Rich Americans Aren't the Real Job Creators

A proud capitalist on what really drives economic growth -- and how the tax system can better reflect reality

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A young entrepreneur poses with photos of colleagues at a conference for start-ups in February 2012. (Reuters)

In a November 2011 op-ed for Bloomberg View, I argued that rich people in general -- and business-people in particular -- are not job creators. When the economy is understood in 21st-century terms, as an ecosystem, it becomes obvious that jobs don't squirt out of business-people like jelly from doughnuts. Rather, jobs are the consequence of the feedback loop between customers and businesses. For this reason, it is middle-class consumers and the demand they create that are our true job creators, not rich business-people.

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Given this, it is counter-productive to build a tax system that asymmetrically benefits the people at the very top. We all are better off -- business-people and consumers, rich and poor -- if the burden of taxes is placed at the top and not the middle, enabling middle class citizens to consume, and starting the positive feedback loop of job creation again.

Not surprisingly, this argument has created significant consternation among many of my peers. I hope to redeem myself with my fellow capitalists by arguing that thinking of ourselves as job creators significantly underestimates our contribution to our country. Any knucklehead can create jobs. We capitalists do something far more important.

Capitalists are idea creators, not job creators.

Every business, from the mundane ("How do you make the chip taste more like BBQ?") to the arcane ("How do we turn photons into electrons?"), is based on an idea about how to solve a problem. The process of converting great ideas into products that effectively solve fast-changing human needs is what creates a business. The essence of every business is both an idea for a product that meets an important human need and the ability to make that product efficiently in order to create profit.

The unmatched benefit of capitalism is the way it creates an almost unlimited number of ways for individuals to hatch ideas and then propagate those ideas in the form of businesses. I firmly believe that these businesses can collectively solve human problems faster than any other type of economic organization.

Capitalism, when properly constructed, is the best way ever invented for humans to adapt to changing challenges and conditions. Crucially, it's not just the fact that capitalists create ideas, but also the rate at which those ideas are created to meet the blindingly fast changes in human need that makes such a critical difference and produces so much value.

This is why capitalist countries are rich and communist countries are poor.

No state-run enterprise can ever compete to solve the abundance of fast-evolving human problems as well or as fast as millions of individuals trying to solve these problems in competition and in real time. The key here is the diversity of approaches taken. Ten people trying to solve a particular problem in ten entirely different ways will always solve it faster and better than ten people trying to solve it in one way, and the modern study of complex systems proves this.

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Nick Hanauer is an entrepreneur, venture capitalist, and writer. He is the co-author, with Eric Liu, of The Gardens of Democracy: A New American Story of Citizenship, the Economy, and the Role of Government.

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