match there.

STEVEN BARTLETT: A lot of people have been talking about AI agents and what an AI agent can do. For anyone that doesn’t know, it can go on your computer and get any task you want done on the computer, whether that’s editing tasks or manual data entry tasks or whatever it is. It can click around on the computer and do things. A lot of the entry-level roles were often that kind of work.

I think my entry-level job after I dropped out of university was kind of doing that kind of thing. There was also a little bit of a sales component where I’d cold call people. AI can now do the cold calls too. And increasingly, if we just play the rate of development forward, we’ll be able to do those things. So if these businesses get more and more efficient, again, it comes back to this entry-level point — what role will entry-level team members have in these kind of companies?

DANIEL PRIESTLEY: What’s interesting for me is I have a group of companies, small businesses, dynamic small businesses. We’ve implemented AI in all of them. And as a result, we’ve hired people.

STEVEN BARTLETT: Who have you hired?

AI, Job Displacement, and the Future Economy

DANIEL PRIESTLEY: So entry-level people? We’ve hired some entry-level people who are augmented by AI. So they become more valuable because of AI. But things like appointment setting, we’ve ended up hiring more salespeople because we get more appointments. We use it with our marketing and we end up hiring people who can actually have those final conversations with people.

At the very core of my organizations, we have an AI layer, and the AI layer has context and skills and models and security layer, right, all in there. And it spits out amazing information and data and reports and tells us who to talk to and why to talk to them and what to talk to them about. All these things are happening because of AI.

STEVEN BARTLETT: But it doesn’t get around the point that, if you think about Uber, Dara has been pretty clear that the 9 million drivers they have, I think it is, are going to lose their jobs in the future. If you think about the other sort of white-collar professions we’ve described, that those roles won’t exist in the future. Well, I should say those roles will be changed.

NICK HANAUER: Correct. If I put on my more optimistic hat, the thing is that all businesses operate in a competitive environment and there are two ways to compete. One is to be cheaper. The other is to be better, right? And the thing about AI is that yeah, there are tasks that you can automate away, but one person with good AI tools may be able to do the job of 5, right? And yeah, you could eliminate that job or you could keep that person, give them the right tools and outcompete your competitors.

STEVEN BARTLETT: The right tools. The right tools, right? There’s an assumption that what—

The Calculator Analogy: Has Technology Always Created More Work?

NICK HANAUER: I mean, this is of course what happened with computers, right? I mean, I am older than you guys. So I remember when calculators hit, you had to be there to realize how freaked out people were about calculators, right? People were talking about, well, what are the accountants going to do? And will kids learn math anymore? I mean, it was extremely controversial to bring a calculator to school.

And then along came computers. And the truth is that computers didn’t reduce the amount of work that people did. They increased the amount of work that people did. And I do believe that there are ways in which AI is probably going to do that. And so the job loss may not be as apocalyptic as it now feels like it may be, because again, at the end of the day, you have two ways to choose to compete. You can get rid of somebody and do X, but you could keep that person and have them do 5x and outcompete your competitors in another dimension. I think that that will be something that people are likely to do. Doctors are just going to be better doctors.

STEVEN BARTLETT: I think I definitely agree that there’s going to be this sort of augmentation of certain individuals. I think maybe the difference between calculators or computers versus this is AI is coming into a technological economy. And it is coming in with instant scale in a way that when Anthropic shipped their new model last week, it went to all of us at once everywhere in the world. We were all boom, step change.

With computers, I remember the day that my dad ordered the first computer for our house and we waited for weeks and weeks and weeks and then we got it. It was super expensive to get one. We unboxed it. I remember us all stood around it looking at it and it was like this Windows 95 machine that had no memory on it. So the distribution, the sort of disruption was much slower.

NICK HANAUER: The pace was much slower. Right.

STEVEN BARTLETT: And I understand that with our team, there’s no intent. We have no intention at all to let anybody go because of AI. We’re reskilling people, training people. However, would we end up hiring less people, especially in the near term, than we would have otherwise? I think that’s maybe conceivable. Yeah.

And a lot of companies, I think, are in that position where I actually was speaking to someone yesterday and they said, “We’re just letting the natural attrition in our call center take care of the shift,” which means they lose 25% of people from their call center naturally. They’re just not hiring other people back in. And actually Klarna’s CEO said the same thing. He said, “We’re just letting the attrition take care of it.”

Small Businesses Thriving With AI

DANIEL PRIESTLEY: I’ll give you another example though, just to counter that. I work with a husband and wife couple in the north of England who had a little video production agency and one or two people who did a little bit of contracting with them. They used AI to create a piece of software, and that piece of software helps automate script writing and a few of the things that they do.

They launched a waiting list for this. They got 5,500 people to join the waiting list. They then signed up their first 1,500 clients to a piece of software that cost almost nothing for them to build in 4 months. And now they’re hiring a team of 10 people. And this is a husband and wife who had a small, constrained business who are now building out a bigger business. And this is something that could never have happened. They haven’t had to raise millions of dollars. They haven’t had to hire 30, 40 people. So this tiny little SaaS opportunity is suddenly possible because of AI. And take that AI away and that fast growth dynamic little business is—

STEVEN BARTLETT: Yeah, I think anecdotally I could come up with lots of examples as well where particular people are highly entrepreneurial. They come across an opportunity, but there’s this broad, if you just zoom out on the way that people generate value in the economy at the moment, so much of that is going to change and it’s going to be quite quick, it feels like.

DANIEL PRIESTLEY: Oh, totally.

STEVEN BARTLETT: And I don’t know what you do about, like what do you do about that sudden shift?

The Jevons Paradox and the Lessons of History

DANIEL PRIESTLEY: Well, this happened in the Jevons paradox. The person who had a tractor displaced 100 people who were in the field and those 100 people went into the city looking for work all at once. And it was Charles Dickens wrote A Tale of Two Cities. He wrote Oliver Twist. Guess who else came out of the Jevons paradox? Our good friend Karl Marx, who came up with the most toxic ideas ever created and written down, right? He came off the back of the Jevons paradox.

STEVEN BARTLETT: So what do you do about it? UBI?

NICK HANAUER: I’m not a big fan of UBI at the moment.

STEVEN BARTLETT: Isn’t that kind of what this 50% Bernie Sanders thing would do?

NICK HANAUER: Well, it’s a sovereign wealth fund basically. But you have to find a way to help manage through this transition. And you have to, I think, depend on the value creation— look, the whole valuation that AI is predicated on is job disruption, right? You can’t get to those numbers unless you’re displacing lots of jobs. Exactly. And if that’s true, then we should grab some of that value that is created and recycle it into the economy to try to cushion the disruption that it creates.

STEVEN BARTLETT: This is a bit of a socialist idea, right?

NICK HANAUER: I don’t call that socialism.

STEVEN BARTLETT: What do you call that?

NICK HANAUER: Just common sense. But wouldn’t that broadly apply to all companies and rich people? If they are disrupting the economy and taking an unfair share of that disruption, should we not just grab and recycle back in? But that’s the bit—

Progressive Taxation, Sovereignty, and the Limits of Capitalism

NICK HANAUER: That is the basis upon which every high-functioning democracy in the world operates. I mean, every high-functioning democracy in the world has progressive taxation, labor standards, rules of law.

DANIEL PRIESTLEY: There’s a difference between seizing private property, which would be a socialist way of doing things and a communist way of doing things, and owning strategic assets, which—

STEVEN BARTLETT: Which are private property.

DANIEL PRIESTLEY: So for example, the Dubai government owns the physical hotel buildings that run Dubai, and it leases those out to hotel operators, but it keeps money in its sovereign wealth fund because it says basically a big part of Dubai is that we own these kind of land assets. So do you think we should go and take a portion of these companies? Well, the difference was the Dubai government actually developed those assets.

STEVEN BARTLETT: Right, but we’re already too far down the line within a capitalist society like the United States.

DANIEL PRIESTLEY: So we might say that data is the new oil and data is a common good and it is a common asset that has been sequestered illegitimately by these companies. So therefore you’re not seizing what they created, you’re basically saying, “I’m sorry, but you need to pay a license back to this sovereign wealth fund because you are using a common asset that you were able to essentially seize.”

STEVEN BARTLETT: You stole it from Africans and British people. You stole it from people in Australia. You stole it from people in Canada.

DANIEL PRIESTLEY: The biggest issue that we’re having is that the nature of the entire economy is changing. So this happened 250 years ago where the nature of the economy was land and we had an economic system called feudalism and colonialism. And then the nature of the economy was industrialization and we had an economic system called socialism and capitalism.

And now the nature of the economy is actually fundamentally changing. So in economics, there’s four factors of production: land, labor, capital, enterprise. We’re now swinging like a pendulum from land through capital, labor, and now we’re actually in an enterprise economy. And we need some sort of economic system that reflects the reality of how money and wealth is made. And what is that?

STEVEN BARTLETT: Is that go to OpenAI, take 50% of their company and then pay out the profits of that 50% to the people?

DANIEL PRIESTLEY: I’m always skeptical of any socialist ideas. If it comes from Bernie Sanders, I’m skeptical.

Is Bernie Sanders a Socialist?

NICK HANAUER: Okay, but Bernie Sanders is not a socialist. He says he’s a socialist. Well, socialism is his word. No, socialism is the government owning all the means of production, right? Look, there are a million forms of capitalism. Every country operates slightly differently. And I don’t think that Bernie Sanders is saying that we should abandon markets. What he is saying is we should manage markets for the public benefit, not exclusively for the benefit of the owners of capital. And I think that’s really different.

STEVEN BARTLETT: With like an Amazon, they’re using the roads. Yeah. And the infrastructure.

NICK HANAUER: Correct.

STEVEN BARTLETT: So would you go take 50% of those companies as well for public benefit and then pay it out to the citizens?

