ABOUT THE SPEAKER
Nick Hanauer - Venture capitalist, author
Nick Hanauer has become an important voice in the raging debate on inequality — and his provocative argument is aimed at his fellow plutocrats.

Why you should listen

Nick Hanauer has founded, co-founded and funded more than 30 companies across a range of industries, with a pretty notable record of success. As a few highlights, he cofounded a company called aQuantive that sold to Microsoft for $6.4 billion, and was the first non-family investor in Amazon.

Meanwhile Hanauer, a “proud and unapologetic capitalist,” has also been looking closely at society’s growing inequality gap, and the consequences it holds for our shared destiny — and the ultimate fate of our democracies. In 2007, he and civic activist Eric Liu co-wrote the book The True Patriot, an examination of progressive patriotism. This was followed by 2011’s The Gardens of Democracy, also with Liu, a vision for “growing” good citizens.

In 2013, Hanauer published a commentary in Bloomberg BusinessWeek proposing a $15 minimum wage (a suggestion that Seattle acted on this year). Early in 2014, he and Eric Beinhocker published "Capitalism, Redefined." In the summer of 2014, Hanauer published a much-shared essay in Politico that suggests, if societal inequality is allowed to grow unchecked, modern societies could start looking an awful lot like pre-Revolutionary France.

He is working on a new book, due out in 2015.

More profile about the speaker
Nick Hanauer | Speaker | TED.com
TEDSummit 2019

Nick Hanauer: The dirty secret of capitalism -- and a new way forward

Filmed:
2,893,693 views

Rising inequality and growing political instability are the direct result of decades of bad economic theory, says entrepreneur Nick Hanauer. In a visionary talk, he dismantles the mantra that "greed is good" -- an idea he describes as not only morally corrosive, but also scientifically wrong -- and lays out a new theory of economics powered by reciprocity and cooperation.
- Venture capitalist, author
Nick Hanauer has become an important voice in the raging debate on inequality — and his provocative argument is aimed at his fellow plutocrats. Full bio

Double-click the English transcript below to play the video.

