Better Than Capitalism

Last week I read a great article over at Entrepreneur.com. Written by Andrew Yang, it’s titled “We’re Bringing Unsexy Back to Entrepreneurship.”

I work in a world where the subtext to what we do every day is how we’re going to become the Next Big Thing. That’s not just my company, it’s the whole culture. Every developer’s got a big idea. Every tech startup wants to do something cool. Fourteen of the people you talk to every day have a simple idea that’s sure to be the next billion-dollar unicorn.

It’s a long way from where I came from. For a few years when I was a kid, we lived on a small farm on the edge of a small town in Idaho where my kid sister and I milked our cow by hand every morning and every night. Later we moved a few blocks “into town” but we kept the farm because my dad was a landscaper and we needed somewhere to park the trucks. Back then I was insistent that I wouldn’t work on Saturdays when I took over the business so I could play with my kids, but my vision didn’t extend much further than that.

So given my background as The Kid Who Smelled Like a Cow for the whole of sixth grade, I suppose it’s no surprise that I’m drawn to an article about the unsexy side of entrepreneurship. But I can’t help it.

Andrew starts out by talking about how he was talking to the founder of Chobani yogurt a little while back, then gives a series of “sexy’ entrepreneurship characteristics juxtaposed against “unsexy” ones. He wraps it up by saying that “it’s important to bear in mind that only 1 percent of new businesses receives venture capital (and would be appropriate for it). It’s the other 99 percent of businesses that create most jobs, employ most people, put yogurt in the fridge and make the world go round.”

And he’s spot on. One of the things I struggle with most as I write this blog is the feeling that I’m writing for the ivory tower, writing things that a few MBAs who are all excited about in big-E Entrepreneurship might read but that most people who really make our economy work will never see.

Another thing I struggle with is the sense that the 99% of entrepreneurs don’t need to hear anything I have to say. Collectively, they already know it.

Now, I’m not about to sit here and tell you that the average Joe could cogently describe the causes or effects of the economic dysfunction of western capitalism. He doesn’t have a clue, and he’s really not interested in helping you figure it out either. Most people work hard, trying to get their jobs done quickly and properly so they can go home and do something more important.

Because work isn’t the reason we’re here. In the end, an iPhone is just a phone and a venture fund is just a bunch of money unless they’re helping people live better lives. It’s time more CEOs and Chairmen of the Board started seeing their businesses as a way to help their employees earn a living so they can go home and do something more important.

 

 

I’ve said before that this blog grew out of a crazy idea about giving up the profits of a successful business in order to spend that money on increasing the salaries of our employees.

That’s really a simplistic example of the core idea.

But this idea isn’t limited to millionaire executive types.

What if, instead of borrowing $50,000 to buy that jacked-up Chevy your wife’s been eyeing, you bought yourself a little four-banger Ranger and used the couple hundred extra bucks you’ll save on your payment every month to start helping your neighbor earn a few bucks so he can pay for new shoes for all his kids who are always running all over the place?

Or what if you just didn’t spend so much time working to buy that $50,000 Chevy so you could spend some more time with the old widow who lives across the street? Or volunteering at a soup kitchen? Or teaching your oldest boy how to mow a straight line when he does the neighbors lawn? Or reading a book that helps you be a better person?

The point is, this life isn’t all about work. Work begins to consume us and business leads us astray because they start to be about satisfying our desires instead of being about enabling us to live comfortably. And that’s just as true for the poor as for the wealthy among us.

James Clear recently wrote about the Diderot Effect, which is basically the idea that when we begin to focus on obtaining what we want, we will continue to multiply our wants at every step.

The way out of this spiral of consumption is self-denial or, as James puts it, living a “carefully constrained life.”  At the end of the article James says it another way: “my goal is not to reduce life to the fewest amount of things, but to fill it with the optimal amount of things.”

Getting crazy is about defining that optimal amount. It’s about learning to give so much—in terms of our time and our attention as well as our money—that it’s just a little bit crazy.

 

 

In The Widsom of Crowds, James Surowiecki quotes two economists, Joseph Blasi and Eric Kruse, who said “[t]he tangible rewards of employee ownership or some form of sharing the fruits of ownership must go hand in hand with work practices that give workers greater decision-making.”

In his article, How Do You Motivate Employees?, Frederick Herzberg explains that “[i]n attempting to enrich certain jobs, management often reduces the personal contribution of employees rather than giving them opportunities for growth.”

A few weeks ago, I said that one of the “first principles” I’m advocating for in this blog is that “business should exist to make life less difficult for as many people as it can.

That statement has bothered me. Not because it’s untrue, but because it’s not really what I meant and I knew that it wasn’t when I said it. It’s too lukewarm.

Yes, business should exist to make life less difficult for as many people as it can, especially its customers. Yes, I liked the opaque reference to T.S. Eliot’s question, “What do we live for; if it is not to make life less difficult to each other?” But what I really wanted to say was that “businesses should exist to serve their employees.”

