Entrepreneurship
All Great Fortunes are Built on the Exploitation of Unpaid Work
All great fortunes are built on the exploitation of unpaid work. Rockefeller turned the unpaid work of ancient extinctions into an oil fortune. Zuckerberg turned our unpaid attention in the in-between moments, like toilet time and transit time, into a massive advertising business. While making us pay him, Jobs made us work to carry devices everywhere we go and sleep next to them while also profiting off the apps other people make. Bezos saw the unpaid work inherent in every marketplace, where the work of each new participant creates value for all the others, and most of all for the owner of the marketplace.
In fact, exploiting market failures is part and parcel of capitalism, and the only way to generate real wealth. We like to think of Smith’s “invisible hand “ as bringing capitalism to an ever-elevated state. The term implies a beneficent guidance, which does not exist. Capitalism doesn’t have a conscience. It is demand and supply and pricing equilibriums, but in its simplicity it either fails to price all the sources of cost and value, including frequently the biggest ones, or it delivers nearly 100% of the economic value to the information-rich, well-resourced capitalist.
Capitalism pretends that fortunes are made inside the system, when there are always made outside, by massive exploitation of unpaid work. Economists like to call it an “externality,” as if it were somehow an afterthought to an otherwise well-functioning system. LL Cool J might disagree. He preached, “Don’t call it a comeback, I’ve been here for years.” The economic version would be “Don’t call it an externality, I’m how you get rich.”
The textbook example of a negative externality is a factory that emits a toxic sludge, spreading cancer to everyone downriver and global warming to everyone unfortunate enough to be on the same planet. The price of the pollution is not priced into the factory’s costs, so it sells far more than it should and destroys people’s lives. Economists have imagined Pigovian taxes to remedy the situation. If you can price the impact of pollution, you can wind up with an efficient outcome.
Of course, it’s impossible to price. How much is grandma dying at age 75 instead of 82 worth? What is the price of an extra .0000001 degree toward global warming by a single factory owner? While society spends decades debating those values through an asymmetric information war where one side is dramatically more focused and better resourced and therefore wins all rounds of bargaining, the factory owner generates wealth and buys newspapers and puts his name on playhouses and hospitals, whitewashing his legacy.
There are positive externalities too … like a new park. The cost of the park is borne by many, but heavy users of the park may stroll through the gardens and be inspired to a breakthrough in science or have that eureka moment for a new way to exploit unpaid work, that first step in joining the billionaire’s club. In this case, society underinvests in parks, because the benefit is not fully priced into the system. Not every contemplation, action, and outcome can be priced into our simple market-oriented capitalist system. It is exploiting these unpaid gaps where fortunes are made.
Successful entrepreneurs operate on the unregulated frontier. They mine unpaid work, and they take little or no account of the negative externalities associated with that work, and for the most part, those externalities are unforeseeable, even if one were that rare beneficent capitalist, and they are inestimable and so impossible to price in. Zuckerberg, without paying anyone, made billions of people compulsively check his apps every month. That’s a trick where he exploited his resources and focus to take the vast majority of the economic value from his users, but what’s worse are the negative externalities, the cost to mass-distraction, mental health, and siloed news consumption, and that cost is difficult to estimate. It can swing elections, empower demagogs, and spark wars.
If that weren’t bad enough, excessive wealth itself is straight-forwardly a negative externality. It corrupts the political process and in an increasingly networked world amasses the economic benefits of network effects in too few hands. It seeks only to spew more of itself into the immediate environment of the entrepreneur. Negative externalities are bad. Negative externalities are caused by products created by entrepreneurs. Unchecked concentrated wealth in the hands of the entrepreneur permits the creator of the externality to continue to perpetuate the externality without any curb or tax. Who can stand up to Jeff Bezos, Tim Cook, or Mark Zuckerberg and expect rationally to win?
Society can. It is society’s job to redress this imbalance in unchecked capitalism. What purpose is a government if not to encourage positive externalities, while curbing negative ones? Education is the ultimate positive externality, filling the self so it it need not be filled by endless, transient wants in a vapid consumer culture. Education shapes the leaders of tomorrow and remakes the world in the nature of its objectives, which, if done well, must be a commitment to truth, a strengthening of civic duty, and development of the moral character, encouraging young people to care about each other while advancing the shared knowledge of the world.
The environment is another clearcut positive externality. We must be able to breathe the air and drink the water, and we must be able to find green space, to take refuge in it from the din of industrial existence. Minimization of existential risk we should all agree is another valid concern of any functioning government. We don’t want our world to end in a mushroom cloud or from a sudden pestilence (ahem!) or from an AI run amok.
Beyond these absolutes, society can make choices. Would it be better to cap personal wealth at $100 million or to allow many generations of Zuckerbergs and Bezoses and Trumps to control all the most important levers of power? Would it be better to allow society to distribute the $3.4 trillion of wealth owned by 66 US billionaires, leaving each with a “paltry” $100 million or so, or to push forward massive projects to confront the environment, education, and health care?
These fortunes were made by exploiting unpaid work, and the products created by these entrepreneurs cause negative externalities of untold magnitude. Society has every right to set a wealth maximum and to make entrepreneurs pay the bill for the unpaid work that society bestowed upon them. In fact, a society that enables unpaid work to amass in the coffers of the few while ensuring all political power accrues to those same few is inherently unjust.
This American experiment can deal with the excesses of capitalism. It certainly has before. For the most part, entrepreneurs are not villains. They started a business to create something new, to feed their families, to educate their children, and along the way they created many jobs, so other people can do the same. That won’t change. Capitalism will not be broken by a wealth maximum. The mega-rich would merely need to find a new, more helpful criteria to compete on, than their spot on the world’s richest lists.
Our founding fathers would respond with Virginian insight. Maybe we can solve one problem with another. We can solve the problems of global warming and affordable higher education by solving the problem of inequality. By modestly capping wealth at $100 million, we can pay for a livable earth inhabited by educated people. We can prevent money from corrupting our politics. We can insist entrepreneurs pay the bill for the unpaid work that built their fortunes.
