Society

Rich People Don’t Create Jobs

So, if rich people do not create the jobs, what does?

A healthy economic ecosystem — one in which most participants (especially the middle class) have plenty of money to spend.

Over the last couple of years, a rich investor and entrepreneur named Nick Hanauer has annoyed all manner of other rich investors and entrepreneurs by explaining this in detail. Hanauer was the founder of online advertising company aQuantive, which Microsoft bought for $6.4 billion.

What creates a company’s jobs, Hanauer explains, is a healthy economic ecosystem surrounding the company, which starts with the company’s customers.

The company’s customers buy the company’s products. This, in turn, channels money to the company and allows the company to hire employees to produce, sell, and service those products. If the company’s customers and potential customers go broke, the demand for the company’s products will collapse. And the company’s jobs will disappear, regardless of what the entrepreneurs or investors do.

Now, again, entrepreneurs are an important part of the company-creation process. And so are investors, who risk capital in the hope of earning returns. But, ultimately, whether a new company continues growing and creates self-sustaining jobs is a function of the company’s customers’ ability and willingness to pay for the company’s products, not the entrepreneur or the investor capital. Suggesting that “rich entrepreneurs and investors” create the jobs, therefore, Hanauer observes, is like suggesting that squirrels create evolution.

Or, to put it even more simply, it’s like saying that a seed creates a tree. The seed does not create the tree. The seed starts the tree. But what actually grows and sustains the tree is the combination of the DNA in the seed and the soil, sunshine, water, atmosphere, nutrients, and other factors that nurture it. Plant a seed in an inhospitable environment, like a desert or on Mars, and the seed won’t create anything. It will die.

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