Here is the full text and summary of Nick Hanauer’s talk titled “The Dirty Secret of Capitalism – And a New Way Forward”.
TRANSCRIPT:
I am a capitalist. And after a 30-year career in capitalism spanning three dozen companies, generating tens of billions of dollars in market value, I’m not just in the top one percent, I’m in the top .01 percent of all earners.
Today, I have come to share the secrets of our success, because rich capitalists like me have never been richer.
So the question is, how do we do it? How do we manage to grab an ever-increasing share of the economic pie every year?
Is it that rich people are smarter than we were 30 years ago? Is it that we’re working harder than we once did? Are we taller, better looking?
Sadly, no. It all comes down to just one thing: economics.
Because, here’s the dirty secret. There was a time in which the economics profession worked in the public interest. But in the neoliberal era, today, they work only for big corporations and billionaires, and that is creating a little bit of a problem.
We could choose to enact economic policies that raise taxes on the rich, regulate powerful corporations or raise wages for workers. We have done it before.
But neoliberal economists would warn that all of these policies would be a terrible mistake, because raising taxes always kills economic growth, and any form of government regulation is inefficient, and raising wages always kills jobs.
Well, as a consequence of that thinking, over the last 30 years, in the USA alone, the top one percent has grown $21 trillion richer while the bottom 50% have grown $900 billion poorer, a pattern of widening inequality that has largely repeated itself across the world.
And yet, as middle-class families struggle to get by on wages that have not budged in about 40 years, neoliberal economists continue to warn that the only reasonable response to the painful dislocations of austerity and globalization is even more austerity and globalization.
SO, WHAT IS A SOCIETY TO DO?
Well, it’s super clear to me what we need to do.
So, economics has been described as the dismal science, and for good reason, because as much as it is taught today, it isn’t a science at all, in spite of all of the dazzling mathematics.
In fact, a growing number of academics and practitioners have concluded that neoliberal economic theory is dangerously wrong and that today’s growing crises of rising inequality and growing political instability are the direct result of decades of bad economic theory.
What we now know is that the economics that made me so rich isn’t just wrong, it’s backwards, because it turns out it isn’t capital that creates economic growth, it’s people. And it isn’t self-interest that promotes the public good, it’s reciprocity. And it isn’t competition that produces our prosperity, it’s cooperation.
What we can now see is that an economics that is neither just nor inclusive can never sustain the high levels of social cooperation necessary to enable a modern society to thrive.
SO WHERE DID WE GO WRONG?
Well, it turns out that it’s become painfully obvious that the fundamental assumptions that undergird neoliberal economic theory are just objectively false.
And so today first I want to take you through some of those mistaken assumptions and then after describe where the science suggests prosperity actually comes from.
So, neoliberal economic assumption number one is that the market is an efficient equilibrium system, which basically means that if one thing in the economy, like wages, goes up, another thing in the economy, like jobs, must go down.
So for example, in Seattle, where I live, when in 2014 we passed our nation’s first 15 dollar minimum wage, the neoliberals freaked out over their precious equilibrium. “If you raise the price of labor,” they warned, “businesses will purchase less of it. Thousands of low-wage workers will lose their jobs. The restaurants will close.”
Except… they didn’t.
The unemployment rate fell dramatically. The restaurant business in Seattle boomed. Why? Because there is no equilibrium. Because raising wages doesn’t kill jobs, it creates them; because, for instance, when restaurant owners are suddenly required to pay restaurant workers enough so that now even they can afford to eat in restaurants, it doesn’t shrink the restaurant business, it grows it, obviously.
Thank you.
The second assumption is that the price of something is always equal to its value, which basically means that if you earn $50,000 a year and I earn $50 million a year, that’s because I produce a thousand times as much value as you.
Now, it will not surprise you to learn that this is a very comforting assumption if you’re a CEO paying yourself $50 million a year but paying your workers poverty wages.
But please, take it from somebody who has run dozens of businesses: this is nonsense. People are not paid what they are worth. They are paid what they have the power to negotiate, and wages’ falling share of GDP is not because workers have become less productive but because employers have become more powerful.
And by pretending that the giant imbalance in power between capital and labor doesn’t exist, neoliberal economic theory became essentially a protection racket for the rich.