NICK HANAUER: No, but we effectively do take part of them in the form of taxes, right? Now the taxes that we impose on those companies, I would argue, and Dan may agree, are insufficient. They do not accurately reflect the value that we give them, they don’t return equal value.

STEVEN BARTLETT: So you’re saying increase the taxes on companies like Amazon. You both agree?

DANIEL PRIESTLEY: Well, Amazon is very successfully avoiding taxes. Yes.

STEVEN BARTLETT: So would you agree to increase the taxes?

DANIEL PRIESTLEY: I think we need to close tax loopholes. We need to make sure that they’re paying taxes like all other companies that operate within the economy.

NICK HANAUER: Like the guy at the pub that you’re talking about pays, right?

DANIEL PRIESTLEY: Yeah, exactly. And the retailers and all that sort of stuff who are in competition with Amazon, right?

Government Incompetence and the Singapore Model

Look, one of the biggest issues that we have is we have widespread incompetence in governments. And I’ll give you a quick stat on this: in the UK government, you are 10 times more likely to die than to be fired for poor performance. And the UK government fires people at 1/600th the rate as normal businesses for incompetence.

So we have an accumulation of massive incompetence in government. So the idea— we can come up with all the best ideas under the sun at this table. We have a fundamentally incompetent set of people who have misaligned incentives. We have basically a revolving door between financial industrial complex, technology industrial complex.

Well, the Singaporean government, they basically said that we’re going to have a very high degree of meritocracy in government, that essentially we promote and fire based on outcomes and merit.

NICK HANAUER: Singapore is a miracle of governance. Amazing governance. It’s a miracle of governance, but it is a very small place. Yeah, totally. And perhaps the only place in the history of planet Earth that has benefited from a well-meaning dictator. Yeah, right. Well, yeah, Dubai. It’s an astonishing story of capability, competence, foresight.

The AI Revolution and the Future of Work

STEVEN BARTLETT: So what is the solution with this AI revolution? I think we all agree that there’s going to be job disruption. And there’s going to be a new type of job. There’s going to be probably a delta of people transitioning to those new types of jobs. I’ve said this before, but I even noticed that within our recruitment processes now, we are really looking for people that have a certain set of skills. We always are. And it’s harder and harder and harder to find those people.

DANIEL PRIESTLEY: Well, that’s training. That’s education and training.

STEVEN BARTLETT: It is. So it takes time.

DANIEL PRIESTLEY: The school system needs to produce people that you would want to hire.

STEVEN BARTLETT: Yeah. And that takes a lot of time.

DANIEL PRIESTLEY: In my hiring, I ask the question, “How deep are you in the AI rabbit hole?” And anyone who says, “Oh, a lot,” I’m like, “Okay, join the team.”

STEVEN BARTLETT: And also, if you think about humanoid robots, Elon Musk’s pay packet mandates him to deliver millions of humanoid robots, or else he doesn’t get his big pay packet. If we think about robotics and humanoid robots coming through, we watched the other day, Figure AI released this video showing a humanoid robot sorting packages on a production line for 8 days straight, beating a human sorting those packages on the production line. My car in Los Angeles now drives itself, as do the taxis, and there’s a huge race to make autonomous vehicles. I’m sure there’s new jobs created, and I understand in foresight it’s hard to understand what those will be. I assume there’ll be more human jobs, more sales jobs.

DANIEL PRIESTLEY: My only thing that I can say is that the future is small businesses. It’s small teams of 10 people making YouTube channels. It’s small teams of 10 people making software. When you have millions and millions of little small businesses, everyone’s happier.

STEVEN BARTLETT: But if you read what Anthropic released yesterday, they’re making the claim that actually we’re getting to a point where it will be an individual with a team of agents who can now make a trillion-dollar company without hiring a single person. And actually, when you said about making software, they might argue that that’ll be agents making that software.

Anthropic said that the amount of code each individual’s producing on their own is 8 times. And this one particular quote, which I actually screenshotted on my phone last night, comes from an engineer at Anthropic, who was saying they feel useless because now they say they haven’t written a line of code in months and months and months. This Anthropic engineer was basically saying, “I come to work, this agent writes the code for me, and I kind of sit and watch and I feel useless.”

Deflation, Trust Fund Kids, and the Shape of Future Jobs

DANIEL PRIESTLEY: So all those examples you gave — okay, but what would happen in that situation is you would have a massive deflationary effect. If there was one person doing all sorts of things in the economy, then the cost of that would go to the cost of the electricity to run the planet, right? So massive deflationary. And then the question becomes, what does everyone do? What do we all do? We do human things, right? Humans always come up with things to do with each other.

If I was to tell my grandfather that there is a job called a personal trainer who takes you to the gym and counts your reps, my grandfather would go, “That’s insane.” And I say, “Oh, there’s 50,000 personal trainers in gyms all over the country.” So there are always these crazy new jobs that get created. I look at what trust fund kids do, right? Because a lot of trust fund kids, they don’t have to worry about money and they don’t have to worry about resources, and they go find something to do. And it’s always weird.

STEVEN BARTLETT: We’re going to traverse through, potentially, the jobs we have now, involuntarily go through this transition moment where I think history is quite clear on what happens in these transition moments. It gets ugly. It gets ugly. And then we’ll come to — what I’m hearing is that you’re saying we will come to some kind of utopia on the other end of this?

Markets, Democracy, and the Role of Government

NICK HANAUER: No, no, no, I don’t think there’s going to be utopia.

STEVEN BARTLETT: What do you think?

NICK HANAUER: Look, I don’t think utopias exist. I do think that markets are the greatest social technology ever invented for creating prosperity and for ennobling the human spirit. That is not because markets are efficient allocators of scarce resources, which is the conventional view. Markets are an evolutionary system that enables groups of people to come together and solve complex problems, and solutions to human problems is what prosperity actually is. It isn’t GDP or money.

And the best world that you can build, I think, on Earth is a market economy governed by a robust democracy that robustly includes all citizens in that economy. Your answer is small business, and I’m 100% behind you and I wish you all the success. My answer is that a lot of people are going to end up working for large companies and/or medium companies, and that we have to ensure — or my part of the answer is that we have to have standards in place to ensure that those companies treat people well enough so that they can be dignified participants in both the society and the economy.

And that will require innovation in laws and rules and all sorts of mechanisms to enable that, but there is no alternative if you want to live in a decent society. The high order bit for me, and the reason I work on economics, is that the existing economic paradigm basically says markets are perfectly efficient. We should just let them run and, you know, what comes will come.

STEVEN BARTLETT: So you’re really focused on increasing the workers’ lives and pay.

NICK HANAUER: If you understand the economy from the conventional point of view, including people in the economy is a liberal luxury that you can afford if and when you have growth. And I think everything the New Economics says is that including more people in the economy more robustly is actually the technical mechanism that makes both economies grow and democracies function.

STEVEN BARTLETT: So to simplify that, what does that mean from a policy perspective?

NICK HANAUER: It is very hard to answer in an uncertain future. In an AI future, if you don’t know what’s going to happen with the economy — I mean, we have no idea how much job loss there will be. We are, I think Dan says quite rightly, going through a transition where the shape of the economy will change.

STEVEN BARTLETT: So do we do nothing through the transition?

NICK HANAUER: No, no, we aggressively experiment with ways to include more people in the economy. Bernie Sanders’ idea is an experiment. What’s the worst that can happen? Like, just think about it. What is the worst that can happen?

DANIEL PRIESTLEY: The worst would be is that you give government more money and they leverage more debt. And as soon as the government has the new assets —

NICK HANAUER: The economy of the United States does not need assets to leverage more debt. We just created —

DANIEL PRIESTLEY: We didn’t need —

NICK HANAUER: That is not true. That is just not true. We have $37 trillion of debt, all of which was basically given away in wars or tax cuts for rich people.

DANIEL PRIESTLEY: But they can print more money. Absolutely.

NICK HANAUER: But these two things, they are not connected. But the truth is that the worst that can happen by running that experiment is that there will be a few dozen guys who are worth $100 billion and not $200 billion. Like, that is the worst that that can do. Is that going to be the end-all be-all? Will it work perfectly? I have no idea. But what I do know is that democracies need to move aggressively to try to make sure that these technological innovations benefit the society broadly, not just a few people narrowly.

Brain Drain, Government Ownership, and the Bernie Sanders Model

STEVEN BARTLETT: If I think about the UK, if you implemented something like that here, would people leave? So if you implemented — say we had an AI company here and you said, “Well, the UK is going to own half of it,” would that company just go and restructure somewhere else?

DANIEL PRIESTLEY: Because it’s digital, they probably would.

NICK HANAUER: But now you’re back to this old problem.

STEVEN BARTLETT: We’ve been seeing this with the data centers. I read a report that said the reason OpenAI didn’t open their data center in the UK, which they said they were going to, is because energy costs 4 times more here. So they said, “We’re not going to do that. We’re going to go somewhere where it’s cheap.” And would that not be the case here where you’d get this sort of brain drain where —

DANIEL PRIESTLEY: Yeah. And the risk that you run with this Bernie Sanders model is that we leverage the government’s balance sheet or non-balance sheet to take out huge debt in the name of our kids and our grandkids that they have to repay. They buy up all these intangible assets and then they’re left holding those assets that may or may not perform and will have debt regardless. And then the super clever little Anthropic guys say, “Oh, actually we’re just going to restructure to Vanuatu now, leave you guys holding all of that toxic debt, and we’re going to go run this from somewhere else.” That could happen.

STEVEN BARTLETT: The other thing that could happen is if, let’s say OpenAI as one example, are making $100 profit at the moment, and Bernie Sanders says we want $50 of that profit, China are going to have an additional $50 to invest in their frontier models and getting ahead.