00:13
I am a capitalist,
0
1458
2667
00:17
and after a 30-year career in capitalism
1
5458
2935
00:20
spanning three dozen companies,
2
8417
2517
00:22
generating tens of billions
of dollars in market value,
3
10958
3351
00:26
I'm not just in the top one percent,
I'm in the top .01 percent of all earners.
4
14333
5875
00:33
Today, I have come
to share the secrets of our success,
5
21500
3018
00:36
because rich capitalists like me
have never been richer.
6
24542
4184
00:40
So the question is, how do we do it?
7
28750
2625
00:44
How do we manage to grab
8
32292
1559
00:45
an ever-increasing share
of the economic pie every year?
9
33875
3833
00:50
Is it that rich people are smarter
than we were 30 years ago?
10
38875
3917
00:55
Is it that we're working harder
than we once did?
11
43833
2375
00:59
Are we taller, better looking?
12
47500
2500
01:03
Sadly, no.
13
51292
1250
01:05
It all comes down to just one thing:
14
53542
2601
01:08
economics.
15
56167
1250
01:10
Because, here's the dirty secret.
16
58250
1572
01:12
There was a time
in which the economics profession
17
60667
2351
01:15
worked in the public interest,
18
63042
1476
01:16
but in the neoliberal era,
19
64542
1892
01:18
today,
20
66458
1726
01:20
they work only for big corporations
21
68208
2435
01:22
and billionaires,
22
70667
1559
01:24
and that is creating
a little bit of a problem.
23
72250
2583
01:27
We could choose to enact economic policies
24
75792
3809
01:31
that raise taxes on the rich,
25
79625
1875
01:34
regulate powerful corporations
or raise wages for workers.
26
82417
3851
01:38
We have done it before.
27
86292
1517
01:39
But neoliberal economists would warn
28
87833
2476
01:42
that all of these policies
would be a terrible mistake,
29
90333
4018
01:46
because raising taxes
always kills economic growth,
30
94375
2750
01:50
and any form of government regulation
31
98083
2268
01:52
is inefficient,
32
100375
1684
01:54
and raising wages always kills jobs.
33
102083
2375
01:57
Well, as a consequence of that thinking,
34
105375
2083
02:00
over the last 30 years, in the USA alone,
35
108542
4226
02:04
the top one percent has grown
21 trillion dollars richer
36
112792
4267
02:09
while the bottom 50 percent
have grown 900 billion dollars poorer,
37
117083
5435
02:14
a pattern of widening inequality
that has largely repeated itself
38
122542
3892
02:18
across the world.
39
126458
1476
02:19
And yet, as middle class families
struggle to get by
40
127958
4643
02:24
on wages that have not budged
in about 40 years,
41
132625
3893
02:28
neoliberal economists continue to warn
that the only reasonable response
42
136542
4142
02:32
to the painful dislocations
of austerity and globalization
43
140708
4101
02:36
is even more austerity and globalization.
44
144833
2792
02:40
So, what is a society to do?
45
148708
2917
02:44
Well, it's super clear to me
what we need to do.
46
152833
2893
02:47
We need a new economics.
47
155750
1917
02:51
So, economics has been described
as the dismal science,
48
159167
4059
02:55
and for good reason,
because as much as it is taught today,
49
163250
3101
02:58
it isn't a science at all,
50
166375
1601
03:00
in spite of all
of the dazzling mathematics.
51
168000
3393
03:03
In fact, a growing number
of academics and practitioners
52
171417
3184
03:06
have concluded that neoliberal
economic theory is dangerously wrong
53
174625
5976
03:12
and that today's growing crises
of rising inequality
54
180625
3601
03:16
and growing political instability
55
184250
1684
03:17
are the direct result
of decades of bad economic theory.
56
185958
5185
03:23
What we now know is that the economics
that made me so rich isn't just wrong,
57
191167
5976
03:29
it's backwards,
58
197167
2017
03:31
because it turns out
59
199208
1935
03:33
it isn't capital
that creates economic growth,
60
201167
3767
03:36
it's people;
61
204958
1250
03:39
and it isn't self-interest
that promotes the public good,
62
207250
4768
03:44
it's reciprocity;
63
212042
1250
03:46
and it isn't competition
that produces our prosperity,
64
214542
4267
03:50
it's cooperation.
65
218833
1625
03:53
What we can now see is that an economics
that is neither just nor inclusive
66
221333
5018
03:58
can never sustain the high levels
of social cooperation
67
226375
4393
04:02
necessary to enable
a modern society to thrive.
68
230792
2642
04:05
So where did we go wrong?
69
233458
2584
04:09
Well, it turns out
that it's become painfully obvious
70
237250
4184
04:13
that the fundamental assumptions
that undergird neoliberal economic theory
71
241458
6018
04:19
are just objectively false,
72
247500
3101
04:22
and so today first I want to take you
through some of those mistaken assumptions
73
250625
3809
04:26
and then after describe where the science
suggests prosperity actually comes from.
74
254458
6042
04:33
So, neoliberal economic
assumption number one is
75
261416
4143
04:37
that the market is
an efficient equilibrium system,
76
265583
4435
04:42
which basically means that if one thing
in the economy, like wages, goes up,
77
270042
6017
04:48
another thing in the economy,
like jobs, must go down.
78
276083
4167
04:53
So for example, in Seattle, where I live,
79
281333
2375
04:56
when in 2014 we passed
our nation's first 15 dollar minimum wage,
80
284958
5018
05:02
the neoliberals freaked out
over their precious equilibrium.
81
290000
4417
05:07
"If you raise the price
of labor," they warned,
82
295375
2851
05:10
"businesses will purchase less of it.
83
298250
2018
05:12
Thousands of low-wage workers
will lose their jobs.
84
300292
2517
05:14
The restaurants will close."
85
302833
1893
05:16
Except ...
86
304750
1250
05:19
they didn't.
87
307000
1250
05:20
The unemployment rate fell dramatically.
88
308917
3208
05:25
The restaurant business in Seattle boomed.
89
313125
2893
05:28
Why?
90
316042
1250
05:30
Because there is no equilibrium.
91
318083
2417
05:33
Because raising wages
doesn't kill jobs, it creates them;
92
321917
2809
05:36
because, for instance,
93
324750
1476
05:38
when restaurant owners are suddenly
required to pay restaurant workers enough
94
326250
4893
05:43
so that now even they
can afford to eat in restaurants,
95
331167
4017
05:47
it doesn't shrink the restaurant business,
96
335208
2018
05:49
it grows it, obviously.
97
337250
2208
05:53
(Applause)
98
341333
