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Businesses Don’t Create Jobs. Consumers Do.

| May 28, 2012

nick hanauer

Nick Hanauer

Nick Hanauer is a partner in the Seattle venture capital firm Second Avenue Partners. He helps starts companies. Among them: Amazon, his first venture, in which he invested $45,000 in the company’s pre-history. Also, aQuantive and, and other, more civic-minded concerns such as the League of Education Voters and The True Patriot Network.

TED–which stands for Technology, Entertainment, Design–is the non-profit founded in 1984 to spread ideas through conferences and its famous talks, which are released online. Those talks “rapidly attracted a global audience in the millions,” TED’s website notes. “Indeed, the reaction was so enthusiastic that the entire TED website has been reengineered around TEDTalks, with the goal of giving everyone on-demand access to the world’s most inspiring voices.”

Some talks don’t make it onto the website, at least not for more than a day. Hanauer’s March 1 talk was one such. It was about job creation. Hanauer demolishes the notion that businesses create jobs. Consumers do, he says, and explains. On May 22, the National Journal’s Jim Tankersley wrote: “There’s one idea, though, that TED’s organizers recently decided was too controversial to spread: the notion that widening income inequality is a bad thing for America, and that as a result, the rich should pay more in taxes.”

the live wire flaglerliveHere is a transcript of the heart of Hanauer’s talk, which you can see in the video at the foot of this piece: “I have started or helped start dozens of companies, and initially hired lots of people. But if there was no one around who could afford to buy what we had to sell, all those companies and all those jobs would have evaporated. That’s why I can say with confidence that rich people don’t create jobs, nor do businesses large or small. Jobs are a consequence of a circle of life-like feedback loop between customers and businesses. And only consumers can set in motion this virtuous cycle of increasing demand and hiring. In this sense, an ordinary consumer is more of a job creator than a capitalist like me. That’s why, when business people take credit for creating jobs [at this point, an image of Donald Trump appears on the big screen], it’s a little bit like squirrels taking credit for evolution. It’s actually the other way around. Anyone who’s ever run a business knows that hiring more people is a course of last resort for capitalists. It’s what we do if and only if rising consumer demand requires it. And in this sense, calling yourselves job creators isn’t just inaccurate. It’s disingenuous.”

Tankersley went on: “TED officials told Hanauer initially they were eager to distribute it. “I want to put this talk out into the world!” one of them wrote him in an e-mail in late April. But early this month they changed course, telling Hanauer that his remarks were too “political” and too controversial for posting. Other TED talks posted online veer sharply into controversial and political territory, including NASA scientist James Hansen comparing climate change to an asteroid barreling toward Earth, and philanthropist Melinda Gates pushing for more access to contraception in the developing world. TED curator Chris Anderson referenced the Gates talk in an e-mail to colleagues in early April, which was also sent to Hanauer, suggesting that he didn’t want to release Hanauer’s talk at the same time as the one on contraception. Hanauer’s talk “probably ranks as one of the most politically controversial talks we’ve ever run, and we need to be really careful when” to post it, Anderson wrote on April 6. ‘Next week ain’t right. Confidentially, we already have Melinda Gates on contraception going out. Sorry for the mixed messages on this.’ In early May Anderson followed up with Hanauer to inform him he’d decided not to post his talk.”

TED’s Anderson fired back in a blog post: “The talk tapped into a really important and timely issue. But it framed the issue in a way that was explicitly partisan. (The talk is explicitly attacking what he calls an article of faith for Republicans. He criticizes Democrats too, but only for not also attacking this idea more often.) And it included a number of arguments that were unconvincing, even to those of us who supported his overall stance, such as the apparent ruling out of entreprenurial initiative as a root cause of job creation. The audience at TED who heard it live (and who are often accused of being overly enthusiastic about left-leaning ideas) gave it, on average, mediocre ratings – some enthusiastic, others critical. […] We discussed internally and ultimately told the speaker we did not plan to post. He did not react well. He had hired a PR firm to promote the talk to MoveOn and others, and the PR firm warned us that unless we posted he would go to the press and accuse us of censoring him. We again declined and this time I wrote him and tried gently to explain in detail why I thought his talk was flawed. So he forwarded portions of the private emails to a reporter and the National Journal duly bit on the story. And it was picked up by various other outlets. And a non-story about a talk not being chosen, because we believed we had better ones, somehow got turned into a scandal about censorship. Which is like saying that if I call the New York Times and they turn down my request to publish an op-ed by me, they’re censoring me.”

The story kicked up a debate as interesting as the one we should be having about Hanauer’s point, including, from Forbes–the Pravda of capitalism–a demolishing job from the other side. That piece is called “The Real Reason That TED Talk Was ‘Censored’? It’s Shoddy And Dumb.”

Here’s the five-minute talk.

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5 Responses for “Businesses Don’t Create Jobs. Consumers Do.”

  1. Angela Smith says:

    In this economy, EVERY day is “Labor Day”!

  2. Liana G says:

    FlaglerLive, thank you for posting this! I’m a gigantic fan of TEDTALK and watched this a couple of times. Inspiring!

  3. So true, I have to laugh when I hear the President created 4 million jobs! I started a business, and it’s my clients that make it a success!

  4. palmcoaster says:

    @ Frank Corsillo. I never heard the President attributing himself the creation of 4 million jobs…can you document that? What I have heard is that during the current administration 4 million jobs were created by businesses, that is quiet different. “Nowhere Obama said himself or the administration created”. In only one add reads Obama jobs record not jobs created. That advertisement shows the jobs created by businesses, graph..The only one that attributes himself the creation of 100,000 jobs is Mitt Romney with Bain Capital…well.
    Lets read or listen speeches word by word please.

    By the way If we attract businesses to move to our county then jobs will be created. Wish you success and great sales in your new business

  5. Brad West says:

    Outside of the politic thing being applied to this, there is merit in what he is saying but I do not believe he is 100% spot-on. First, there is truth behind wealth creating jobs because people with wealth are typically the investors that fuel businesses. We see all these “start-ups” today and most often they are backed by investors.

    Now Mr Hanauer brings up a a really interesting point in regards to consumer creating jobs and there is certain truth to that. Without demand and purchasing (or enough of) of one’s products and services you can not exist as a business. There isn’t just one segment of income-class that can hold up an entire economy wealthy or not. For example, I was in retail management and the trend lately in cut cut cut in terms of labor and payroll. There is huge focus on “efficiencies” and “being lean”. Fewer hours means more part-timers and less full-timers with less access to insurance as well. It’s also been a trend that while the cutting is going on at the bottom level there is an increase in the payroll expense at the upper executive levels. It becomes a vicious spiral that results. You reduce the purchasing power of many employees while increasing the purchasing power of a fractional few. And that’s purchasing power of your own products and services which people tend to purchase from the company they work for first.

    Beyond the retail example, the middle-class and below typically represent a group with much more total purchasing power. As businesses grow from increased demand, so comes the need for more employees. So there is merit to both sides of the debate in my opinion.

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