NICK HANAUER: Bernie isn’t saying, “I’ll take 50% of your profit.” What is he saying? “I’ll take 50% of your stock.”

STEVEN BARTLETT: Which means that then the US would have an equal voting power. Well, then you’re going to get gridlock in terms of voting, right? So if the US owned 50% of the company and Sam Altman, let’s say, owns 50%, they’re going to have to vote on decisions?

NICK HANAUER: Well, you could put some directors from the public on that board.

STEVEN BARTLETT: And what happens to a company when you have the government on the voting board?

NICK HANAUER: I mean, you effectively have this in lots of countries where labor has a seat at the table, right?

STEVEN BARTLETT: With one of your companies, if half of your board were the government, do you think you’d be able to be as innovative, move as fast? I mean, we talked about the bureaucracy of the government.

NICK HANAUER: Yeah, I’m not suggesting that half the directors should be on the government.

DANIEL PRIESTLEY: Yeah, mind you, that’s what China has as well. China has got essentially CCP on the board of all of those companies as well.

NICK HANAUER: And they move pretty fast.

DANIEL PRIESTLEY: It’s a slightly different government, isn’t it? Yeah, it is. And there’s different levels of competence and meritocracy hierarchy. I worry about all of these solutions that empower government because I don’t trust government. My entire life has been one thing after the next made worse by government. That’s my reality, born in 1981. I’ve never had a good experience with government.

The Libertarian Paradox and the Case for Big Government

NICK HANAUER: Okay, but dude, you grow up in Australia and you live in the UK. If you hate government so much, move to the Congo. Seriously. Look, I mean, it is just — no one likes to be constrained. Everyone wants other people held to a high standard. Seriously, there is no libertarian paradise in the world where nobody follows any rules, nobody pays any taxes, and everybody lives like a king. If you hate government, there are plenty — there are 220 countries in the world, 150 of them effectively have no government. Why do you not move your base of operations to those places? Because you would instantly be somebody’s, you know, mush.

DANIEL PRIESTLEY: I’m not an anarchist. I’m not an anarchist. When a government doesn’t fire incompetent people. Okay. Right.

NICK HANAUER: But everybody agrees with the previous government. Everybody agrees democracy is the worst, except for all the others. Right. Like, of course, it is easy to point to these things and say they’re incompetent. But it is just not honest to say that government doesn’t improve our lives. There is literally no example on planet Earth of a high-functioning society without big government.

DANIEL PRIESTLEY: I’m not saying — well, without big government, that’s not true. Give me an example.

NICK HANAUER: Singapore. Singapore is insanely big government.

DANIEL PRIESTLEY: 22% of GDP. Okay.

NICK HANAUER: But they are involved in every element of people’s lives.

DANIEL PRIESTLEY: High competence. They fire incompetent people.

The Path Forward: Ownership, Markets, and the Middle Ground

NICK HANAUER: Again, we’re in violent agreement that we should have governments that do that. You should work hard on the politics in the UK to bring in reforms that would increase the velocity of competence. ‘Cause I love that. That’s the answer. That is the answer is to work hard to increase competence, to build a government that is as high functioning as they can be.

But here’s the thing, and I think you will agree, look, Microsoft, big companies are equally incompetent. Microsoft bought my company Equana for $6.4 billion. This is a company that was growing at 40% year over year. It’s been so long, 30, 40% year over year, $750 million in sales, $200 million in EBITDA or something like that. 3,000, 4,000 of the best internet advertising people on planet Earth. And in one year it was gone. And they wrote the entire $6 billion off 5 years later. Incompetence lives everywhere. And I just don’t think it is realistic to say, “Oh, pox on them, they suck.” Dan, there is no place on earth without government co-creating prosperity.

DANIEL PRIESTLEY: For sure. Here’s where I put my hope in this post-AI world. I want to stack the favor. I want to stack the economy in the favor of the small family business and the small business.

NICK HANAUER: You and me. I’m 100% with you. The question is, how do we get there? And you and I are completely aligned in some ways. We need to aggressively tilt the balance of power in the economy towards the little guy. From the biggest, most exploitative companies to small and medium-sized businesses.

DANIEL PRIESTLEY: So I see big government and big corporate sucking the life out of little people and little businesses.

NICK HANAUER: And I think you are no doubt correct in some cases. But the only thing in human societies that has the power to confront big business is big government. In the history of the world, there has never been another force that had the power to address this problem.

And the reason I care so much about this economic paradigm is that all of the problems you were describing are a consequence of an economic paradigm that was designed to create those problems. That’s why we are in the box we’re in, is because neoliberalism literally said the bigger is better, and that we should afford no protection to small businesses, that we should actively advantage the largest players, that free trade is good for everyone. All of these things that weren’t true and ended up advantaging, in this room, me effectively, and a few thousand people from around the world, and disadvantaged everyone else.

And I think the starting point for change is addressing the fact that we just understood economic cause and effect inadequately, that the things that we thought would lead to growth led to concentration. And the things that we thought were bad for the economy, in many cases those were good for the economy.

Because look, you know the UK so much better than me, and I hate to argue with you about it. But the truth is that you cannot sustain a capitalist system unless most people are paid enough to buy the stuff that the system produces. And there has to be a balance. And again, in the history of the world, there is no example of a thriving economy that did not impose those standards or create through some mechanism the countervailing power that enabled the owners of capital and everybody else to work together to benefit everyone in the long term.

DANIEL PRIESTLEY: You and I are in so much agreement on most of it. We’re like an inch apart.

NICK HANAUER: Yeah, I know, right?

STEVEN BARTLETT: And what is that inch?

The Missing Piece: Ownership

DANIEL PRIESTLEY: So I’ve seen Nick’s policies implemented and I don’t feel it’s enough. And the reason I don’t feel it’s enough is I think people are more than consumers, they’re more than wallets.

NICK HANAUER: Okay, you’ve only heard me talk about the minimum wage and something else. You haven’t seen all of the policies.

DANIEL PRIESTLEY: But the missing piece for me is ownership. When people had houses, they felt really good about communities. When people had small businesses that they owned, they felt really good about their communities. And when people own some shares in the overall economy of the fastest growing companies in the economy, then they feel like they’re participating. So for me, the non-negotiables of fixing this problem is that people can easily own a house, own a business, and own shares in the fastest growing economy.

NICK HANAUER: Yes, yes, yes.

STEVEN BARTLETT: Yes.

NICK HANAUER: And how do we get there? Yes, yes, yes. I totally agree. And I just think that Dan and I have a slightly different view on the path to get there.

DANIEL PRIESTLEY: I think capitalism is ownership. It’s ownership. That’s what capitalism is. Otherwise, if you don’t own anything, you’re not a capitalist.

STEVEN BARTLETT: You agree on the outcome, but the path—

DANIEL PRIESTLEY: Yes. But how did Nick get rich? Nick started companies. He owned a family business. He leveraged the family business into an investment into Amazon. Born on third base. But it’s ownership, ownership, ownership, and did a lot with it. Right? Fair, but—

NICK HANAUER: But I’m saying— Let’s be fair. But how is that applicable?

STEVEN BARTLETT: You’re saying other people should do what Nick did?

NICK HANAUER: Yeah, but it’s hard to get born into a family that owns a small business and—

DANIEL PRIESTLEY: Well, if there’s more people who own small businesses, then it is easier. Right? I just want more people to do it.

NICK HANAUER: What do you mean by this? It’s all about how you get there, right?

DANIEL PRIESTLEY: But you overlook the fact that being born on third base — we should aim for more people to be born on third base.

NICK HANAUER: If more people have— But third base is coming from a family that owns a small business, or whose parents earn enough income to enable all of that, right? And look, not everybody who is affluent — in fact, a tiny minority of people who are affluent — are small business owners, right? They are mostly doctors and lawyers and professionals of a variety of kinds who work in big companies, in middle management roles.

DANIEL PRIESTLEY: I’m not saying everyone should be a small business.

Markets, Socialism, and the Sweet Spot

NICK HANAUER: So anyway, I just think that the higher order bit here — and this may sound like too squishy for you — is that societies have both the right and the responsibility to organize their economies in ways that benefit everyone.

Is socialism the answer? No, socialism is most definitely not the answer. Again, we need to operationally define that term. If socialism means — look it up in the dictionary — the state ownership of the means of production, that is a catastrophe. And it’s a catastrophe because all socialism can do is split up existing prosperity in a fairer way. The problem is that socialism does not know how to create more prosperity. So for one minute you can make everybody better off, but 10 years later everyone is poor. Because this is the power of markets — what markets do as evolutionary systems is they generate and create increasing prosperity. Going from aspirin to antibiotics is economic progress, right?

And the beauty of markets is they’re evolutionary systems where every business effectively is an organism competing to fill a niche, which is the perfect product for whatever market segment they’re creating. You’re a canonical example of this, right? What you have done here. And thank goodness for it, right? Because in a world where there wasn’t capitalism, there’s no way — you have effectively independently created what was a television network. It’s miraculous. You have more reach than MSNBC. That is the power of markets. But they have to be harnessed to benefit people broadly. This does not mean that the profit motive shouldn’t exist. But how?

STEVEN BARTLETT: This is what I’m trying to get to. And there sounds a little bit like there’s this middle ground we’re playing with where socialism on one end is, okay, short-term, whatever you said. Then on the other end, you’ve got this like extreme capitalist approach.

NICK HANAUER: Those are laissez-faire capitalism on one end and socialist state control on the other. Both of those things are terrible ideas. We want something in the middle.

STEVEN BARTLETT: On the socialism side, you get lower growth in your economy over the long term. Correct. And then in a capitalist economy, you might have higher growth, but then you have more inequality.