A few weeks ago I saw an article on LinkedIn about why millennials are so notoriously quick to dump a job. It’s written by Elizabeth McLeod, and I almost quit reading it after the first couple of lines. But as I scanned it quickly, the last two paragraphs caught my eye. There, at the end, she said,

I was raised to believe I could change the world. I’m desperate for you to show me that the work we do here matters, even just a little bit. I’ll make copies, I’ll fetch coffee, I’ll do the grunt work. But I’m not doing it to help you get a new Mercedes.

I’ll give you everything I’ve got, but I need to know it makes a difference to something bigger than your bottom line.

It would be easy to write this off as youthful arrogance. Probably a few people have. But I think Elizabeth has put her finger on the same idea that James Surowiecki, Frederick Herzberg, and I are all circling around: people want to contribute to something meaningful.

It’s not particularly insightful to point out that a successful business has to serve its customers, and that it does that best by making life less difficult.

But what if making our employees’ lives less difficult was our top priority as well? Even more that maximizing our own profit. Could we pay them more? Trust them more? Give them more meaningful responsibilities? Expect more out of them? Teach them new skills? Could we love them?

I’d like to find out.

 

Last week I said we’d start exploring the relationship between the motivator factors described by Frederick Herzberg and James Surowiecki’s wise crowds as a way of describing the sort of investments business leaders should make in their employees.

But over the last few days I’ve seen several more articles about Dan Price and Gravity Payments. I’ve talked about Dan before and I really like what he’s doing. His experience has been a compelling, real-life example of what I’m trying to describe on this blog, and I read just about every article I see.

So I was brought up short when one of the more recent articles about Dan quotes him as saying that “establishing a $70,000 minimum wage is a moral imperative, not a business strategy.”

Is it? A moral imperative?

So far I’ve taken the position that it’s not anyone’s place to decide what’s a moral wage. It strikes me as a fundamentally un-capitalist thing to say what we pay our employees is a moral question. Market wages are, by definition, the average of the wages that thousands of willing employees and thousands of willing employers agree on to accomplish any given task. So, burger flippers make $7.50 an hour and good welders make $100,000 per year. That’s not my decision, it’s the market’s. And the people in the market are, on the whole, not dumb, so how is it immoral of me to pay my employees less than $70,000 if the market salary is $35,000 and my employee willingly accepts that salary?

I’m reading a new book, Thinking Fast and Slow, by Daniel Kahneman, that talks about our tendency to accept what is familiar as true, so I took the time to reflect on this position.

There’s a central assumption about market wages that bears some scrutiny: whether market wages really are the average of the independent decisions of a bunch of employers and employees meeting in a marketplace with perfect information and a tendency to act rationally in their own self-interest.

When I stopped to think about it, I realized that this probably isn’t true. I’m not an economist (although I almost was) but the idea of a market wage, or, more precisely, a market-clearing wage, is a theoretical construct that doesn’t describe reality very well.

In The Wisdom of Crowds, James Surowiecki cites an interesting study into retail price-setting. He cites the study as evidence of the proposition that convention has as much to do with price-setting as does the demand for a particular good. In effect, he says, “companies [simply] decided on the price they were going to charge and charged that price regardless of what happened.” Now I know that’s a simplistic construct, but if he’s generally right about the strong role that convention plays in how prices are set (and I think he is), there are some important correlations about retail prices and wages that can be made.

After all, wages are simply the price of labor, and the people who decide retail prices are very often the same people who decide wage rates. Just as retail prices are not pure reactions to shifting demand patterns, wages are not set by pure reaction to shifting labor needs. Employers routinely decide that a job function isn’t worth more than a certain wage, regardless of the employee’s demands. With a global economy, accommodating an employer’s decision in this regard is easier than ever. On the other hand, employers also frequently decide to pay their employees more than the market wage.

In any event, I’m not particularly concerned here with why the theory of a market wage doesn’t match the reality of how wages are determined; it’s sufficient to acknowledge the possibility that it doesn’t.

It’s sufficient for my purposes here because if you accept the possibility that market wages aren’t really an accurate reflection of the objective value of a particular job, it’s a whole lot easier to accept the idea that we should consider morality in determining what to pay our employees.

There’s a second important assumption of how market wages are determined that is relevant here. That is, to the extent that market does reflect the average of the expectations about wages held by thousands of employers and employees, there’s nothing to say the market wage actually arrives at the right outcome. The wisdom of the crowd being what it is, the market wage—to the extent it reflects the right outcome at all—is just a better approximation than any individual participant is likely to arrive at.

In other words, because the labor market is essentially an open market in the U.S., and because the market wage is essentially the average of the decision of all participants in any given sector, the market wage takes into account the judgments of all the decision-makers, the good ones and the bad ones. Some are really good, and some are really bad. And as James Surowiecki points out, the crowd is wiser when more people—not fewer—contribute to the decision-making process.

