Parable of the Shoe Salesman - Capitalism rewards wealth owners, not creators
charityfocus.org
charityfocus.org
Do mistakes happen? Yes. Do companies, owners, and other people in power make bad decisions? All the time. Does that mean that capitalism doesn't work?
The problem, in my mind, is the one that YCombinator is trying to solve. There are not enough owners. There is not enough competition. The more competition there is among smallish businesses, the more likely that big, inefficient companies and other companies that make bad decisions (like firing your best salesman) will fail.
One reason there aren't many owners is all the red tape and government control. Two examples:
My stepmother has been breeding and selling German Shepherds for over ten years now, and she gets customers from all over the US. To go along with the dog-selling aspect, she would like to open up a small shop to sell dog food, leashes, toys, etc. Simple enough, right? In order to do so, they would have to install a new septic/sewage system, just so that they can run a business. Why is this important? Also, in spite of the fact that she is always accommodating to people with special needs (e.g. she would be perfectly willing to carry out an entire litter of puppies in order to show someone in a wheelchair), she would have to take special measures to ensure that all public areas are wheelchair accessible. So she hasn't opened the place up yet.
I just watched Be Kind, Rewind today, and although several of the ideas were far-fetched and irrational, one part in particular hit home. A new developer would like to take over an old building in the downtown area of a small town, and the city can basically force the owner out of his business by citing "building code" requirements. Things like this actually happen in real life; I've seen a similar situation with a building in Columbus, OH, that was not up to fire code.
In both instances, small businesses are suffering because of big government. In both cases, laws were made "in the interest of the people," but in the end, they hurt the people.
In my ideal world, the government would be more responsible for ensuring consumer awareness without the use of coercion. Clearly, people have the right to know that they are preparing to enter a dangerous building. Beyond that, however, if that individual wants to take the calculated risk of going in, anyways (whether to work or conduct business), it should be up to the individual. Government hand-holding only causes more problems, and the implication of the article that government needs to step in and make measures to ensure that capitalism "rewards wealth creators" is mistaken.
/rant (sorry about that)
Perhaps "startup generators" are an example of free market solutions overcoming market restrictions (e.g. government regulations).
Or maybe startup generators are toll booths constructed by the "ownership class". ;)
Can we expect the three people who were hired instead of John Ulviden to make the same "mistake" he made? Probably not. If they were people looking out for their own self-interests, they would factor in the "mistake" John made and make sure they dont step over the "acceptable" amount of sales. What sort of an effect does this have for Adidias? They reach a high-point in sales due to the energy and creativity of John, but then because of what they did to him, their sales are no longer going up. They have just lost the opportunity to have John take their sales to the next level.
And what sort of an opportunity does this present to a competitor like Nike for example? They would probably want John for more than one reason: For his abilities and also for the relationships he has with the customers he won over for Adidas.
Heck, why ramble when there is such eloquent exposition at hand:
"In addition to these endless pleadings of self-interest, there is a second main factor that spawns new economic fallacies every day. This is the persistent tendency of men to see only the immediate effects of a given policy, or its effects only on a special group, and to neglect to inquire what the long-run effects of that policy will be not only on that special group but on all groups. It is the fallacy of overlooking secondary consequences." - Henry Hazlitt in "Economics in One Lesson"
Meanwhile we've created unprecedented wealth over the last 50 years, and yet while being obsessed with money, every person and company, big or small owes the banking establishment tons of money which we either must pay off by assuming more debt - or by handing over the stuff of our production - as is happening now with the housing industry and foreclosures.
The only things that change are the people at the top (gov officials and their families), a lot of resources will be wasted (compared to a more capitalist system), and that it's much much harder for people at the bottom to move up (not to mention less incentive). O yeah, since we're talking about government controlling most of the resources and distribution, you can probably kiss your rights goodbye too. It's not like this hasn't been done before with disasterous results... there's a reason China changed economic systems...
"most people either are stupid and/or can't change"
doesn't it make sense then for the system not to reward them for their behavior; and instead to reward people that can change and work both hard and smart?
>doesn't it make sense then for the system not to reward them for their behavior; and instead to reward people that can change and work both hard and smart?
I think you're a bit too optimistic about the nature of the system and the people who run it; it's not setup to "reward" anybody but the people who set it up to reap wealth at other's expense.