The third assumption, and by far the most pernicious, is a behavioral model that describes human beings as something called “homo economicus,” which basically means that we are all perfectly selfish, perfectly rational and relentlessly self-maximizing.
But just ask yourselves, is it plausible that every single time for your entire life, when you did something nice for somebody else, all you were doing was maximizing your own utility?
Is it plausible that when a soldier jumps on a grenade to defend fellow soldiers, they’re just promoting their narrow self-interest?
If you think that’s nuts, contrary to any reasonable moral intuition, that’s because it is and, according to the latest science, not true.
But it is this behavioral model which is at the cold, cruel heart of neoliberal economics, and it is as morally corrosive as it is scientifically wrong because, if we accept at face value that humans are fundamentally selfish, and then we look around the world at all of the unambiguous prosperity in it, then it follows logically, then it must be true by definition, that billions of individual acts of selfishness magically transubstantiate into prosperity and the common good.
If we humans are merely selfish maximizers, then selfishness is the cause of our prosperity. Under this economic logic, greed is good, widening inequality is efficient, and the only purpose of the corporation can be to enrich shareholders, because to do otherwise would be to slow economic growth and harm the economy overall.
And it is this gospel of selfishness which forms the ideological cornerstone of neoliberal economics, a way of thinking which has produced economic policies which have enabled me and my rich buddies in the top one percent to grab virtually all of the benefits of growth over the last 40 years.
But, if instead we accept the latest empirical research, real science, which correctly describes human beings as highly cooperative, reciprocal and intuitively moral creatures, then it follows logically that it must be cooperation and not selfishness that is the cause of our prosperity, and it isn’t our self-interest but rather our inherent reciprocity that is humanity’s economic superpower.
So at the heart of this new economics is a story about ourselves that grants us permission to be our best selves, and, unlike the old economics, this is a story that is virtuous and also has the virtue of being true.
Now, I want to emphasize that this new economics is not something I have personally imagined or invented. Its theories and models are being developed and refined in universities around the world building on some of the best new research in economics, complexity theory, evolutionary theory, psychology, anthropology and other disciplines.
And although this new economics does not yet have its own textbook or even a commonly agreed upon name, in broad strokes its explanation of where prosperity comes from goes something like this.
So, market capitalism is an evolutionary system in which prosperity emerges through a positive feedback loop between increasing amounts of innovation and increasing amounts of consumer demand.
Innovation is the process by which we solve human problems, consumer demand is the mechanism through which the market selects for useful innovations, and as we solve more problems, we become more prosperous.
But as we become more prosperous, our problems and solutions become more complex, and this increasing technical complexity requires ever higher levels of social and economic cooperation in order to produce the more highly specialized products that define a modern economy.
Now, the old economics is correct, of course, that competition plays a crucial role in how markets work, but what it fails to see is that it is largely a competition between highly cooperative groups — competition between firms, competition between networks of firms, competition between nations — and anyone who has ever run a successful business knows that building a cooperative team by including the talents of everyone is almost always a better strategy than just a bunch of selfish jerks.
So how do we leave neoliberalism behind and build a more sustainable, more prosperous and more equitable society? The new economics suggests just five rules of thumb.
First is that successful economies are not jungles, they’re gardens, which is to say that markets, like gardens, must be tended, that the market is the greatest social technology ever invented for solving human problems, but unconstrained by social norms or democratic regulation, markets inevitably create more problems than they solve.
Climate change, the great financial crisis of 2008 are two easy examples.
The second rule is that inclusion creates economic growth. So the neoliberal idea that inclusion is this fancy luxury to be afforded if and when we have growth is both wrong and backwards.
The economy is people. Including more people in more ways is what causes economic growth in market economies.
The third principle is the purpose of the corporation is not merely to enrich shareholders. The greatest grift in contemporary economic life is the neoliberal idea that the only purpose of the corporation and the only responsibility of executives is to enrich themselves and shareholders.
The new economics must and can insist that the purpose of the corporation is to improve the welfare of all stakeholders: customers, workers, community and shareholders alike.
Rule four: greed is not good. Being rapacious doesn’t make you a capitalist, it makes you a sociopath. And in an economy as dependent upon cooperation at scale as ours, sociopathy is as bad for business as it is for society.
And fifth and finally, unlike the laws of physics, the laws of economics are a choice. Now, neoliberal economic theory has sold itself to you as unchangeable natural law, when in fact it’s social norms and constructed narratives based on pseudoscience.