1268
05:54
Thank you.
99
342625
1417
05:58
The second assumption is
100
346208
2250
06:01
that the price of something
is always equal to its value,
101
349917
4976
06:06
which basically means
that if you earn 50,000 dollars a year
102
354917
3559
06:10
and I earn 50 million dollars a year,
103
358500
2934
06:13
that's because I produce
a thousand times as much value as you.
104
361458
4292
06:18
Now,
105
366583
1643
06:20
it will not surprise you to learn
106
368250
3643
06:23
that this is a very comforting assumption
107
371917
1976
06:25
if you're a CEO paying yourself
50 million dollars a year
108
373917
2684
06:28
but paying your workers poverty wages.
109
376625
2934
06:31
But please, take it from somebody
who has run dozens of businesses:
110
379583
4143
06:35
this is nonsense.
111
383750
2393
06:38
People are not paid what they are worth.
112
386167
2392
06:40
They are paid what they have
the power to negotiate,
113
388583
3268
06:43
and wages' falling share of GDP
114
391875
2768
06:46
is not because workers
have become less productive
115
394667
3517
06:50
but because employers
have become more powerful.
116
398208
3167
06:54
And --
117
402333
1268
06:55
(Applause)
118
403625
1583
06:59
And by pretending that the giant imbalance
in power between capital and labor
119
407167
5476
07:04
doesn't exist,
120
412667
1642
07:06
neoliberal economic theory
became essentially
121
414333
3726
07:10
a protection racket for the rich.
122
418083
2250
07:13
The third assumption,
and by far the most pernicious,
123
421500
2518
07:16
is a behavioral model
124
424042
1309
07:17
that describes human beings
as something called "homo economicus,"
125
425375
3851
07:21
which basically means
that we are all perfectly selfish,
126
429250
5226
07:26
perfectly rational
and relentlessly self-maximizing.
127
434500
4000
07:31
But just ask yourselves,
128
439958
1601
07:33
is it plausible that every single time
for your entire life,
129
441583
3810
07:37
when you did something
nice for somebody else,
130
445417
2184
07:39
all you were doing
was maximizing your own utility?
131
447625
3268
07:42
Is it plausible that when a soldier jumps
on a grenade to defend fellow soldiers,
132
450917
3851
07:46
they're just promoting
their narrow self-interest?
133
454792
2726
07:49
If you think that's nuts,
134
457542
1809
07:51
contrary to any reasonable
moral intuition,
135
459375
3101
07:54
that's because it is
136
462500
1809
07:56
and, according to the latest science,
137
464333
1768
07:58
not true.
138
466125
1643
07:59
But it is this behavioral model
139
467792
2517
08:02
which is at the cold, cruel heart
of neoliberal economics,
140
470333
3268
08:05
and it is as morally corrosive
141
473625
3684
08:09
as it is scientifically wrong
142
477333
2518
08:11
because, if we accept at face value
143
479875
5059
08:16
that humans are fundamentally selfish,
144
484958
2810
08:19
and then we look around the world
145
487792
2226
08:22
at all of the unambiguous
prosperity in it,
146
490042
3000
08:26
then it follows logically,
147
494083
2851
08:28
then it must be true by definition,
148
496958
1810
08:30
that billions of individual
acts of selfishness
149
498792
3851
08:34
magically transubstantiate
into prosperity and the common good.
150
502667
4017
08:38
If we humans are merely
selfish maximizers,
151
506708
2893
08:41
then selfishness
is the cause of our prosperity.
152
509625
3582
08:46
Under this economic logic,
153
514125
2601
08:48
greed is good,
154
516750
1957
08:51
widening inequality is efficient,
155
519667
2351
08:54
and the only purpose of the corporation
156
522042
2351
08:56
can be to enrich shareholders,
157
524417
2476
08:58
because to do otherwise
would be to slow economic growth
158
526917
3101
09:02
and harm the economy overall.
159
530042
1791
09:05
And it is this gospel of selfishness
160
533333
3393
09:08
which forms the ideological cornerstone
of neoliberal economics,
161
536750
4226
09:13
a way of thinking
which has produced economic policies
162
541000
3643
09:16
which have enabled me and my rich buddies
in the top one percent
163
544667
3726
09:20
to grab virtually all of the benefits
of growth over the last 40 years.
164
548417
3958
09:25
But,
165
553083
1851
09:26
if instead
166
554958
2060
09:29
we accept the latest empirical research,
167
557042
3642
09:32
real science, which correctly
describes human beings
168
560708
3351
09:36
as highly cooperative,
169
564083
3185
09:39
reciprocal
170
567292
1267
09:40
and intuitively moral creatures,
171
568583
2935
09:43
then it follows logically
172
571542
2642
09:46
that it must be cooperation
173
574208
2518
09:48
and not selfishness
174
576750
1601
09:50
that is the cause of our prosperity,
175
578375
1768
09:52
and it isn't our self-interest
176
580167
2351
09:54
but rather our inherent reciprocity
177
582542
2625
09:58
that is humanity's economic superpower.
178
586250
2833
10:01
So at the heart of this new economics
179
589833
4476
10:06
is a story about ourselves that grants us
permission to be our best selves,
180
594333
4768
10:11
and, unlike the old economics,
181
599125
2976
10:14
this is a story that is virtuous
182
602125
2726
10:16
and also has the virtue of being true.
183
604875
2833
10:21
Now,
184
609000
1893
10:22
I want to emphasize
that this new economics
185
610917
2184
10:25
is not something I have personally
imagined or invented.
186
613125
2643
10:27
Its theories and models
are being developed and refined
187
615792
2809
10:30
in universities around the world
188
618625
2018
10:32
building on some of the best
new research in economics,
189
620667
3309
10:36
complexity theory, evolutionary theory,
190
624000
1893
10:37
psychology, anthropology
and other disciplines.
191
625917
3101
10:41
And although this new economics
does not yet have its own textbook
192
629042
4809
10:45
or even a commonly agreed upon name,
193
633875
2351
10:48
in broad strokes
194
636250
2018
10:50
its explanation of where prosperity
comes from goes something like this.
195
638292
4166
10:55
So, market capitalism
is an evolutionary system
196
643458
4560
11:00
in which prosperity emerges
197
648042
2434
11:02
through a positive feedback loop
198
650500
1559
11:04
between increasing amounts of innovation
and increasing amounts of consumer demand.
199
652083
4935