The critical question is how that moral position is expressed in the market. Each market participant is a flawed participant. We have biases, incomplete information, and idiosyncrasies that make our individual judgments less reliable than they otherwise could be. Thankfully, our flaws are not all aligned. If we’re permitted to act independently on the basis of our own convictions, moral or otherwise, and regardless of our flaws, Adam Smith’s invisible hand takes over and our flaws begin to cancel each other out, leaving the market result better than we’d reach individually.

So the fact that a market wage exists isn’t an argument against taking a moral position at all. In fact, it’s an argument for taking a strong moral position about what wages should be. By contributing our moral convictions to the market decision-making machine, we’re actually making the market result better.

So I guess I agree with Dan; as long as he means its an individual moral imperative and not a governmental one, establishing a $70,000 minimum wage is a moral imperative.

Just don’t tread on me.

I’ve talked a lot on this blog about making investments in our employees. For the most part, that talk has been framed in terms of increasing our employee’s pay as much as possible. But there is much more to investing in our employees than merely paying them more.

In 1968, Frederick Herzberg wrote a now-classic article for the Harvard Business Review titled How Do You Motivate Employees? The basic premise of his article was that there are two kinds of factors that employers can use to increase the output of their employees. He calls the first a hygiene factor (he also euphemistically calls it a KITA, always abbreviated just so); the second, he calls a motivator. A hygiene factor works by applying an external stimulus to the employee, while a motivator increases the employee’s internal motivation for accomplishing any given task. While hygiene factors often result in short-term gains, they’re insufficient to achieve truly lasting growth.

Fred illustrates the concept with a simple question about motivation: “If I kick you in the rear (physically or psychologically), who is motivated?” Answering his own question, he explains, “I am motivated; you move.”

Turning it around he asks, “If I say to you, ‘Do this for me or the company, and in return I will give you a reward, an incentive, more status, a promotion, all the quid pro quos that exist in the industrial organization,’ am I motivating you?” Fred reports that the overwhelming majority of managers respond affirmatively, that this is indeed motivation.

Unfortunately, they’re wrong.

Just like the threat of physical punishment, the promise of a reward is external motivation. If Fred gives his dog a biscuit and his dog moves, the dog doesn’t move because it wanted to but because Fred wanted it to.

It’s a profound insight.

The answer, Fred explains, is to install a generator in an employee; to give or to help the employee find a reason for wanting to accomplish the work with which they’re tasked. Fred discusses several factors that help to install that generator: achievement, recognition for achievement, the work itself, responsibility, and growth or advancement.

As leaders, our primary responsibility is to build a team that can accomplish the task at hand. Sometimes it’s a team of one, sometimes it’s a multinational corporation. But whatever the size of the team, we are responsible for its creation and for helping it to achieve its purpose. In order to do that, we’ll need to invest the members of our teams with the ability, and the responsibility, to fulfill their roles effectively. This means, as James Surowiecki points out in The Wisdom of Crowds, that we’ll need to decentralize decision-making as much as possible, for “people with local knowledge are often best positioned to come up with a workable and efficient solution. The virtues of specialization and local knowledge often outweigh managerial expertise in decision making.”

Using Fred’s motivators and James’ wise crowds both amount to making an investment in our employees. We’ll explore the relationship between them over the next few weeks.

 

Of capitalism, James Surowiecki says that it’s “healthiest when people believe that the long-term benefits of fair dealing outweigh the short-term benefits of sharp dealing.”

This concept isn’t strictly limited to capitalism, which is not surprising since it comes from a book in which the author argues effectively that organizations can be—and when given the right configuration, often are—better at making decisions than individuals. So it is that families, the 501st Legionnaires, and the stock market are all healthiest when people are invested in the long-term stability of the organization and in the candid, unrestricted interaction of their respective constituents in pursuit of a common goal.

This is a concept that is especially relevant to anyone who wants to implement an otherish approach to business. In fact, it’s intimately related to the concept of otherishness to begin with. It means that in order to accomplish the greatest good that can come from capitalism, we must adopt a long-term perspective that emphasizes outcomes that are appropriate to the nature of the relationship rather than outcomes that will leave one or the other party feeling ill-used.

Dave Ramsey, one of my favorite thinkers, frequently says that two of the primary reasons to get out of debt are the ability to build wealth and the ability to start giving like crazy. And he pounds over and over again on the idea that our incomes are the most effective wealth-building tool we have. I love what he says. Once we’ve reached the point where we can reliably take care of our own needs, giving is one of the most consistently satisfying opportunities we have, and giving takes wealth.

Wealth is a funny word. Its root, weal, is derived from an Old English word that means well-being. Political scientists still use it in its archaic sense when they talk about the common weal, meaning the well-being that pertains to a society as a whole. Wealth, then, carries with it the concept of well-being that I think, sadly, only vaguely persists in most people’s minds.

A few years ago, after hearing Dave talk about building wealth and giving it away, I started to wonder: how much is “crazy”? Is giving away 10% of your income crazy? What about 50%? Or 90%? Is there a point at which giving like crazy is no longer good?

