The complex system of companies, jobs, and people

Lisa dropped me this link to a PBS News article about Nick Hanauer’s viewpoint on wealth, its distribution, and its use. Hanauer is well known as a left-leaning billionaire, and was one of the few of the 1% who actively urged the country to tax him more. He’s also the guy who did the TED talk that was circulating a bit ago wherein he said the rich needed to wake up before the non-rich start coming at them with pitchforks.

So you might say he’s a little controversial.

That said, whether you are a person of the left-wing or the right-wing, I think you should read this. Inside lie several very important concepts that I haven’t previously seen put as clearly as Hanauer has done here. I’m writing about this because it’s been days since I read it, and the information within continues to pick at my brain. So I figure if it’s got me thinking this long, perhaps you might find it interesting, too.

Here are some things I’m coming to as a result of thinking about things.

Concept 1: The economy is a closed loop system. It does not start at the top and trickle down, nor does is blossom from the bottom. It is, instead, a fully integrated system—and as any system engineer can tell you, this means that it almost certainly operates best when it’s in some form of balance.

Concept 2: Rich people (big companies) do not exist to create jobs. Hanauer puts this in a more controversial fashion by saying that the rich do not create jobs, but this is not completely true. The rich (and big companies) do invest, and those investments do create some jobs. But the proper way to look at this is that big companies (and the rich overall) are doing the best they can to create the fewest jobs possible. That’s how one controls cost, after all.

Concept 3: There is one prevalent purpose that a company exists to accomplish. “Okay, Ron,” I hear you say. “What do big companies exist for?” To be blunt here, while big companies do a lot of things and provide many values, they exist for one reason above all others: to return value to their investors (in the short term). That’s what they exist for. This fact lies between every word of Hanauer’s article, and it’s also obvious when you look at what companies actually do rather than just listen to what they say. In that sense, I like that he spends considerable time in the article exploring the things big companies do with their profits (rather than throwing that cash directly back into the business). I’ve been in the middle of corporate America for much of my career, and you cannot live in that zone for very long before you understand exactly how deeply this concept is true.

Concept 4: To understand a company’s priorities, you have to pay attention to lots of things. Let’s face it, it can be confusing to sort out complex entities. Big companies obviously create some jobs and they obviously do great things for communities. But that’s not their purpose.

Concept 5. The primary job creation force in this world is product demand. Bottom line, when people stop buying something, jobs dry up. This should be obvious.

Concept 6: Multiple things can create demand. Yes, sometimes, companies can create so much buzz they develop their own demand. Apple, of course, comes to mind. But those are more outliers than standard examples. A vast majority of new products come as disruptive technologies that are aggressively fought by the traditional market (can anyone say traditional publishing vs. indie?). Also, realize that when a big company puts everything on a truly new product, it’s often considered a “bet your company” kind of thing. When companies lose that bet, jobs erode. Anyway, the bottom line is that several things can create demand. This is essentially another way of saying that the economy is a complex system (see #1 above).

Concept 7: The laws of the land modify how big companies use people. (I use the term “use” there in both the positive and negative). We hear a lot about minimum wage, but the fact is that you can increase minimum wage by increasing employment…and I absolutely love the point he makes that the strongest thing that the government could do to help is not to raise the minimum wage, but instead to increase the limit for when companies need to pay overtime. No one really talks about that. But this dynamic of being on salary has lots and lots of baggage, and resonates strongly with the fact that people are working longer and longer hours (this is a problem that I was working on for the last year of my career in my corporate role…it’s a fascinating system unto itself).

I could go on, I suppose. But I figure this is enough to get you started. Read the article. Think about it. Ask yourself if it changes the way you see things.

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