11:09
Innovation is the process
by which we solve human problems,
200
657042
4625
11:14
consumer demand is the mechanism
through which the market selects
201
662583
3310
11:17
for useful innovations,
202
665917
2392
11:20
and as we solve more problems,
we become more prosperous.
203
668333
3226
11:23
But as we become more prosperous,
204
671583
3976
11:27
our problems and solutions
205
675583
1810
11:29
become more complex,
206
677417
2767
11:32
and this increasing technical complexity
207
680208
3143
11:35
requires ever higher levels
of social and economic cooperation
208
683375
4518
11:39
in order to produce
the more highly specialized products
209
687917
2892
11:42
that define a modern economy.
210
690833
4292
11:48
Now, the old economics
is correct, of course,
211
696042
4684
11:52
that competition plays a crucial role
in how markets work,
212
700750
3559
11:56
but what it fails to see
213
704333
2101
11:58
is that it is largely a competition
between highly cooperative groups --
214
706458
4685
12:03
competition between firms,
competition between networks of firms,
215
711167
4767
12:07
competition between nations --
216
715958
2685
12:10
and anyone who has ever run
a successful business knows
217
718667
3892
12:14
that building a cooperative team
by including the talents of everyone
218
722583
3750
12:19
is almost always a better strategy
than just a bunch of selfish jerks.
219
727792
4416
12:25
So how do we leave neoliberalism behind
220
733417
4833
12:32
and build a more sustainable,
more prosperous
221
740458
3459
12:37
and more equitable society?
222
745042
2976
12:40
The new economics suggests
just five rules of thumb.
223
748042
3500
12:44
First is that successful economies
are not jungles, they're gardens,
224
752042
6541
12:51
which is to say that markets,
225
759667
3684
12:55
like gardens, must be tended,
226
763375
2792
12:59
that the market is the greatest
social technology ever invented
227
767208
4726
13:03
for solving human problems,
228
771958
1476
13:05
but unconstrained by social norms
or democratic regulation,
229
773458
5185
13:10
markets inevitably create
more problems than they solve.
230
778667
3351
13:14
Climate change,
231
782042
1267
13:15
the great financial crisis of 2008
232
783333
1976
13:17
are two easy examples.
233
785333
1709
13:19
The second rule is
234
787500
3476
13:23
that inclusion creates economic growth.
235
791000
4000
13:28
So the neoliberal idea
236
796208
2560
13:30
that inclusion is this fancy luxury
237
798792
2601
13:33
to be afforded if and when we have growth
is both wrong and backwards.
238
801417
4500
13:39
The economy is people.
239
807208
2459
13:42
Including more people in more ways
240
810667
2059
13:44
is what causes economic growth
in market economies.
241
812750
4042
13:49
The third principle
242
817875
2059
13:51
is the purpose of the corporation
is not merely to enrich shareholders.
243
819958
6185
13:58
The greatest grift
in contemporary economic life
244
826167
3767
14:01
is the neoliberal idea that
the only purpose of the corporation
245
829958
2976
14:04
and the only responsibility of executives
246
832958
2893
14:07
is to enrich themselves and shareholders.
247
835875
3083
14:11
The new economics must and can insist
248
839958
5435
14:17
that the purpose of the corporation
249
845417
1726
14:19
is to improve the welfare
of all stakeholders:
250
847167
2892
14:22
customers, workers,
251
850083
2226
14:24
community and shareholders alike.
252
852333
2084
14:28
Rule four:
253
856208
2018
14:30
greed is not good.
254
858250
2208
14:34
Being rapacious
doesn't make you a capitalist,
255
862583
3768
14:38
it makes you a sociopath.
256
866375
2059
14:40
(Laughter)
257
868458
2435
14:42
(Applause)
258
870917
4101
14:47
And in an economy as dependent
upon cooperation at scale as ours,
259
875042
5184
14:52
sociopathy is as bad for business
as it is for society.
260
880250
4125
14:57
And fifth and finally,
261
885375
1250
15:00
unlike the laws of physics,
262
888250
2417
15:03
the laws of economics are a choice.
263
891833
3542
15:08
Now, neoliberal economic theory
264
896542
1684
15:10
has sold itself to you
as unchangeable natural law,
265
898250
5018
15:15
when in fact it's social norms
and constructed narratives
266
903292
3892
15:19
based on pseudoscience.
267
907208
1459
15:21
If we truly want a more equitable,
268
909917
3517
15:25
more prosperous
and more sustainable economy,
269
913458
3518
15:29
if we want high-functioning democracies
270
917000
2726
15:31
and civil society,
271
919750
2226
15:34
we must have a new economics.
272
922000
2000
15:36
And here's the good news:
273
924792
1976
15:38
if we want a new economics,
274
926792
2059
15:40
all we have to do is choose to have it.
275
928875
3893
15:44
Thank you.
276
932792
1267
15:46
(Applause)
277
934083
4959
16:03
Moderator: So Nick,
I'm sure you get this question a lot.
278
951708
3167
16:08
If you're so unhappy
with the economic system,
279
956333
3101
16:11
why not just give all your money away
and join the 99 percent?
280
959458
4726
16:16
Nick Hanauer: Yeah, no, yes, right.
281
964208
2768
16:19
You get that a lot. You get that a lot.
282
967000
1934
16:20
"If you care so much about taxes,
why don't you pay more,
283
968958
2726
16:23
and if you care so much about wages,
why don't you pay more?"
284
971708
2893
16:26
And I could do that.
285
974625
1292
16:29
The problem is,
286
977083
1518
16:30
it doesn't make that much difference,
287
978625
1809
16:32
and I have discovered a strategy
288
980458
1560
16:34
that works literally
a hundred thousand times better --
289
982042
2934
16:37
Moderator: OK.
290
985000
1268
16:38
NH: which is to use my money
to build narratives and to pass laws
291
986292
3559
16:41
that will require
all the other rich people
292
989875
2059
16:43
to pay taxes and pay their workers better.
293
991958
2060
16:46
(Applause)
294
994042
1809
16:47
And so, for example,
295
995875
1351
16:49
the 15-dollar minimum wage
that we cooked up
296
997250
3351
16:52
has now affected 30 million workers.
297
1000625
1976
16:54
So that works better.
298
1002625
1268
16:55
Moderator: That's great.
299
1003917
1267
16:57
If you change your mind,
we'll find some takers for you.
300
1005208
2643
16:59
NH: OK. Thank you.
Moderator: Thank you very much.
301
1007875
2458