I’ve talked about the problem with charities before. I’ve also pointed out that while a gift that satisfies an immediate need is good, a greater gift is one in which the giver works face-to-face with the receiver and gives to him so that “his hand will be fortified so that he will not have to ask others [for alms].”

Here’s where we tie all these thoughts together.

Businesses, small and large, are the engines of our economy.

If it’s true, as Dave says, that the most effective wealth-building tool is a person’s income, then a business has two of the most effective tools for improving the well-being of its employees: (1) the ability to teach and hone valuable skills and (2) the ability to improve an employee’s income.

If it’s also true, as James says, that capitalism is healthiest when people act fairly toward others rather than trying to take short-term advantage, then to be otherish in business—that is, to see the business primarily as a means to have a positive impact on its employees by developing their skills and by paying them the highest possible wages rather than primarily as a means to benefit the owners—is a spectacular way to create healthy capitalism.

The best part of being otherish, in business or anywhere else, is that it creates a positive feedback loop; employees who recognize the investment made in their own well-being are more likely to reciprocate. Because the nature of the relationship is one where the employees’ well-being is a high priority, they will align their goals with the company’s goals and drive further growth. As long as the company maintains its employee-centric focus, the continued growth will compound on itself and help more employees more effectively.

 

 

 

Adam Grant, in his book Give and Take, explains that successful givers have a distinctive approach to success. While takers are focused on themselves and matchers seek balance, otherish givers “are inclined to . . . characteriz[e] success as individual achievements that have a positive impact on others.”

All too often, business leaders like to believe that it is the force of their vision or the brilliance of their ideas that primarily drives the success of their business. Unfortunately, that’s rarely true.

No doubt, a leader’s insight can be the catalyst that changes how a business or even a whole market operates. But few leaders work alone. Even fewer can claim sole credit for their visions or their brilliant ideas.

One of the perverse consequences of our inordinate focus on solo (or small group) success is that it ignores the input from the teams that support us. A couple of weeks ago I heard about a book by James Surowiecki titled The Wisdom of Crowds. It arrived today and after we got the kids to bed I read the first few chapters. In those chapters, James explains how a crowd that is diverse, that is composed of independent agents, and that maintains a certain kind of decentralization, will select the wisest outcome more consistently than a single person or a select group of experts.

James explains that we can make better decisions by leveraging the collective wisdom of a group of people who are each informed about the task at hand but who bring to bear a distinct set of skills and perspectives. His point is not new. But it is important.

A successful leader will surround herself with people who complement her strengths and weaknesses. She’ll put them in roles suited to their skills and interests. As she does so, she’ll build a team that expands her capacity along two dimensions. Not only will her team bring a greater collective competence to bear, they’ll also far outstrip her in the sheer number of hours they can devote to the work.

No matter how many hours she has put in, her employees collectively have known more and have devoted many hundreds more hours toward the work. This realization should inspire great humility in that leader.

This humility leads naturally to an otherish approach in business. It would, as Adam Grant says, “require dramatic changes in the way that organizations hire, evaluate, reward, and promote people. It would mean paying attention not only to the productivity of individual people but also to the ripple effects of this productivity on others.”

 

The concept of the lone hero is deeply embedded in the American psyche. We love to tell stories about the dedicated visionary who persisted when everyone else thought he was crazy. Invariably, the visionary’s sports team wins the national title, his invention changes the face of modern society, or he single-handedly saves the whole city/country/world from devastation.

The lone hero appeals to us at a pretty basic level. We’ve all been misunderstood. Many (dare I say all?) of us have dreams that are simply too big to achieve. There aren’t too many who would spurn the chance for success. So we love hearing about the lone hero because we can’t help think, “What if?”

The truth is, it’s really hard to be such a loner. Even Batman had Alfred.

The trick is to show up again and again until someone notices what you’re doing, then give them something to do.

You don’t want fans who stand there and nod their heads in agreement. Once you’ve gotten someone to start helping, you’ve doubled your reach.

 

 

Patent trolls are a scourge.

According to  research from James Bessen, Jennifer Ford, and Michael J. Meurer of Boston University, patent trolls cost the U.S. economy somewhere over $80 billion dollars per year. These trolls take from the system but they put nothing of any value back into it. As general counsel of a software company, I have little patience for patent trolls and even less for the lawyers who represent them.

I keep a framed quote from Brigham Young on the wall above my desk at work. It says: “As for lawyers, if they will put their brains to work and learn how to raise potatoes, wheat, cattle, build factories, be merchants or tradesmen, it will be a great deal better for them than trying to take the property of others from them through litigation.”

I get lots of smiles when visitors see it. Most people seem to think that I keep it up there as a bit of not-so-subtle irony, that I’m just another lawyer trolling for laughs. I’m happy to let them continue thinking so (mostly because it’s true). But the main reason I keep it up there is to remind myself.

Patent trolls aren’t the only ones who take from the system. In business, we each decide every day whether we’re going to give to the system or take from it. It doesn’t matter whether you’re a sole proprietor or the head of a multi-national organization, we all face that decision. The truth of the matter is we all take a bit from the system every day; that’s why we work. But the system really only works when, on the whole, we put in a little more than we take out.