NICK HANAUER: Yes, correct. And the sweet spot — and this is one of the most important points I would like to make — is that all of the evidence suggests that when you come to the middle and you have a market economy that is actually actively managed to include people, that is the growth sweet spot. You have more growth.

GDP growth rates in the United States were 4, 4.5% for decades — the ’40s, ’50s, ’60s. And then as soon as the neoliberals took over in 1975, GDP growth rates fell first to 3% and now to 2%. When they did what? Cut taxes for rich people, deregulated powerful people, and suppressed wages for everybody else.

So the most important socioeconomic fact, as I’ve said many times before, in the United States is that the median full-time worker earns about $60,000 a year today. If they had maintained their same share of GDP since 1975, instead of earning $60,000, they would earn $120,000 a year.

STEVEN BARTLETT: So you’re saying there’s no trade-off in the middle, because there are trade-offs on both ends. You’re saying that in the middle there’s this sweet spot.

The Narrow Corridor: Balancing Growth and Inclusion

NICK HANAUER: That’s the sweet spot. Where there’s maximum amounts of growth, maximum amounts of participation, maximum amounts of political stability. This is what Daron Acemoglu and James Robinson call “the narrow corridor.” This perfect balance between laissez-faire capitalism and socialism.

Socialism is stupid because it kills markets. But this impulse to more fairly share — let’s call that where socialism comes from — this impulse to have a society which is more egalitarian. But what all the data suggests is that when you build a market economy that basically tries to make sure that everyone participates, where workers get a fair share of the wages, where as the economy grows — as it did for years — and you have a great graph in your show. For decades, as productivity grew, everybody benefited. And then in the ’70s, it decoupled. And as soon as it decoupled, GDP growth rates fell.

And all of this was a consequence of policy. So here’s another thing the new economics teaches: there’s this idea that a thriving middle class is the consequence of economic growth. That if we just let the economy grow, we’ll get this great middle class. And that is because economists assume the economy is something called ergodic.

Now, ergodic means — let me show you the difference between two games. One is ergodic, one is non-ergodic. Rock, paper, scissors is an ergodic game. And what that means is the outcome of the next game has nothing to do with the game before. Monopoly is a non-ergodic game. And in Monopoly, no matter how many times you go to Monopoly school, if you play a game of Monopoly long enough, one person will own everything and everybody else will have nothing.

And that is what a market economy is. It is characterized by luck, path dependence, and compounding. Where you start matters. Some of us started on third base. Some of us, like you, as I recall, started on first base or home plate or something like that.

STEVEN BARTLETT: Well, probably second base.

NICK HANAUER: Okay. Maybe second base, but whatever.

STEVEN BARTLETT: I had parents that loved me, electricity, a house. Yeah. Okay.

The Role of Policy, Finance, and Technology in Shaping the Middle Class

NICK HANAUER: Fair point. And you’re very capable and good looking and all the rest of it. It could — no, I mean, just if we’re just being honest. Yeah. We’re just being honest. You had some natural advantages.

But in Monopoly, you land on Park Place the first roll, you get 4 good rolls in Monopoly, you’re going to win the game, right? And compounding — the better you do, the better you do. And the thing about a nonergodic system is that both advantages and disadvantages compound. Surely you know people in your life who have had a couple of things of bad luck, right? Yeah. And then they spiral into oblivion, right?

And so what that means is that a middle class and thus a high-functioning society with social cohesion is always, always a deliberate construction. It is always created by policy, always. And all of these things that we are pushing back against — him in his way, me in my way — are a consequence of basically an economic theory that said to policymakers, do it that way. And it was a mistake. And we should recognize that mistake and try to heal these mistakes, which we can.

We can have a great society. We can have an ownership society. We can have anything we want. We just have to decide to do it and not let a small group of incredibly rich people dictate the terms of the economy. This is within our grasp.

STEVEN BARTLETT: What are your thoughts?

DANIEL PRIESTLEY: I agree in principle with all of that, especially the last bit — a small group of very, very powerful people dictating the economy. Meeting up in Davos, coming up with how our lives should be lived. There’s more to the story here. In the early ’70s, they decoupled the dollar from gold and they created the fiat system, which meant they could print money. That inflated assets, it financialized assets, including the family home, which meant that as soon as we could print money, we could inflate the value of family homes and make it out of reach of most people.

NICK HANAUER: Well, and then finance took over and became 20% of the economy and all the rest of us.

DANIEL PRIESTLEY: Yeah, we ended up with these two massive institutions, which is the technology industrial complex and the finance industrial complex. And those two institutions have driven a wedge in society. My only difference with Nick, and it’s a small difference, is that I don’t believe raising the floor is going to be enough. I really do —

NICK HANAUER: I didn’t say it’s enough. It’s table stakes. And my experience with that is — it’s a minimum.

Raising the Floor Is Not Enough

DANIEL PRIESTLEY: — because I’ve seen the minimum and the pitchforks are out here in the UK where we have that minimum. My worry here is that where we are, the technology economy and the finance economy is racing as if it’s in a car. And then all of the workers who are selling time for money, labor for money, it’s as if they’re running and we’re saying, “Ah, you guys just need better shoes, you need comfier shoes. If we give you a pair of Nikes, will you guys be happy?” And it’s like, this is not going to close that gap.

We have to acknowledge that technology and finance are the two — like big funds and big tech are basically hollowing out the middle class. And if we don’t acknowledge who the real bad guys are — when I say bad guys, I’m not sure they’re real bad guys, but essentially systemically, they’re the bad guys — we need to essentially say, “Hey, big finance, big tech, you can’t financialize our houses. That’s for us to live in and for us to own. And you also can’t just eradicate all of our little small businesses.”

We need to tip the scales back in the favor of those small businesses because little towns — you go into any town in England, the thriving towns that everyone wants to live in, they have lots of small businesses. They have a butcher, baker, candlestick maker. Stuff is going on.

NICK HANAUER: By the way, the best high street in London is the one I live on. Marlborough High Street. So you agree? 100%. Yeah.

Is There a Sweet Spot Between Capitalism and Inclusion?

STEVEN BARTLETT: One thing I find interesting is you’re saying that there’s this sweet spot in the middle. Yes. Where you still get the upside. You get dynamism. You think there’s a sweet spot in the middle? And decency.

DANIEL PRIESTLEY: It’s a very narrow sweet spot and it’s very hard to achieve because Germany has really tried so hard and their economy is collapsing. Their economy is going so badly at the moment and they’ve tried everything. They’ve got workers who have to be on the board, for example, of every company. You’ve got to have a worker on the board. So they’re doing as much as they can to do inclusion and the German economy —

NICK HANAUER: Okay, but here’s the thing, it is simply not fair to say the German economy is collapsing. Have you been to Germany? Yes. Come on. Have you been to Stockholm?

DANIEL PRIESTLEY: These places are incredibly high functioning. Yeah, there’s definitely a forward momentum, but the German car industry is getting hollowed out right now. China, right? China’s doing that.

NICK HANAUER: Okay, but just because workers are on the board of German companies and German people are unhappy, you can’t necessarily connect these things.

DANIEL PRIESTLEY: I just want to acknowledge though that there are places like Dubai which are very close to laissez-faire capitalism with a sovereign wealth fund. And just — just hold on. If you talk to someone who lives in Dubai, they freaking love Dubai. They are the happiest people. And they talk — they talk to entrepreneurs, entrepreneurial people.

NICK HANAUER: Yeah. The rich people, not the poor brown people who are — well, I mean, because they bus Indians in, don’t they?

DANIEL PRIESTLEY: Well, yes. And also when I talk to a lot of the Uber drivers there and I talk to people who work in cafes there and all that, they’re all quite pro-Dubai as well. Isn’t it like that?

NICK HANAUER: But that’s because their other options are terrific. Yeah.

STEVEN BARTLETT: It’s probably more extreme inequality, isn’t it? It’s more extreme inequality.

DANIEL PRIESTLEY: It’s extreme inequality, but because the place is growing — until recently, obviously — yeah, right, because the place is growing, it feels like there’s a rising tide for everybody. There’s something about economic growth that makes people very, very happy, and there’s something about a lack of economic growth that makes people miserable here in the UK, for example.

NICK HANAUER: Okay, but just again, Dubai — the UAE has been powered by the most extraordinary gusher of free cash probably the planet has ever seen. I mean, you can look up on your iPad there the tailwind that economy gets from the unlimited resources.

DANIEL PRIESTLEY: I wouldn’t say that’s why people love Dubai. They love it because of the entrepreneurial vibe. Like, who loves it? Ambitious people. Yeah. The excitement. Well, no, I see — I see young people who want to have a crack.

STEVEN BARTLETT: And then because they’re rich relative to the people doing the work, the labor.

DANIEL PRIESTLEY: Well, what they’re looking for is a place where their work will be rewarded. Let’s imagine the UK where your ability to get onto capitalism, your first million or your first 2 million, is very easily low taxed in order to get things going for you economically. I just want to see a situation where ambitious — not a bad idea. Yeah, like ambitious people. What I hate is that I see these young people who are really super smart. I wish they were here building and they’re like, “You can’t succeed in the UK. They’ll just tax it off you. As soon as you earn anything, they take it.” And they leave.

I think you’re benefited by a lot of the ambitious people. So when you get one in 10 people who are entrepreneurial, or one in a hundred people who are entrepreneurial, they’re creating optionality, they’re creating companies.

Tax Policy, Inequality, and the American Dream

STEVEN BARTLETT: Do you think the US is this? The US has sort of set up the American dream. This is more of a US approach, isn’t it? Well, what we have there is higher inequality.

DANIEL PRIESTLEY: I’ll give you the two extremes. In the US, you hit the top rate of income tax when you hit $700,000. In the UK, it’s $100,000 and it immediately goes to 60% tax, 62% tax, and then it drops to 45% after that. But there’s this kind of — does it really? Yeah, it’s this weird thing. No, it’s this insane thing where you basically pay 20%, 40%, 60%, 45%, and it’s this kind of —

STEVEN BARTLETT: Fine, but to the point of —

NICK HANAUER: You should probably fix that. People leave.