Do you think if you "do the right thing" and "work hard" and be really smart the bankers and billionaire's are secretly getting together going, "That guy's doing the right thing - let's reward him"
Please. First they'll see you as a threat and try to figure out how to get rid of you or control you. Last thing they want is to "reward" you for "smart behavior"
I agree that is a problem with capitalism, specifically with fiat currency; but it can be corrected if we slowly move back to something akin to the gold standard. It's fixable. Not to mention this level of corruption pales in comparison to a non-capitalistic system. Capitalism isn't perfect, but it is the lesser evil.
"Do you think if you "do the right thing" and "work hard" [that you'll be rewarded]"
I live in silicon valley. I meet people all the time who have been rewarded for being clever (who come from lower class or middle class backgrounds). A lot of posts on YC have already disproven this point. You're ignoring a lot of data; not to mention you're just giving a lot of conjecture without hard facts.
No offense, but I can list a lot of examples: Paul Graham, Jerry Yang, Bill Gates, Sam Walton, the list goes on and I'm not even including foreign business men. Your argument is really weak.
Just look at China and the changes that occurred after they switched economic systems.
"First they'll see you as a threat and try to figure out how to get rid of you or control you. Last thing they want is to "reward" you for "smart behavior""
Yes, that called traditional communism, not capitalism. Again why do you think China switched? (even N. Korea is trying to switch) History has already disproven your argument.
O yeah if you actually believe in what you're writing WHY are you trying to do a startup?
Funny you say it's fixable when all my research over the last 10 years of the writings of BOTH conspiracy cranks AND people who have held positions at federal reserve banks indicate that (1) it's not fixable (2) it's going to break big-time, sooner than we expect and (3) the most important thing smart people should be doing right now is dropping everything and figuring out a new money system because the "old guard" can't come up with an answer and we're going to need one soon. For example, here's some "data" for you: I'm sure you're aware that Bush jacked up national debt to close to 10 trillion (from about 2 when he got here). But did you know state and municipal debt far exceeds that, and private debt exceeds even that?
Here's a sobering thought: when you compile the total debt in this country, private and public, and the amount of money needed to service that debt, and the cost of life (which will go up as we start experiencing inflation as the dollar is falling apart), SOME TIME between 2011 and 2013, it will be impossible to both continuously service that debt AND pay for the needs of life on an individual/corporate/government basis.
That means either banks get paid and we starve or there will be a civil war or something to suspend life as we know it.
What is your easy fixing solution to that (please don't say "gold" or "silver")?
Or perhaps you've looked at recent events over the last 8 years and have noticed ramp up in militarization, war for resources, and a huge spike in private prison construction and militarization of police forces in this country - almost like the establishment is getting ready for a big change.
Actually, we need fiat currency - we just need it distributed differently. Right now it's issued as debt-creation collateral, so debt always outpaces wealth creation on an exponential growth curve. Eventually you run out of possibilities of taking on new debt; for example, current value of "mega-derivatives" (institution-to-institution) is roughly now at about 11x total WORLD GDP. If you think the housing bubble is bad, wait until somebody figures out it's technically impossible for all derivative writers to give anywhere near the coverage they promise in case a worse-case scenario comes along.
Having said that, gold is useless because (1) it fails to account for population growth (2) it fails to account for real wealth creation and (3) the same people who control our fiat-based system currently control most of the existing gold supply in the world and have investments / buy options on most new discoveries of gold. So even if we switch ... what then? Do you think the "establishment" is going to help us setup a system to overthrow them by sharing the gold they own? Do you own gold? A lot? I don't and most people don't. And don't believe that B.S. about "gold call options" because most gold investment houses currently sell at about 10x ability to physically deliver, so unless you have it in your hand it counts for squat ...
>> I live in silicon valley.
Hence, you live in a fantasy la-la land where everything works in ways it doesn't anywhere else on the planet, so keep in mind your perception is warped and inapplicable elsewhere
>> I meet people all the time who have been rewarded for being clever (who come from lower class or middle class backgrounds). A lot of posts on YC have already disproven this point. You're ignoring a lot of data; not to mention you're just giving a lot of conjecture without hard facts.
Try that now as the reality sets in that most of the last 10 years (dot-com, expected oil bonanza in Iraq, housing bubble, etc.) was just one distraction after another to keep our minds off the fact that the underlying system is coming to the end of the track with no solution.
>> No offense, but I can list a lot of examples: Paul Graham, Jerry Yang, Bill Gates, Sam Walton, the list goes on and I'm not even including foreign business men. Your argument is really weak.
Sigh. I envy the gleam in your eyes. No offense to Paul Graham, but I'd like to see his effort duplicated now ... same with Yang. Doubt it would even be possible.