Some people think like the trolls: they take because they can. They justify it to themselves, fooling themselves that because what they’re doing is legal (or at least, not illegal) it’s also right.  Some employees do it when they don’t actually work for all the hours they clock. Some employers do it when they say they can’t afford to pay their employees more when what they really mean is they don’t want to pay their employees more because the employees will work for less.

Adam Smith recognized the danger of pursuing wealth without some principle guiding the pursuit. In The Theory of Moral Sentiments he said “th[e] disposition to admire, and almost to worship, the rich and the powerful . . . [is] the great and most universal cause of the corruption of our moral sentiments. That wealth and greatness are often regarded with the respect and admiration which are due only to wisdom and virtue . . . has been the complaint of moralists in all ages.”

Brigham’s quote isn’t just another example of his dislike for lawyers. It neatly sets forth the same principle that Adam Smith realized more than a hundred years before: takers might prosper in the short run, but they do it at the expense of society and their own moral integrity.

I’ve said it before, but it bears repeating: this blog is not about replacing capitalism.

I went to a political rally tonight for Utah’s newest candidate for governor, Jonathan Johnson. I’m lucky to have known Jonathan for a couple of years, ever since my wife and I moved back to Utah after law school. One of my favorite parts of our friendship is our sharing of good books. Jonathan and I both read voraciously and whenever we get together for lunch we always spend the first little while talking about the good books we’ve read recently. So I was excited when we arrived at the rally and at each setting he had placed a copy of Leadocracy, by Geoff Smart. I knew it meant I was getting another of Jonathan’s great book recommendations.

Tonight before tackling this latest post, I read the first couple of chapters. Geoff describes the purpose of Leadocracy, which is to encourage us to hire more great leaders into government. His goal, he explains, is based on the idea that government is only as good as who is in it. He rightly points out that those great leaders come from the private sector. They are you and me. And he’s careful to explain that he’s not calling for a new form of government. Instead, he’s describing “the next step in improving the grand experiment known as democracy.” The rest of the book is his attempt to show us how greater involvement in government from you and me is that next step.

I write this blog partly because it forces me to focus on the question of how to make business better at least once a week. But more than that, I write this blog to encourage each of you, dear readers, to develop a business that serves its customers and its employees. My goal is based on the idea that capitalism is only as good as the purposes it serves.

Just like the great leaders Geoff is looking for, the leaders who will improve capitalism come from the private sector. That might seem obvious. And it is. But the leaders of tomorrow’s capitalism aren’t government leaders, they’re not even today’s executives. They’re MBA students and entry-level customer service reps and kids who grew up during the Great Recession. Hopefully, they’re reading this blog. Maybe, just maybe, they’re people who learned early to avoid debt like the plague, to work hard, and to create. Whoever they are, they won’t replace free markets with some other economic system, they’ll fine-tune capitalism to give better than it gives now.

If capitalism really is only as good as the purposes it serves, they’ll fine-tune it by learning to be otherish in business. Like Marley’s ghost, they’ll fine-tune it by learning that “mankind [is their] business. The common welfare [is their] business; charity, mercy, forbearance, benevolence, [are all their] business. The dealings of [their] trade [are] but a drop of water in the comprehensive ocean of [their] business.”

That’s the next step in improving this grand experiment known as capitalism.

One of the most important concepts to come out of Alain de Botton’s TED talk about success is the idea that success is largely determined by how we define it.

That’s not shirking and it’s not just wishful thinking.

It reminds me of something Clayton Christensen said in his talk (also at TED) “How Will You Measure Your Life?” That is: “It’s actually really important that you succeed at what you’re succeeding at, but that isn’t going to be the measure of your life.”

That’s one of the first principles of this business ethos that I’m defining here. In order to accomplish any of the other goals I’m advocating for, it’s really important for us to succeed at whatever it is we’re doing in business. But as we do it’s essential not to lose sight of the fact that our lives aren’t about our businesses.

Our lives will be measured by how well we’ve helped the people around us be better people.

And so should our businesses.

A couple of weeks ago I told you that being otherish in business means adopting a really crappy status symbol. That’s true because it isn’t easy to spot someone who’s being otherish.

It’s also true because being otherish often means adopting a paradigm in which the status symbols you choose and the way you measure success simply don’t match those of nearly everyone around you.

This week I watched a TED talk by Alain de Botton titled “A kinder, gentler philosophy of success.” Alain’s talk focused on a couple of points that are very important to becoming otherish.

His first point explores one very negative implication of our modern, meritocratic sensibilities. That is: “if you really believe in a society where those who merit to get to the top get to the top, you’ll also, by implication, and in a far more nasty way, believe in a society where those who deserve to get to the bottom also get to the bottom and stay there. In other words, your position in life comes to seem merited and deserved and that makes failure much more crushing.”