STEVEN BARTLETT: The US approach sounds much more sane.

DANIEL PRIESTLEY: People are leaving to the US. A lot of Brits are actually going to the US.

STEVEN BARTLETT: And the US has higher inequality, which means it’s probably more likely that the pitchforks will come out.

DANIEL PRIESTLEY: Well, for an ambitious person, they don’t care about equality, right? Inequality is the opportunity to get ahead.

STEVEN BARTLETT: Yeah, they might not, but from a social perspective, the pitchforks are probably going to come out sooner in the US because of that inequality than in somewhere else.

DANIEL PRIESTLEY: They seem to be coming out here in a big way.

STEVEN BARTLETT: They’re coming out here, but they’re also coming out in the United States.

DANIEL PRIESTLEY: Look at Zach Polanski — he is gaining a huge political movement.

STEVEN BARTLETT: Zohran Mamdani in New York — we’re seeing a rise of socialism in the United States.

NICK HANAUER: Okay, but Zohran Mamdani calls himself a socialist because he does not have another word for what he is doing.

DANIEL PRIESTLEY: He has said “seize the means of production.” He’s said it, and he said take houses off landlords.

NICK HANAUER: He’s a card-carrying socialist. Yeah, but he hasn’t done any really socialist things. I just think that there’s a bit of a confusion, but asking wealthy people to pay a little bit more taxes is not socialism. Standing up grocery stores in food deserts because no grocery store will do it because it’s not profitable enough is not socialism. This is the government provisioning benefits to citizens, fixing potholes, making bike ramps, whatever the stuff he’s doing. These are not socialist things. What they are is not strictly neoliberal things, which is just like letting rich people run roughshod over everybody else.

Supporting Small Businesses and Reforming Taxation

DANIEL PRIESTLEY: The thing that I see with, say, a food desert and a store is that the tax system is so punitive that a small opportunity like setting up a grocery store with all the taxes and all the regulations and all the stuff the government puts on you, it’s just not worth doing it. There are better opportunities out there.

Like, I’m not talking about remove it for rich — I’m saying for startups, for small businesses, for businesses that employ less than 200 people. If you basically create very positive conditions for small businesses to get started, they will set up a grocery store in a bad neighborhood because they go, “Yeah, you know what? I can figure out how it works in this.”

STEVEN BARTLETT: Do you think there’s a chance that we have a bit of a bias as entrepreneurs? Everyone at this table is an entrepreneur. And for whatever reason, I think a lot of mine might be some like, I don’t know, trauma or whatever. I had a bias towards setting up a business and taking that risk, whereas my other 3 siblings, they didn’t do that. And I don’t know what I did to have that bias within me.

If you really think about it, it was probably something my parents didn’t intend to do, which meant that at 18, when my 3 siblings went to university and sort of followed that more — one could say, safer path — well, yeah, safer path — I dropped out. How angry were your parents when you dropped out? They didn’t speak to them. My mum — because yeah, my mom’s Nigerian as well, so she didn’t — she left school when she was a child, didn’t get an education, can’t read, can’t write.

DANIEL PRIESTLEY: That must have been a tough conversation.

STEVEN BARTLETT: Tough is an understatement of what happened. But for whatever reason, that’s the path that I took. And I can acknowledge that I’m in a bit of a minority. And I think I sometimes consider like maybe I don’t realize that through privilege or through some genetic privilege or whatever, I had this particular orientation towards entrepreneurialism that maybe other people don’t always have. And that means that the start of the grocery store—

DANIEL PRIESTLEY: I get crucified in the comments. Not everyone can be an entrepreneur, right? I’m not saying everyone can be an entrepreneur. I’ve never said that.

STEVEN BARTLETT: But the grocery store analogy — there is someone who would start that grocery store if it was easier.

DANIEL PRIESTLEY: Well, but not everybody would. There’s always a risk to reward ratio and government brings in all sorts of regulations and government only really thinks about big businesses. If you talk to anyone in government, small businesses don’t exist and they just simply think, “Why hasn’t Tesco done it? Or why hasn’t Walmart done it?”

NICK HANAUER: Yeah, I’ve never started a business in the UK, but I can tell you that in the United States, the barrier to setting up a grocery store in a food desert is not the regulation. It’s Safeway. It’s the supply chain. It’s all the stuff that you’ve described, which makes it incredibly difficult for somebody to operate a single-location grocery store.

DANIEL PRIESTLEY: Like your friend’s pub. Yeah.

STEVEN BARTLETT: And this is what you do about that.

Progressive Regulation and Access to Capital

NICK HANAUER: So what I would do is — and again, in the United States, we used to have lots of laws that pointed the economy towards small businesses. So if I was in charge, I would impose a much higher minimum wage, but I would do it progressively. All the labor standards, all the regulations would be imposed progressively.

And in terms of regulation, I would make it — like, for a big company, there’s a lot of regs, right? You have to follow every rule to the T. For a small business, you have a lot more flexibility. Because we need the standards, but it turns out to be really hard as a single proprietor even to read the manual, right? To know what you’re supposed to do.

So to me, it would all be progressive. So it would be easy to get capital, easy to start a business, relatively unencumbered by regulation, although constrained to a certain extent. Some extent. There are terrible things that small business people do too.

STEVEN BARTLETT: Wait, how do you make it easier to get capital?

NICK HANAUER: Oh, you could have government programs that were designed to help small businesses get off the ground.

DANIEL PRIESTLEY: We have the British Bank that underwrites for the first £25,000 of loans.

NICK HANAUER: Yeah, we used to have the Small Business Loan Fund. The Business Administration in the United States did a lot of that work.

DANIEL PRIESTLEY: Yeah, so we have a lending institution here that is 75% underwritten by government for £25,000 startup loan, right? So there are some schemes that can work. I started all my companies on a credit card.

The key thing is there’s a difference between entrepreneurs and startups that are intending to scale and just small businesses that want to exist as a small business. I’m really big on the idea that we want communities that have lots of small businesses, even if they have no intention to scale and exit and any of those sorts of things. That old-fashioned thing, right?

NICK HANAUER: Where you just had a grocery store.

DANIEL PRIESTLEY: Yeah. And it’s a good thing.

NICK HANAUER: And you weren’t trying to create Walmart. You just wanted to run a grocery store.

STEVEN BARTLETT: It’s hard though, isn’t it? Because if you—

NICK HANAUER: You want to be CVS, and you want to be a network.

STEVEN BARTLETT: But with a grocery store idea, if you’ve got a mom-and-pop grocery store here, then next to it you have — let’s say, in the UK it’s called Spar, which is a grocery store, or 7-Eleven. The problem is if those are next to each other and one has economies of scale — i.e., 7-Eleven can buy the cucumber for 20% of the cost of the mom-and-pop shop — then if you’re on that street, the 7-Eleven is going to survive.

DANIEL PRIESTLEY: That’s why we tilt towards—

NICK HANAUER: The United States used to have laws that expressly prohibited that.

STEVEN BARTLETT: And why did they get rid of them? Neoliberalism. So they got rid of the restrictions on—

NICK HANAUER: Yeah, there used to be express laws to make sure that big companies could not buy raw materials more cheaply than small companies. Like when I was young, when I was your age, if you wanted to buy a competitor, you were sweating bullets because that had to be reviewed by a body. And if they thought that you were consolidating too much, they would just say no.

STEVEN BARTLETT: But if you think about all my friends that have opened retail stores through their companies — they only do that when they get really big because their e-commerce business is supporting it. So if you think about — I know the Gymsharks, the Represents, the interactives. So you can’t—

NICK HANAUER: Okay, with respect to retail, you are largely correct. It depends on what kind of retail. You can’t e-commerce a gym. There are all kinds of retail, some of which is somewhat immune from e-commerce and some of which is getting destroyed by e-commerce.

It doesn’t matter if we’re talking about retail. There were regional manufacturing companies, regional everything. And it all went away. And you have never experienced a world in which that used to exist. Your entire business experience is this sort of neoliberal world of giant companies.

DANIEL PRIESTLEY: True. And the world I grew up in, we were like young, medium, old, right? But I remember what it was like to go to the video store and select videos. I remember what it was like to go to the CD store and listen to music and talk to the retail employees.

When I was growing up, the cool kids worked at the CD store, the geeky kids worked at the bookstore, and everyone else worked at the grocery store. And all of those business models are gone. And this is what I mean — we need to kind of tip back towards small business experimentation being protected and all of that.

Removing Tax Burden from Lower-Income Workers

The other thing too, and I should raise this about minimum wage and giving people more money — the bottom half of taxpayers in the UK pay 9.5% of all the income taxes. The government could remove taxes off of 50% of workers in one move and it would cost £33 billion. And then every single person in the bottom half of income earners gets a 10% to 15% pay rise.

STEVEN BARTLETT: Right. I love it. So where do we get the £32 billion from?

DANIEL PRIESTLEY: Just keep in mind their budget is £1.4 trillion.

STEVEN BARTLETT: I know, I know. But we’re going to have to — £1.4 trillion.

DANIEL PRIESTLEY: You’re talking about this much to take 15 million people—

STEVEN BARTLETT: Yeah, I agree. I’m just saying, where does the money go? Because I know what’s going to happen. Keir Starmer is saying they found this $20 billion black hole in the finances. And that’s the reason why they’re saying they’ve had to cut back on pensions and these kinds of things. So if we add another $30 billion to that, where do we get the money from?

DANIEL PRIESTLEY: You’re talking about reducing the amount of administrative burden to tax 15 million people and keep on top of the tax on 15 million people. Just the sheer volume of people who have to work at HMRC. All of this insanity.