Bill Gates. Um ... Bill Gates is about as establishment as they come ... let's see ... his first customer was IBM, which fronted him money for a then non-existent product. But as everyone who know Phil Greenspan's writing knows, the CEO of IBM was friends with Bill's mommy. Gee ... wonder if that had anything to do with how a 21 year old got a face-to-face with the CEO of the biggest tech company of that time ...
Sam walton? Sam walton succeeded because of a one-time massive systematic non-repeatable even (globalization). You think anything that massive is just around the corner for you to exploit - any day now?
Not too familiar with China, so I'll pass comment, but it wreaks a lot of South Korea when it was being pegged as the "New Japan" and then it turned out to be a massive fraud.
>> Yes, that called traditional communism,
Wow. Read up on how standard oil got set up. Or even microsoft. If you think the "big business" aspect of capitalism is any different from what you imagine communism to be ... you need to read a lot more.
>> Again why do you think China switched
I don't know what you mean by "china switched" ... last time I checked China was a carefully micro-managed mixed economy, similar to Japan after WWII.
> History has already disproven your argument.
Really? How so? Last time I turned on my t.v. every presidential candidate was telling me that we're currently borrowing money from semi-communist china to finance oil from Sharia-law-based-commerce Saudi Arabia to go around playing make-pretend capitalism and the situation can't go on much longer.
If anything, recent analysis from many perspectives tell me that history has proven the exact opposite - that much of what we call the "capitalist success" story is a well-managed prop piece.
Tell me, have you ever travelled much across this country?
I have. Aside from a few pockets of development, most of this country is just one big poverty-inflicted, systematically busted wasteland.
If you live in the Valley and think that just because people there drive lots of Ferraris, that = America is one big happy successful place, you need to get some perspective.
Silicon Valley, like Hollywood, is amagical, artificial dream world that represents reality about as much as a commercial for a luxury resort.
> actually believe in what you're writing WHY are you trying to do a startup?
Because my startup is based on this reality and trying to find a solution to it, not trying to make a lot of money so I can afford to delude myself by surrounding myself with the trinkets of success that money can buy in this country.
I'm specifically trying to start a startup in preperation for a change in perception of reality, not because I want to have a quick IPO, cash in and move to Orange County ...
>We can't build superstructures, even if we got rid of the military.
Research Dubai. They're building the world's 1st, 2nd, 3rd, and fourth greatest structures at the same time. The #1 building is almost twice the height of those towers in malasia.
> We could probably build a huge particle accelerator if we got rid of the military though..
personally making scooters and small hatchbacks sexy like they do in Europe would be a good idea, as would coordinating flights better to not have half-full jets wasting fuel taking off ...
Now watch this get downmodded.
Just say what you want and don't worry about the karma. You've got something of a stream of consciousness style going on; your posts are longer than most here. My advice is to try and make your posts more concise. If they were shorter, people would be more likely to take the time to reply rather than just downmod you.
"sigh. I envy the gleam in your eyes. No offense to Paul Graham, but I'd like to see his effort duplicated now ... same with Yang"
they weren't the first and they probably won't be the last - history will repeat itself. that's like saying everything that's been invented has already been invented.
"Sam walton succeeded because of a one-time massive systematic non-repeatable even (globalization). You think anything that massive is just around the corner for you to exploit"
change is the only thing that's constant. if I don't take advantage of it, someone else will and the guard changes again...
"last time I checked China was a carefully micro-managed mixed economy"
yes but it's a big change from am almost pure centralized socialist leaning economy. a lot of individuals have already benefited from the change. u can't tell me it's not a big change from what they had in say the 60's
"Tell me, have you ever travelled much across this country?"
I have, and I beg to differ especially when I can compare with a lot of 3rd world countries I've been to. can you do the same?
"Because my startup is based on this reality and trying to find a solution to it"
based on everything you just wrote, the logical option would be to move to some EU nation with a more socialist leaning economic system and just relax. lookin at your arguments it doesn't make sense to stay and start a capitalistic venture within a capitalistic leaning economy since the Microsofts and Exxons of the world will just smash it. If you're just preparing "for a change in perception of reality" and u don't care about "surrounding yourself with lots of trinkets", u don't need a startup; a non-profit will do just fine.
"Silicon Valley is amagical, artificial dream world that represents reality about as much as a commercial for a luxury resort."
that's a little strange to say considering in your past posts it seems like you lament not being in SV since "it's the startup hub". I guess you being here would do wonders for your startup "based on this reality"
That's actually technically impossible by the very nature of interest-rate-based distribution of continous fiat currency, but that's a whole other topic.
"they weren't the first and they probably won't be the last - history will repeat itself. that's like saying everything that's been invented has already been invented.