I frequently read and hear about managers and executives who say things like, “we only want to hire the rock stars,” or “only the best of the best belong here.” As their teams accomplish their goals, it reinforces this ideal and they begin to look for more star players, becoming more and more selective as they try not to lower the output of the team by bringing on someone who doesn’t fit the ideal.

It’s not surprising to me that these managers often use sports metaphors as they reinforce these ideals to their teams. We all like to win, and we like to be part of capable teams that do what they set out to do.

But as managers of people, it’s important not to get lost in the metaphor. It’s even more important not to let our employees get lost. This is not to say that we shouldn’t expect a great deal out of our employees or each other. We absolutely should. But the more we tell ourselves that we only want the best people, the people who are pulling their weight and adding value, the more we reinforce the idea that those who get fired or don’t get hired aren’t valuable, can’t pull their own weight, and aren’t worth having around.

Unfortunately, this happens everywhere. I’m a reasonably smart guy. I grew up working 60-70 hour weeks on my dad’s landscaping crew, so I’m not afraid of work. I double-majored in genetics and English as an undergraduate with a wife and a kid. I graduated in the top 25% of my class at a top-20 law school in the United States while adding two more kids to our family and holding down two part-time jobs. And I couldn’t get a real job to save my life.

Professors I was close with kept telling me I’d find a great job when I graduated. But I looked for work for nearly a year after I graduated. I landed some part-time and contract work that got us through. But every time I interviewed for a full-time, permanent position with a law firm I was rejected.

It was incredibly demoralizing.

All around me, my professors, friends and family told me not to take it personally. Which was absurd. How could I not? I was interviewing with national firms, firms that loudly proclaimed to anyone who would listen how awesome their legal teams were. I had real-life experience and good grades. And I couldn’t get past a second interview.

Clearly I was not the candidate that the recruiters were looking for.

I was a failure.

Alain’s second point is related, and maybe more important than his first. It’s about success. “One of the interesting things about success,” he explains, “is that we think we know what it means.” But because we’re human we can’t be successful at everything. “So, any vision of success has to admit what it’s losing out on . . . And the thing about a successful life is that a lot of the time, our ideas of what it would mean to live successfully are not our own, they’re sucked in from other people.”

I realized, sometime toward the end of that year-long job search, that I was chasing a vision of success that was not my own. I had accepted the law firm’s definition of success, and by extension, its definition of me, and it was driving me crazy.

So one day, after a great deal of prayer and meditation, my wife and I decided to let go. We packed our things, rented a U-Haul truck, and drove west. We didn’t have a plan. I scheduled some job interviews in Omaha along the way (just in case) and we knew that we’d run out of money for gas just about the time we made it to my sister-in-law’s house in Utah, where we had arranged to crash for a few weeks.

I hadn’t been happier in months. We still had no money, no real job prospects, and very little to be hopeful about. But we were working on our own vision. We were surrounded by friends and family, people who legitimately cared about our well-being. They reached out for us and made introductions. I started knocking on every door I could find with a renewed confidence. A few weeks passed and I found some contract work, then a full-time job offer that suited me.

I wouldn’t have found this job if I wasn’t looking. I also wouldn’t have found this job if I held on to the definition of success imposed by the system. And I certainly wouldn’t have found this job if my new boss had said “we only hire the best.” I was a first-year lawyer with little legal experience and nowhere near the sort of pedigree generally expected of a general counsel.

I’m no Pollyanna. Perhaps I won’t make as much money as I might have at a national law firm. Otherishness is not a panacea. We won’t catch everyone who falls.

But I can play with my kids after work. I’m writing this as I sit next to my wife and we talk about these ideas that I have. And someday, I hope to build a company that makes 100 other people millionaires.

I think I’ll stick with my own vision of success.

I must have done something right in my last blog post because somebody finally commented and disagreed with what I said. I’m glad to see that people are still reading the blog and thinking about what I’ve said. Keep those comments coming!

So, because I thought Stephanie’s comments on my last post deserved a fuller reply than would fit nicely into the comments section, I’m going to take the chance to respond to what she said. First, her comment:

I have to disagree with you on one of your underlying premises. I don’t believe that the wealth large business owners and investors accumulate is deservedly theirs. If all employees were paid an equitable wage and the product was priced right, business owners would not make huge amounts of profit. The basic premise that someone deserves millions of dollars for their idea and that their work is worth more than others is a faulty premise. The employee that carries out the ideas of the owner should be making similar wages, in my opinion. If a company is making millions of dollars, then the item is overpriced and the price should be reduced in order to increase everyone’s well-being and avoid the huge discrepancies in lifestyles that currently exist.

There are several underlying presumptions here; I’ll address two of them. I’ll also point out that I’m borrowing ideas liberally from Hayek’s The Road to Serfdom here; his chapters “Planning and the Rule of Law”, “Who, Whom”, and “Security and Freedom” have much more detailed analysis of the basic presumptions of Stephanie’s questions than I’m giving here.

And before I begin, some additional disclaimers. This post is shorter than I’d like it to be. It’s not a complete answer to Stephanie’s objection. I have other thoughts on this subject that I haven’t included here. I make assumptions that I don’t fully explain or explore. I might change bits of my position in later posts.