▲Back to top

ABOUT THE SPEAKER
Nick Hanauer - Venture capitalist, author
Nick Hanauer has become an important voice in the raging debate on inequality — and his provocative argument is aimed at his fellow plutocrats.

Why you should listen

Nick Hanauer has founded, co-founded and funded more than 30 companies across a range of industries, with a pretty notable record of success. As a few highlights, he cofounded a company called aQuantive that sold to Microsoft for $6.4 billion, and was the first non-family investor in Amazon.

Meanwhile Hanauer, a “proud and unapologetic capitalist,” has also been looking closely at society’s growing inequality gap, and the consequences it holds for our shared destiny — and the ultimate fate of our democracies. In 2007, he and civic activist Eric Liu co-wrote the book The True Patriot, an examination of progressive patriotism. This was followed by 2011’s The Gardens of Democracy, also with Liu, a vision for “growing” good citizens.

In 2013, Hanauer published a commentary in Bloomberg BusinessWeek proposing a $15 minimum wage (a suggestion that Seattle acted on this year). Early in 2014, he and Eric Beinhocker published "Capitalism, Redefined." In the summer of 2014, Hanauer published a much-shared essay in Politico that suggests, if societal inequality is allowed to grow unchecked, modern societies could start looking an awful lot like pre-Revolutionary France.

He is working on a new book, due out in 2015.

More profile about the speaker
Nick Hanauer | Speaker | TED.com