STEVEN BARTLETT: No, but I’m saying where does the money come from?

DANIEL PRIESTLEY: Yeah. So out of £1.4 trillion, I’m pretty sure we could find half of 1% of it or whatever to get these people out of tax. I think we could tax big corporations who are taking the piss. And I also think the economic spending rounds of getting those people — the poorer half of people — should not be paying tax. If you give them more money, they’ll spend more money, right? They’re not going to—

STEVEN BARTLETT: Okay, I agree with you. So you’re saying tax big corporations more in the UK at point of consumption?

DANIEL PRIESTLEY: Personally, I would make it a broad — like it’s very similar to a broadcast license — it’s a fixed fee that’s very hard to wiggle out of.

STEVEN BARTLETT: So if I’m, let’s say, I’m an OpenAI—

DANIEL PRIESTLEY: Yeah, you might have a broadcast license to pay. To access this market.

STEVEN BARTLETT: So you’re going to charge — say you say, “I’m going to charge OpenAI $4 billion, $5 billion to access our market.”

A Broadcast License Tax for Big Tech

DANIEL PRIESTLEY: For example, Facebook is very much broadcasting videos and content all the time. So is YouTube, so is Google, all that sort of stuff. So you just simply say, “Guys, the cost of doing business in this country, if you want access to this market, is a fixed broadcast license fee of $500 million a year or whatever it is.”

And you just say, based on the number of views that you guys get and how much attention you suck out of our economy, we just essentially tax the attention. You’re literally — if people are spending an hour a day on their phone doom scrolling, that is a broadcast. You’re broadcasting to our people, so therefore we’ve got a broadcast license. So those are the types of things that I would look at because they’re very hard to wiggle out of.

STEVEN BARTLETT: Do you think then these companies like an OpenAI would then, as we said earlier, just increase the subscription fee in this market? And you see this sometimes where in certain countries something is cheaper. I remember going to the United States to buy my Apple products because it was cheaper there. And then in the UK, it cost me not even a little bit more — it was like hundreds of dollars more to buy a laptop here. The same laptop in this market versus this one costs different amounts of money.

DANIEL PRIESTLEY: They may choose to try and pass on that consumption tax to consumers. Maybe they do do that. Maybe we could try and legislate against that — that they have to essentially be on parity with where they are in other markets, that they have to charge parity.

If we don’t do anything, we essentially have nurses and teachers and all the people who are in the normal 50% of the economy whose job is now to hold up the economy while Starbucks doesn’t pay taxes, while Amazon doesn’t pay taxes, while Google doesn’t pay taxes.

NICK HANAUER: And Steve, I think all your questions are really, really good, but they all point to the same thing, which is that the economy is a collective action problem.

STEVEN BARTLETT: Right. And now it’s a global action problem.

The Global Coordination Problem and Corporate Monopolies

NICK HANAUER: It’s a global collective action problem. And if we want robust solutions to these problems, we’re going to have to robustly coordinate activity across the world. During the Biden administration, they tried really hard to do this global profit tax, but that collapsed under the weight of pressure. But all of your questions I think are really good, but they all point to the same fundamental weakness of governance.

DANIEL PRIESTLEY: And Nick, you need to talk to your billionaire mates and also say, if we don’t start investing in the economies that we do business with, which you are saying, right?

NICK HANAUER: Of course. Right. It’s a lonely business. I’ll just tell you.

DANIEL PRIESTLEY: But it’s like those CEOs of those companies, you drain the whole economy out and then what next?

The Pass-Through Problem and Regulation

STEVEN BARTLETT: I think on this pass-through problem, I was looking at different ways that this ends up being applied. So if you think about the Big Mac, the Big Mac costs different things in different states depending on how much tax that state charges. So in Oregon, the Big Mac is $8, whereas in Chicago, it’s almost $9.

If you think about bookstores, you can buy one book on the high street for $20, the same book online is $10 because they’re passing through the costs. So it’s conceivable that if we say to big corporations, right, you guys are going to pay a bigger tax to sell into the UK than the UK consumer, that they might pass that on to the UK consumer. And they might look at different markets because they might say as a company, we want to make 30% margins. Also, the UK consumer — the way to make 30% margins in the UK is to bump the cost.

DANIEL PRIESTLEY: UK consumer could say, I’m going to use a VPN and pretend that I’m going to be in a different market and pay a lower price. And it doesn’t matter. You still have to pay the broadcast license if you want to be available in our country. These are hard problems and we need to know who is the person that we’re targeting. It’s the BlackRocks of the world. It’s the big banks of the world. It’s the big mortgage —

STEVEN BARTLETT: I had a private conversation with the CTO of a very large technology business. And he was saying to me, “I don’t think the UK understands the situation it’s putting itself in, and the EU with all this regulation.” He said to me that we sell this particular product. It’s a physical product. And because the UK and the EU have put this new law in where you have to have removable batteries, interestingly, the unintended consequence of doing that is we have to stock more lithium batteries. More of them go into landfill. And also your devices break because they’re no longer waterproof. So it’s actually harming the environment.

And also he said, “The thing you guys don’t realize is that you’re actually not a big market anymore for us. And because South America is coming online, we actually don’t have to sell the product here.” And you think about this in terms of some of the regulations around AI as well. When a new product launches on ChatGPT, it goes in the US first because of regulations. And then maybe —

NICK HANAUER: No, it goes in the US first because it’s the biggest market.

STEVEN BARTLETT: Biggest market. But also we have our regulations around some software and GDPR and all these kinds of things, which means that sometimes we just don’t get the features. And sometimes in my history, in our history of building the previous business I was in, as creators, we would sometimes have to wait 12 or 18 months to get the same tools that my competitors in the United States could use. They’d have the monetization tools first and then we’d have to wait 18 months.

DANIEL PRIESTLEY: The economy is a set of trade-offs. That is the problem. Economics is called a set of trade-offs. The actual definition of economics is making trade-offs and picking your trade-offs. I totally get it. Regulation does actually suck for consumers and for businesses. The EU is now overregulated to the extent that you can’t even take a lid off of a bottle without the government being involved with how the lid comes off the bottle. And it’s killing our dynamism. We are really just like —

NICK HANAUER: And the US is underregulated. And if you buy chicken in a store and don’t cook it, could be anything. One in three chances you’ll get either E. coli —

STEVEN BARTLETT: — or salmonella. And your life expectancy is lower.

NICK HANAUER: Exactly. And everyone who —

DANIEL PRIESTLEY: Everyone who eats in the US comes back from the US and goes, “Oh my goodness, I hate eating food in the US.”

NICK HANAUER: It’s all terrible. It’s all trade-offs.

Morals, Ethics, and Human Flourishing

STEVEN BARTLETT: Does this not then mean our ultimate conclusion of this conversation is around morals and ethics? Around the trade-offs that we think are the right ones to make? And so it’s a question really of morals and ethics.

NICK HANAUER: Yes. Human flourishing. 100%.

DANIEL PRIESTLEY: The purpose of the economy is to improve human life. The way to do this is to massively maximize small business power because when people — when I have to work shoulder to shoulder with my workers, I treat people well. When I’m a mega corporation who have faceless workers down on the factory floor that I will never meet, I will never sit next to on a plane, I will never come in contact with my workers, I can treat them however I like.

STEVEN BARTLETT: Why do you think that’s reductive, Nick?

NICK HANAUER: I think that what Dan is saying is true and massively insufficient. Of course. I mean, we’re in violent agreement about the small business point. I don’t want to be naive and think we should go back to the ’60s or something like that. I don’t think that’s true.

But again, here’s what the new economics shows: that corporate consolidation increases prices, lowers wages, decreases consumer choice, and decreases the rate of innovation. And I 100% agree. Because innovation — the conventional view of innovation, the conventional economic view of innovation, is this sort of great man theory: you have this smart rich guy who’s sitting somewhere and he or she has this amazing idea, and that’s innovation. That is not what innovation is.

Innovation is always combinatorial. Technology makes itself out of itself. You start with a rock. The rock was our first technology and you did a lot of stuff with rocks. And we also had sticks. Actually, sticks were our first technology. But you tie a rock to a stick, you have a hammer, a spear, an arrow, an ax, a shovel. It goes on and on and on.

And what that means in terms of policy is that because innovation is combinatorial, the more diverse people in a network who come together with different ideas and different sets of experiences, that is what drives the rate of innovation. And this is mathematically demonstrated — that a diverse group of people working on a problem will absolutely consistently outperform a homogeneous group of high performers.

The Inequality Conundrum and Global Cohesion

STEVEN BARTLETT: And then when they become really successful, which will happen eventually, if you let that system play out, you have this inequality unless you intervene at some point. And recycle it. And then when you go to recycle it, you get back to this issue of needing global cohesion. Because some people won’t want the recycling. And they’ll say, “Well, I’m just going to go to Ireland or I’m going to go to Dubai.” I’m going to go somewhere else. And this is maybe a function of the new economy where people can just get up and leave and take their value with them. And this is the conundrum.

NICK HANAUER: This is the conundrum. But the meta issue above the conundrum is recognizing that citizens have both the right and the responsibility to want to address that problem. And you grew up in a world where it was illegitimate to address that problem — that economics told you, “Don’t worry about those problems, the market will sort it out.”

STEVEN BARTLETT: Is there a radical idea of how to solve this? Do we need all the very, very rich people in the world to come together collectively and say, “We’re going to create a new model”? How do you — is there any radical ways to solve this stuff? Or is it just all trade-offs once again? Democracy.

Breaking Up Strategic Monopolies

DANIEL PRIESTLEY: One of the big radical ways is breaking up companies, and it’s unthinkable. In fact, you know Jeff Bezos, right?