All that’s ok, because we’re having a conversation. So, here goes:

Business owners don’t deserve their wealth.

As I’ve said before, I’m committed to the free market. Four primary principles undergird that commitment. First, a society interested in maximizing its citizens’ welfare must operate by the rule of law. Second, that society must allow individuals the greatest degree of individual liberty possible. Third, that society must hold its citizens responsible for the consequences of their actions. And fourth, that society must respect the ownership of private property.

So I look at the question whether a business owner deserves his wealth very simply. Each of the principles above is important here: if we are to respect the ownership of private property and to encourage the exercise of individual liberty, we must allow reasonably intelligent parties to bargain for what they want. Assuming the rules of law effectively prohibit coercion and dishonesty in any private transaction, I must conclude that each party to a transaction deserves to own what he bargained for because the other parties willingly traded with him.

Therefore, if a business owner manages to trade enough of his “things” (money, time, assets, knowledge, etc.) to accumulate wealth without coercion or deceit, it follows that he deserves to own that wealth as a natural consequence of the parties’ choices.

Granted, some business owners lie and cheat and steal. But to say that those business owners don’t deserve their wealth is not the same thing as to say all business owners don’t deserve their wealth.

There is an “equitable wage” which can be determined without regard to the market and which employees should be paid.

Hayek addresses this issue really well. Basically, the question is “how are we to determine what is an equitable wage?” If you begin with the premise that the market fails to determine an equitable wage, it’s quite natural to conclude that some other entity—a bureaucrat, a committee, or some other authority—ought to determine what an equitable wage is.

But the problem with the idea of an “equitable wage” is that it assumes its own conclusion. People who talk about equitable wages already don’t accept the idea that the market approximates a fair wage. Once you accept the premise that the market doesn’t actually dictate a fair wage, you have to look to some other source to find it. It therefore becomes the province of a third party to determine what is “fair” in any transaction. And because each transaction affects several other transactions in such a way that all transactions are ultimately related, it becomes necessary to determine what is fair in every transaction, which requires centralized economic planning.

But in ceding the power to a central planner to determine what is fair or equitable, we would violate the principle that holds us accountable for our own decisions. And because there’s a very real likelihood that I don’t want to make a bargain on the terms set by the third party, it also becomes necessary to coerce me into accepting the transaction (or a given job), violating both the prohibition against coercion and the principle of maximizing individual liberty.

At the risk of invoking Godwin’s Law, what we are describing is socialism. And because socialism requires the violation of these basic principles, I simply can’t prefer its centrally-planned economy to a free market based economy.

Hayek also points out that socialism can’t actually deliver a perfectly equitable wage in the sense of a completely equal wage for each individual in society. At its best, socialism promises “a more just and equal” distribution of wealth. “Not equality in the absolute sense, but ‘greater equality’ is the only goal which is seriously aimed at.”

To my mind, that’s not a bargain worth making. I’ll take the risk of the market if it means preserving my economic freedom. If I’m economically free—if I’m free to make any bargain I want so long as I don’t violate basic principles like “don’t lie, don’t steal, and don’t coerce others”—then I’m free to decide I won’t do any work on the Sabbath because God commanded me not to or to decide that I won’t produce military ordnance because I’m a conscientious objector or to decide that I’m going to pay my employees three times the market wage for their kind of work because I think the market wage is simply too low.

No such freedom exists in a centrally-planned economy. And so whatever socialism is, it’s not better than capitalism.

In a fundamental sort of way, this blog is really not about capitalism, or socialism, or any other -ism at all.

Really, it’s about changing how we approach the world, both in how we perceive it and in how we participate in it.

Most importantly, it’s about how we interact with the people who surround us.

Adam Smith, in The Theory of Moral Sentiments, said “And hence it is, that to feel much for others and little for ourselves, that to restrain our selfish, and to indulge our benevolent affections, constitutes the perfection of human nature.”

That’s an important concept coming from the man who most people consider the father of modern capitalism. It’s especially unfortunate that most people’s understanding of capitalism is completely divorced from this concept.

If more people thought of capitalism as an exercise in indulging our benevolent tendencies instead of our selfish ones, I suppose I wouldn’t be talking about finding a system that’s “better than capitalism.”

When we think about the possibilities that come with a successful business, my model proposes a radically different metric for success. I saw in the news today that Zulily (think Groupon meets mommy-blogger) just sold itself for $2.4 billion. Although that valuation is a discount from its IPO price 2 years ago, it’s not a bad outcome for a company that didn’t exist 10 years ago. It’s founders and (hopefully most of) its stockholders will walk away with considerable money in their pockets.

What if the founders of such a company said to themselves, “one metric of our success will be how many family trees we can change before we exit.” It might mean paying employees more than strictly required. It might mean spreading equity ownership as broadly as possible, or trying to create as many millionaires as possible when the sale does happen. (Really rough math, that I know doesn’t actually reflect reality, tells me you could create 2,400 millionaires out of the Zulily sale alone. Talk about changing family trees).