Um, actually they were the first and I don't see any others so I assume they're the last. I don't recall a past instance where somebody sat a computer, put some letters and symbols together in a certain context, then either started a multi-billion dollar company or got bought out by one. I think you misunderestimate how much of a carefully-managed distraction the dot-com boom was from underlying systematic problems. It tooks a small army to set the way for an economic boom so that the rich can sell off their shares to a newly-developed "bigger fool" class ...
"change is the only thing that's constant. if I don't take advantage of it, someone else will and the guard changes again...
If you studied the history of currency management, you'd be surprised how little has changed in the 6,000 years or so when money as we think of it was created. Most of what we think of as "modern" aspects of money were created centuries-to-millenia ago.
Or here's another one for you: Obama is related to both Bush and Cheney who, according to a Vanity Fair-sponsored bit of research are distant relations with the British Royal Family, which is descendent from German Royalty which is related to the Austrian Hapsburg Dynasty. So, here we are, about 800 years after they got kicked out of the "power structure" and now they basically, via proxy, are back in control again, albeit less visibly. I'm sorry to point this out, but those in the seat of power have money and resources and time on their hands which they use to ensure their continuity in ways you can't begin to fathom while the rest of us are busy trying to make money to eat.
> I have, and I beg to differ especially when I can compare with a lot of 3rd world countries I've been to. can you do the same?
Yes. But here it's worse. In 3rd world countries, poor people have to endure a few well educated rich snobs. But mostly the stress is less because everyone realizes everyone else is poor. Over here, many poor people have to endure watching disproportionately rich 18 year old ditzes driving by in the new Mercedes convertible Bank of Daddy just financed. Not too easy when the discrepency is side by side ... at least if you're in most developing nations most people around you don't have it that much better.
"Silicon Valley is amagical, artificial dream world that represents reality about as much as a commercial for a luxury resort." that's a little strange to say considering in your past posts it seems like you lament not being in SV since "it's the startup hub". I guess you being here would do wonders for your startup "based on this reality"
--- I think my point was not communicated well or misunderstood. Just because I wish I could duplicate some of the better aspects of S.V., but can't, and realize that it seems to only happen there, doesn't mean that I don't distinguish that as a unique reality. Just the opposite. You're the one who's there, and imagine that the whole world either does or is on the verge of working like it does there. I'm trying to tell you that "there" exists almost nowhere else on earth, so it's not indicative of reality because it's not a duplicatable formula. Hence it's a special situation.
I'm speaking of successful entrepreneurs in general and not just of successful internet ones (even then there were a lot of successful internet entrepreneurs that came after them)
"if you studied the history of currency management"
that's currency, I'm speaking of the world and trends at large including technology
"Yes. But here it's worse. In 3rd world countries, poor people have to endure a few well educated rich snobs... many poor people have to endure watching disproportionately rich 18 year old ditzes driving by in the new Mercedes convertible"
doesn't sound like you have been to the 3rd world. over there people care about more important stuff like food and water and maybe even basic education; you call suffering watching some guy drive a car you can't afford? we live like kings over here
"Just because I wish I could duplicate some of the better aspects of S.V..."
so you really do believe in what you wrote? I thought you were just messing with me. ironic
The tech boom was setup over half a century ago with massive investment by the military serving as the basis of the beginning of most of what we use in consumer land today. Same with the auto industry - it was systematically planned on purpose, like the high construction, by the oil cos. QUESTION: what "big infrastructure" investment is paving the way for the entrepreneurs of the future? Please don't say "alternative bio energy" ...
Entrepreneurs are important players, no doubt. But the game needs to be setup properly first. Our game is falling apart and needs to be reset just like you used to restart your Win95 based PC mid-day when it clogged up.
>doesn't sound like you have been to the 3rd world. over there people care about more important stuff like food and water and maybe even basic education; you call suffering watching some guy drive a car you can't afford? we live like kings over here
No, that wasnt' my point. My point is that it's different being "there" where most people are suffering and in the same boat than it is here where people suffer right alongside ostentatious wealth aquired via sometimes legit, sometimes not so means.
> so you really do believe in what you wrote? I thought you were just messing with me. ironic
Let me say this as clearly as I know how. I ADMIRE some things about S.V. ... I WISH I could duplicate them. Many people do. But so far it has not proven possible. Having said that, as an "outsider" I recognize it's uniqueness. You, as an insider, seem, to me, to be saying, basically, "Why don't you folks just, you know, come together and innovate like we do and the market will reward you for it."