NICK HANAUER: Yes, I do. He was in my wedding.

DANIEL PRIESTLEY: I wonder if he would lose more sleep about higher taxes or having his company broken up. Oh, for sure broken up. Because if you broke up Google from YouTube, if you broke up AWS, Amazon Prime and Amazon, the biggest thing that scares the billionaires is backing competition with the market. And it’s like, “Oh my goodness, I don’t want to have to compete. I’ve got this amazing monopoly that just works.” So, but is that a perfect solution? Pretty good solution? Least worst solution available?

NICK HANAUER: It’s pretty effective. I mean, this is what Teddy Roosevelt did.

STEVEN BARTLETT: These companies aren’t making any money though. They’re being subsidized by the mothership. So like, let’s say Amazon Prime, that’s competing against Netflix.

NICK HANAUER: Dude, these companies make money where they want to make money for tax optimization and strategic reasons. Look, when we started Amazon.com — I’m not sure if you guys remember — the whole hit on it was it’s not profitable, right?

The secret to Amazon.com’s success is the negative cash conversion cycle. For virtually every business on planet Earth, to grow requires capital. For all of your businesses, growth requires capital. But for Amazon.com, we took an order, we put up the website, you take an order, you instantaneously transmit that order to a book warehouse, which has all of the titles in stock. It’s shipped the next day, it’s received the next day. You ship it out, hit the person’s credit card, but then you don’t have to pay the bookseller for 90 days.

And what that means is the bigger the company gets, the better cash flow gets, whether you’re making money or not. So we didn’t have to make money because most companies have to make money. Because if they don’t, they don’t have the cash flow to continue.

STEVEN BARTLETT: Like Amazon Prime businesses. Yeah.

NICK HANAUER: And so there are things available that we could have made money in one minute just by increasing our prices by 3 or 4%.

DANIEL PRIESTLEY: These companies are also not worth trillions of dollars because they’re not profitable. They’re worth trillions of dollars because they are making money. But the issue is that they have strategic monopolies. And if you really want to make them lose sleep, you need to break up strategic monopolies. You need to say there’s an actual limit to how big a fund can be. There’s an actual limit as to how big a strategic monopoly can be. You can’t have things that hedge naturally against each other and prevent real competition.

And also it ties up their attention. So while they’re thinking about not getting broken up, they’re also not competing with all the other guys out there. Basically, capitalism runs on competition, and this is the one thing that we’ve missed. We have less competition. When Adam Smith said capitalism works, he said it only works when there’s competition. “If there’s one bakery in town, any bread at any quality at any price is what you have to pay. As soon as there’s two bakeries in town, it has to be the best quality at the best price.”

NICK HANAUER: Although with two you can collude, but if you have five, it’s very hard.

STEVEN BARTLETT: So Amazon has a monopoly over — a strategic monopoly. So what does one do with Amazon? You break it up?

DANIEL PRIESTLEY: Into what? AWS, Amazon Prime, Amazon Retail.

STEVEN BARTLETT: Fine, but they’ve still got a monopoly in online e-commerce, theoretically.

DANIEL PRIESTLEY: Yeah, well, it’s just harder. It’s easier for someone to come along and compete. Right now, it’s very, very hard for me to compete with Amazon because they are pulling in cash from AWS. They’re pulling in cash from all these other subscriptions. Amazon Basics.

NICK HANAUER: You could break up the retail. You could say you can have a bookstore, you can have an electronics store, you can have this store, you can have that store.

DANIEL PRIESTLEY: You can’t be the everything store, right? So there’s all sorts of ways that you — but you have to acknowledge when someone has achieved a strategic monopoly.

Closing Thoughts: Hope, Agency, and the Rules of the Game

STEVEN BARTLETT: Do you think that’s a good idea? Do you still own shares in Amazon? No, sadly. Okay.

NICK HANAUER: I wouldn’t be here talking to you guys if I did. No, no, no, no.

STEVEN BARTLETT: That’s true. That’s true. Jeff won’t come.

NICK HANAUER: Yeah. No, sadly I sold my shares, but I am open to all of these ideas because I know — I mean, I am completely with Dan. I know that the world would be a better place if these companies were smaller and we had more competition.

And again, there are no silver bullets to these complex problems the world faces. We are not at this table going to come up with this algorithmic idea that is just going to make the world a better place. None of these solutions are perfect. They are always going to be the least worst thing that we can come up with.

But I think at the level of principle, living in a world where we try actively to limit concentrated power in all its forms, where we try actively to include people in whatever way, whether as entrepreneurs or just workers, as robustly as possible, where we try to make sure that people are engaged enough in the economy so that they will be supportive of the democracy, not want to burn it down — these are high-level principles that I think reasonable people can agree with.

And they come into conflict with people like Elon Musk and Jeff Bezos and Mark Zuckerberg, who do not want to live in that world, who want to live in an oligarchical world. And I just think that we should have that fight and win.

Closing Question: Restoring Hope and Triggering Engagement

STEVEN BARTLETT: We have a closing tradition where the last guest leaves a question for the next, not knowing who they’re leaving it for. And I think it’s quite a relevant question. I’ll ask you first, Dan. The question is, “In a world with so many challenges, what can we do to restore hope and trigger engagement?”

DANIEL PRIESTLEY: Getting back to what we were talking about, we need people to know that the rules of the game have changed and that the rules that we grew up with — where we grew up in a particular industrialized, late-stage industrialized world that had those rules — and we now live in an early-stage digital revolution world.

And the thing that gives me hope is I know how the rules of that world work. Someone explained it to me. They actually explained, “This is how you start a business. This is how you grow a business. This is how you make a million. This is how you hire some people. This is how you get a great team working side by side.” That gave me an enormous amount of hope. I have a pathway out of where I was born and the wealth I was born with and where I am now. Someone explained to me the pathway. “Here’s how the rules work and here’s how you make success.”

One of the things that makes people feel hopeless is that they’re stuck in a game where no one explains the rules.

STEVEN BARTLETT: So explaining the rules.

DANIEL PRIESTLEY: So I would say we need a schooling system. The thing we don’t talk about enough is that the schooling system has to explain to kids the relevant information as to how to function in the current economy.

STEVEN BARTLETT: So I played that forward in my head and I was thinking, okay, you get a million kids and you explain all of the rules to them. At some point, if you just give it a year or two, say they all knew the rules, there’s still an edge. And some of them would figure out the edge. Totally. And then you’ve got this pocket that — everyone knows the rules, but then others know this particular way to beat the system. And that could be with, I don’t know, they learn about AI, they learn about whatever, and then you’re kind of back into the same place.

And you were one such person who got the edge. Someone came to you and went, “Psst, you know, they’re saying the rules are this. There’s actually a way to get an edge.” And you had it within you for whatever reason to capitalize on that edge. And now you’re a multimillionaire. Almost had that edge. So there’s always going to be the rule. And then the rules get — there’s no permanent state. Every single day after you explain the rules to someone, there’s a new set of rules.

DANIEL PRIESTLEY: The only consistent is change. And at the moment, most people I encounter who have never had any explanation going on about how the world works now, they are hopeless. They feel completely hopeless. I see kids who are sending out CVs to Microsoft or to some major company. They don’t realize that those companies are getting 3,500 —

STEVEN BARTLETT: I get it. The day after you explain the rules to them, the rules are one day less relevant. And so it’s true, you’d have to go to school every single day.

DANIEL PRIESTLEY: Well, yeah, lifelong learning. You do have to do lifelong learning. There is a part of the rules that is lifelong learning. That is actually one of the rules, which is the only consistent is change.

STEVEN BARTLETT: It sounds like you’re saying though that if we teach people the rules of business, then people will have more hope. But there are so many people that I know, like my fiancée, who cares about something else much more than she cares about business.

DANIEL PRIESTLEY: She cares about — she just started, she set up Bali Breathwork and she was able to — makes a good plug, right? She was able to create Bali Breathwork. Hashtag ad. Was — well, I said it, not you, right? She was able to figure out how to turn her passion into something that is commercially sustainable. I’m just using her as an example because —

STEVEN BARTLETT: Did she get that from the school system? Fundamentally, she — maybe she got it in part because she has a dad who’s an entrepreneur. Yeah, she has a — someone explained the rules to her. She has the support network, like she supports me, I support her.

DANIEL PRIESTLEY: She knows how to enroll people into her success. All of that is called pitching, teaching, publishing content, creating a product offering. I only know one thing that I’ve seen work again and again and again and again, which is I teach people — the people who learn the Entrepreneurial Method suddenly feel agency and hope. I agree. And I’m not saying that’s for everyone.

STEVEN BARTLETT: Yeah, but this is the problem. It’s not for everyone. It’s for people that had whatever you had in terms of the upbringing, the luck, the whatever, the fortune.

DANIEL PRIESTLEY: I’m not saying everyone’s going to be an entrepreneur. My answer to that question is entrepreneurship. The entrepreneurial toolset gives people a lot of hope.

STEVEN BARTLETT: I get that. And one of the things that we have to acknowledge is that’s a certain type of person who has a certain type of goals. There are some people who actually just want to go outside and they want to work. Maybe they want to work one day a week or two days a week.

DANIEL PRIESTLEY: I don’t want to do push-ups and I don’t want to do sit-ups. I don’t want to go to the gym. But if you ask a fitness professional, “How do you improve your body? How do you feel good?” The fitness professional says, “Hey, these are all the things that I’ve seen working for a lot of people about going out and getting fit.” And you might not want to do them initially, but actually the people who do these things, I hope —

STEVEN BARTLETT: And the people that do those things might have an inherent privilege, right?

DANIEL PRIESTLEY: Like the monopoly analogy. The world’s not fair. Some people are born onto success.

Capital Efficiency vs. Human Flourishing

STEVEN BARTLETT: I need to know your answer to the same question.