If we truly want a more equitable, more prosperous and more sustainable economy, if we want high-functioning democracies and civil society, we must have a new economics.
And here’s the good news: if we want a new economics, all we have to do is choose to have it.
Thank you.
Question-and-answer session
Moderator: So Nick, I’m sure you get this question a lot. If you’re so unhappy with the economic system, why not just give all your money away and join the 99%?
NICK HANAUER: Yeah, no, yes, right. You get that a lot. You get that a lot. “If you care so much about taxes, why don’t you pay more, and if you care so much about wages, why don’t you pay more?” And I could do that.
The problem is, it doesn’t make that much difference, and I have discovered a strategy that works literally a hundred thousand times better –
Moderator: OK.
NICK HANAUER: which is to use my money to build narratives and to pass laws that will require all the other rich people to pay taxes and pay their workers better.
And so, for example, the 15-dollar minimum wage that we cooked up has now affected 30 million workers. So that works better.
Moderator: That’s great. If you change your mind, we’ll find some takers for you.
NICK HANAUER: OK. Thank you.
Moderator: Thank you very much.
Want a summary of this talk? Here it is.
SUMMARY:
Nick Hanauer’s talk, titled “The Dirty Secret of Capitalism – And a New Way Forward,” delves into the flaws of the current economic system and proposes a new approach to economics. Hanauer, a successful capitalist in the top 0.01 percent of earners, starts by acknowledging the stark wealth inequality that has emerged over the past few decades.
He criticizes neoliberal economic theories that prioritize the interests of big corporations and billionaires at the expense of the general public. Hanauer argues that these theories have led to policies that have widened inequality and caused economic instability. He advocates for a new economics that is based on scientific research and reflects a more accurate understanding of human behavior.
Hanauer challenges several key assumptions of neoliberal economics:
1. Efficiency of Markets: Neoliberalism assumes that markets are efficient equilibrium systems, suggesting that raising wages would lead to job losses. However, Hanauer presents evidence that raising the minimum wage in Seattle did not result in job cuts but, in fact, boosted employment.
2. Value and Wages: Neoliberalism assumes that the price of something equals its value. Hanauer counters this by highlighting that people are paid based on their negotiating power, not their true worth. Wage inequality is driven by the imbalance of power between employers and employees.
3. Homo Economicus: Neoliberal economics relies on the idea of “homo economicus,” depicting humans as perfectly selfish and rational. Hanauer argues that humans are inherently cooperative, reciprocal, and moral beings, which contradicts the selfishness-driven narrative of neoliberalism.
Hanauer outlines the principles of the new economics:
1. Tending Markets: Like gardens, markets need tending and regulation to function optimally. Unregulated markets can create more problems than they solve, such as climate change and financial crises.
2. Inclusion Drives Growth: Inclusion of more people in the economy, rather than being a luxury, is the primary driver of economic growth.
3. Purpose of Corporations: Hanauer contends that corporations should aim to benefit all stakeholders, including customers, workers, and the community, rather than just enriching shareholders.
4. Rejecting Greed: Greed is not a virtue, and it harms both business and society. Cooperation and fairness are more conducive to a prosperous economy.
5. Economic Laws are a Choice: Hanauer challenges the notion that neoliberal economics is an unchangeable natural law, emphasizing that economic laws are based on social norms and constructed narratives.
In the Q&A session, Hanauer responds to the question of why he doesn’t simply give away his wealth. He explains that his strategy is to use his resources to build narratives and pass laws that will compel other wealthy individuals to pay their fair share in taxes and provide better wages for their workers.
In conclusion, Nick Hanauer’s talk highlights the urgent need for a new economics that prioritizes fairness, cooperation, and inclusion over the outdated and damaging principles of neoliberalism. He emphasizes that creating a more equitable, prosperous, and sustainable society is a matter of choice and can be achieved through thoughtful policy changes and shifts in societal norms.
Resources for Further Reading:
Beware, Fellow Plutocrats, The Pitchforks Are Coming by Nick Hanauer (Transcript)
Kajsa Ekis Ekman: Everybody Talks About Capitalism – But What is It? (Transcript)
Federico Pistono: Basic Income and Other Ways to Fix Capitalism (Transcript)
Bettina Warburg: How the Blockchain will Radically Transform the Economy (Transcript)
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