This is not to say the founders of such a company don’t deserve their wealth. Most do. By and large, they put their own family trees on the line to build successful businesses and provide employment for others. And stockholders of these companies deserve the returns on their capital as well.

But there’s no need to impoverish founders and stockholders in order to indulge our benevolent tendencies. All it takes is for those of us who would be founders or stockholders to ask how much more we can do for those who are not yet founders or stockholders.

Can we teach them to understand better than they do? Can we use our position to influence them to reach for more meaningful pursuits? As they take more responsibility for us and our companies, can we reward them richly and in a way that inspires them not only to give more to the company, but to give more to others who need help?

Truth be told, finding what’s better than capitalism isn’t really about capitalism at all.

 

I’ve been thinking a lot over the last few weeks about Dan Price’s choice to increase the salaries of his employees at the expense of his own and all the press coverage he’s gotten over it.

As I’ve thought, I’ve taken time to ponder the central question of my post a few weeks ago: what are the first principles here?

There were at least two principles at work in Dan’s decision:

1. Make life better for his employees by paying them as much as he could without sacrificing the integrity of his business. In this case, that meant cutting his own salary to pay for their raises.
2. Maintain (or improve) service to his customers. It appears he hoped to achieve this by reducing the stress he saw his employees deal with because of their financial position.

To my mind, both principles are unequivocally correct. So I’m disturbed with the glee that some commentators have shown at the struggles Dan is now facing.

I’m disturbed because I usually tend to agree with these commentators, but on this point I don’t.

I’m disturbed because they seem to think that somehow his decision to spread his own wealth around represents a sneaking kind of socialism that ought to be stamped out before it can spread.

---

Early on when I started writing this blog, I considered writing a couple of posts about the difference between liberalism and socialism. Socialism (which manifests recently in the U.S. under its old-new nom de guerre, progressivism), is the ideological system that entails “the abolition of private enterprise, of private ownership of the means of production, and the creation of a system of ‘planned economy’ in which the entrepreneur working for profit is replaced by a central planning body.”¹.

Liberalism, on the other hand, is not the ideology espoused by the modern Left. This liberalism is classic liberalism, and is somewhat more (although not entirely) ideologically connected to the modern conservative movement. It is the ideology in which the Rule of Law, private property, and free markets are allowed to govern as much as possible, so as to ensure maximum economic, personal, political, and religious freedom.

---

So when Rush Limbaugh and other commentators call what Dan Price is doing “socialism,” they really are just plain wrong. Dan’s decision to pay his employees more than the market demands is not socialism. It’s not calculated to abolish free enterprise, neither does it entail the creation of a centrally-planned economy.

That’s not to say that it doesn’t share some features with socialism. Certainly it shares at least one goal: the redistribution of some of Dan’s wealth to those who are less affluent.

But so does charity.

If Dan Price had decided on April 15th that he was going to give away 93% of his income every year to the Boys and Girls Club, no one would accuse him of engaging in “pure, unadulterated socialism.” Assuming he held the same kind of press conference, he might get a few minutes of congratulatory fame in the press, but by and large we’d forget him in a week or so.

We also wouldn’t be talking about him if he decided to make sure every one of his employees makes 5% more next year than they made this year. I can’t imagine him throwing a press conference to announce that sort of decision. But if he did, I have a hard time seeing him receive more than a collective “meh.”

Both of these things are examples of true capitalism, even though both decisions amount to the redistribution some of his own wealth to others who are presumably less affluent.

So what is it about Dan Price and Gravity Payments that makes some want to brand him a socialist?

I submit that it’s the unfamiliarity of his decision.

In most people’s understanding of capitalism, financial affluence is the ultimate purpose of economic freedom. Or, to say it another way, for most Americans there is no higher economic goal than to be “independently wealthy.” And for many people, taxes and other government interference are the greatest visible obstacle to that wealth.

So given the current political climate in the U.S.—especially in cities like Seattle—where the cries for “income equality” are tied closely to calls for raising the state-mandated minimum wage and other socialist policy proposals, it’s all too easy to see a headline like “CEO guarantees every worker a $70,000 working wage” and simply think “Aha! Socialism!” without really considering the issue.

But if you ask me, Dan’s idea is exactly the sort of thing we should want to spread. Dan made the choice to give up his own wealth in order to accomplish something that meant more to him than his own wealth. Namely, helping his employees achieve the kind of financial independence that would help them be happy.

Maybe I approve of his decision because its closely aligned with my own goals. If I were in his position, I’d take great satisfaction in paying my employees as much as I could.

I don’t know Dan and I don’t know what really motivated him, so I can’t say for sure that he wasn’t motivated by his own socialist tendencies. I’m also certain there were better tactical decisions he could have made in raising his employees’ wages the way he wanted. But whatever his motivations and whatever his failings, what he did wasn’t socialism. It was better than capitalism.

It was liberalism at its finest.