NICK HANAUER: I think we need to have vital democracies that manage economies in ways that are optimized around human flourishing and not capital efficiency, not capital accumulation. We live in a world — you completely grew up in a world — where the highest good was capital efficiency. Capital efficiency and godliness were the same. And we have organized society in this way.

In the United States, we literally have a norm and a set of regulations around maximizing shareholder value for corporations. This was invented out of whole cloth by Kaufman in the 1970s — this whole idea that the purpose of the corporation should be merely to enrich shareholders. And the evil of that idea isn’t — what they weren’t saying was “screw the poor.” What they said was, “If you maximize value for shareholders, it will be good for everybody.” And that was the lie, because it wasn’t good for everybody. It was good for a tiny minority of people.

And the lie was that when you do that, growth rates will go up, GDP will go up, we’ll have a rising tide. And the tide didn’t rise, it fell. And what modern economics says is that we can have a different construct, we can have a different society that purposefully includes people in a robust way, whether they’re a worker, whether they’re a small business. And if we do that, everyone will benefit. The economy will grow faster, people will be paid better, prices will be lower, we will have more innovation. This is within our grasp. We just have to decide to do it.

STEVEN BARTLETT: You should go into politics.

NICK HANAUER: I am in politics.

DANIEL PRIESTLEY: Well, I hear that. One thing I don’t like is waiting for the world to change, and I like personal agency. And at Nick’s level that he’s playing at, I love the fact that he’s in politics and he’s using his wealth and his power and his influence to change the system.

For most people, waiting for the world to change does not feel empowering. And I guess where I’m coming from is, yes, tilt towards this because that’s the political movement that’s required to make sure the world includes more people in capitalism. And I love that. And while that’s happening, take personal accountability, personal agency, figure out what is your next move, watch all the episodes of Diary of a CEO, learn from people and jump. And figure out — yeah, subscribe, right? Do me a favor, subscribe to the channel.

But if that is done, people who do that end up feeling hopeful because hope comes from having personal agency, and personal agency is knowing your next move that’s going to benefit you and move you forward.

Privilege, Perspective, and the Limits of Advice

STEVEN BARTLETT: I agree. And I realize, the older I’ve gotten, the more I realize my own privilege. And my privilege isn’t necessarily that I built a business and that I have money now and all those things. My privilege is something happened when I was young from the point of maybe even where my parents —

But do you feel guilty about it? I don’t feel guilty about it, but it just has allowed me to see my own bias and to realize that I have this unknown unknown. Unfortunately, that’s growing by the day because I’m getting more entrenched in my own privilege.

And what I mean by this is I play out the scenario theoretically. My dad left my mum, and my mum still struggles to read and write, and she would have had four kids, can’t read or write, can’t really get employment. She worked at St. Luke’s Hospice as a volunteer. And I go, “God, if that one thing had happened, how different would my life have been?”

And so that’s a privilege that I’ve never even acknowledged because it’s kind of inherent. It was built into my life. And then would I be sat here now? Would I be the person I am today if that one little thing had happened? No. Would I be ambitious and optimistic about the world? Or would I be — theoretically, could I be resentful? Could I be like some of my other friends who came from the same city where I came from, who didn’t have a father?

I’ve said to some of my friends — I said to one of my particular friends back home, “If you would just get a job for a couple of months, I will pay your rent for years.” Didn’t happen. Can’t get a job at Subway for 3 months so that I would pay his rent for years. I ended up helping him anyway, but I just — I remember saying that to him. It just highlighted to me that there’s a real deep inherent privilege that I have that I’m not even aware that I have. Sometimes it’s trauma, my DNA. My brothers are all very smart naturally.

And what if I didn’t? What if I didn’t have those two parents? And what if I didn’t have whatever genetic composition I had? Then would the advice apply — then would the advice I give to the world, would it apply? So I mull that and go, it’s got to pass that lens for it to be broadly applicable and therefore, I think, effective advice.

The Path Forward: Economics, Entrepreneurship, and Personal Agency

DANIEL PRIESTLEY: I love your level of compassion and empathy for people and the fact that you’re having that self-exploration means you’re an incredible type of person. With each individual, each person wants to do the most with what they’ve got.

I’m saying that if I was to visit a small town that had a thriving 10, 15, 20 businesses in there, there were enough entrepreneurs to create optionality for people, that would be a good town to go to. And if I go to a town where there are no entrepreneurs and everyone feels downtrodden and there’s one big Costco and that’s the only employer in town, that’s going to be a shit town.

So all I’m saying is you need a critical mass of people who have agency. And that lifts up the— do you know, in Japan they call it the shogun family, right? And the shogun family lifts up that little community, and around that shogun family you end up with lots of other businesses and lots of other— like, it flows out. But when you have one monolith in the world that is the only company in town, and it is the only place that ships stuff to your door, and there’s only one place to get your CDs, and there’s only one place to get your Netflix, then pretty much everyone else is just reduced to being a consumer.

STEVEN BARTLETT: What do you think, Nick?

NICK HANAUER: Again, I’ve said it before. I agree with this sentiment 100%. I am an entrepreneur myself, but I expect that operating in empowerment applies to— it will no doubt apply to a high percentage of the people who watch your show, right? Lots and lots of people who watch this show are entrepreneurial, want to be entrepreneurial, so on and so forth. But I suspect you’re talking about less than 5% of people on planet Earth that fit that paradigm. And I want to create a paradigm that works for everybody.

STEVEN BARTLETT: And you’re saying if you hit those 5%—

DANIEL PRIESTLEY: Well, even in the UK, it’s 6 million self-employed people out of 30 million workers. It’s not tiny. It’s a pretty decent percent, right? It is a major opportunity that more people than ever could take part in. If you asked a health professional, “How do you get hope?” — go to the gym, go for a run, all that stuff. You’re asking an entrepreneur, “How do you get hope through personal agency?” I’m going to tell you what’s worked for me is the entrepreneurial method.

STEVEN BARTLETT: So maybe we need to ask a broad group of people. Yeah.

NICK HANAUER: But I suspect that what they will come back to you with is the quiet miracle of a normal life.

DANIEL PRIESTLEY: If you want that, that’s great. I want that and I want that for everyone. That’s gone away. It’s gone. Houses are unaffordable. Local jobs don’t exist. No one’s paying healthy wages. Like all of that stuff that I want as well. It’s great to sit there and want it, right. But that doesn’t give me hope. That gives me disappointment that it used to exist, right. The family home that most people would love to raise a family in, it’s £1.2 million now, right.

NICK HANAUER: And if you want to fix that, you have to enact this.

DANIEL PRIESTLEY: Yeah. You have to do these things.

STEVEN BARTLETT: Most people are going to wonder what’s on that piece of paper.

A New Economic Paradigm

NICK HANAUER: The main body of my work is coming up with a different economic paradigm, a way of understanding economic cause and effect that leads to the world that Dan prefers, that I prefer. I think— I don’t know, but I sense it’s the world that you prefer. And what you have to do is you have to rip down the existing economic framework and replace it with a 21st century thing. That inclines policymakers to make good decisions, not bad ones.

And the booklet itself — can you show the booklet? Yeah. So this booklet is 21st Century Economics. Now, this is aimed at policymakers and professionals. But if you go to marketsbuiltforhumans.org, you can download this for free. And that is merely an expression of the paradigm itself — going from believing that we should just increase capital efficiency to human flourishing, going from understanding human beings as homo economicus to homo sapiens, going from understanding the economy as a Pareto optimal equilibrium to a complex— to an ecology, all this stuff. But when you understand it in a new way, you come to very different conclusions about how you should organize the world. And that is the starting point for global transformation.

I love it. He’s already a billionaire.

DANIEL PRIESTLEY: He’s got time on his hands and he’s got money to fly around the world doing it. Do it. And while he’s doing it, all I need is for people like you to help me explain it. Yeah. And I love it. I’m not against it. I’m just saying what will give most people hope is taking agency over their life where they can do something this week to improve their life. So while next time I see you, there will be a test — download it, give it to your lawmakers.

Recommended Reading and Final Thoughts

STEVEN BARTLETT: Well, so what I’ll do then — we’ve got some different reading materials people that are listening can pursue here. We’ve got Dan’s books here, which I’ll link below. Dan, is there a particular best book to start with in your opinion?

DANIEL PRIESTLEY: The most recent one is called The Lifestyle Business Playbook, and it’s basically how to get started with a small business and a business that will give you more fun, freedom, and flexibility. And I like the idea of supporting anyone who’s trying to create a better economy. Some of the most miserable people I know are waiting for the system to change, and I don’t want you to be that person. I want you to be doing something in your life.

STEVEN BARTLETT: And then over here, I’m going to link all of your books below as well.

NICK HANAUER: Yeah, I just think that a starting point for global transformation is — look, economics is the operating system of the world. If it’s the wrong operating system, you end up with a very bad circumstance. And economics is invisible to most people. They don’t even understand it’s the water they’re swimming in. They don’t understand that policymakers are making decisions that affect their lives based on a particular understanding of how the economy works. And if that’s wrong, then you’re going to make some terrible decisions.

If you believe that prosperity trickles down from the top, you’re going to enact a certain set of policies. If you believe that growth is built from the middle out, you will make an entirely different set of policies. If you believe that the middle class is a consequence of economic growth, you will go one way. If you believe that the thriving middle class is the cause of growth, you will do a completely different set of things in terms of policy — all of them aligned with what Dan wants.

But that’s where you have to start. Those are the meta questions that you have to answer. And then you deduce logically to all of the things that Dan prefers. But you have to start up here. You have to start with the set of ideas that govern how people see economic cause and effect. And that is what this is.

STEVEN BARTLETT: I shall link it below. Thank you so much. We’re done. Thank you. You are fantastic.

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