What I'm saying is the over there it's like a well-oiled machine that seems to have biased your impression of the challenges everyone outside of there experiences.
I wish I could experience "that" over "here", but recognize "that" is not reality most places. You experience "that" there and see the word through S.V.-colored glasses ...
Come on, I know I'm not always super clear but I can't be killing this point that bad.
Look at it this way - imagine an NBA player telling you, "What's the problem - just jump up and dunk it like I just did - what's so hard about that?"
Imagine you're 5'6". Just once you'd like to put that guy in your frame and say, "Okay - go ahead - jump up and slam dunk it now like you just advised me!"
Correct me if I'm wrong, but a real life example of the "shoe salesman" is Ross Perot.
"He soon had the highest sales in the company and hence received the highest commission. Then in 1961, IBM executives decided to set limits on how much commission a sales person could receive each year. It did not take even three weeks for Perot to reach his yearly maximum, which caused him great frustration. Additionally, Perot had some new business concepts that he wanted IBM to implement. IBM management was extremely resistant to trying his new ideas. Frustration related to the cap on his commission and the insult of deciding not to implement his business ideas, resulted in Perot leaving IBM in 1962 to start his own company. His company, Electronic Data Systems (EDS), was based on the very ideas that IBM rejected."
Don't get me wrong, capitalism is not perfect; but it does favor creativity, risk taking, and persistence (in the face of adversity).
+1 for the reminder of Perot's infomercials during his 1992 presidential run in which he delivered his sales pitch for president (charts and all)
I'm actually surprised this got up voted on a site populated mostly by the can-do, think outside of the box so I can move up the food chain crowd... is YC News readership changing?
I could be wrong, but I feel another subtle message the article is giving is: "there's no point - just give up. the evil rich men will always outsmart and bully you no matter how hard you try or how clever u are"
Unfortunately this was in fact mostly voted up by recently arrived users. But I'm not panicking yet; overall the quality of the top stories was good today.
Charityfocus had an interesting story, but they spun it with the kind of sad, defeatist attitude that is antithetical to the hacker news ethos.
John got the shaft in the short term, but Adidas got rid of their top salesman. John will recover and probably excel, while Adidas just guaranteed that their salesman will never try and achieve anything great. The most obvious effect of an action is not the most important, as stated above.
At a startup, the worst you can do is lose all your invested capital, go deeply into debt, lose the respect of your peers, burn out, and have such a large gap in your track record of gainful employment that getting a job at the level you would want is very difficult.
Further, you _can_ get fired from a startup. Your investors become your owners, and they can fire you. Your cofounders can fire you (or screw you in other ways), too.
I'm not saying a startup is risk-free, but I wish people would quit treating employment as risk-free too. It just seems like you have a lot more control over your situation (picking your cofounders, picking your investors) than you do as an employee (who can be fired on a whim). You can work has as an employee and not have anything to show for it. If you work hard as a founder, customers are much less likely to 'fire' you at random.
What happened to this fabled John is pretty crappy, but that is a risk every employee has always had. The only way to avoid that risk is to put your own capital on the line and be an owner (a founder is an owner, even if it only costs him $10 for the domain name).
If anything, this article shows why capitalism does work well. If we weren't using capitalism, John couldn't start over again. If we were under communism, and the State fires and blacklists you, you are screwed. All jobs belong to the state. If we were under feudalism, and the Lord 'fires' you (most likely by taking your plot of land and possibly just killing you), then you're only choice is to try and find another Lord to take you in. How is that better?
I'd bet the author wants a benevolent state to give us all jobs that pay the same amount. That is all fine and dandy, except then what would even be the point? At that point we'd be living on Airstrip One and enjoying our daily Two Minutes Hate.
If your "independent dream project" is too far away on the horizon, you might just get in the habit of holding yourself back from your job, and get used to the idea that you're the type of person who does mediocre work -- and the people you work with may also think of you as mediocre.
So the cost of protecting yourself from being burned can cost you in [1] change of personal habits & [2] reputation among those you work with & know your track record.
Even in times I've been burned with work/life, I've never regretted the effort I put into doing my best at whatever I set my mind to. I've wished I could have foreseen bad events, but not wished I'd tried less hard. I like trying hard... it's fun; I don't just do it for money. Other people can take away the rewards that I may have been entitled to, but they can't tell me that my efforts were mediocre.
I can only shake my head in disbelief at so much nonsense.
Companies are engines that turn money into more money - everything else is just a part in that engine. Maybe you can make more money being a part in a big engine than owning your own small engine, but don't complain if the owner of big engine swaps you out.