“Inequality and the rise of a super rich elite is undermining the foundations of capitalism. The trappings of capitalism could be swept away by the pitchfork of revolution unless capitalism is fundamentally re-imagined”, so says American venture capitalist Nick Hanauer,

In an interview with the BBCs Stephen Sakur as part of the Hard Talk series of programmes, one of America’s wealthiest individuals argues that capitalism as currently configured is not working. The thing that drives Hanauer on is status not money:

“I’m not driven by money but by the need to be king of the hill. If capitalism doesn’t change fundamentally, it will destroy itself. If you allow wealth to concentrate in fewer and fewer hands over time, in the end it cannot be good for anybody, particularly people like me”, he says. “You show me a highly unequal society and I’ll show you a police state or a revolution.”

According to Hanauer, the notion that in ‘go get’ societies like the U.S people are able to crawl out of the clutches of poverty is true. However, there are limits: “Aspiration is a good thing”, he says, “But aspiration in the absence of opportunity creates resentment, anger and violence. The idea that if the disenfranchised are given more incentives they would magically become software engineers or Wall Street executives isn’t true.”

For Hanauer, the problems are more fundamental: “If we don’t get inequality under control then it’s likely to lead to war – a similar pattern that followed the last period of massive inequality between 1925 and 1940. The most capitalist thing you can do to prevent war is to build up the middle class. From a capitalists perspective, although it may seem a good idea in the short-term to impoverish the typical family, in the long-term it’s a catastrophe.”

Although Hanaeur posits that as an economic system capitalism has been beneficial to millions of people and “is the greatest system ever produced for lifting people out of poverty”, he nevertheless accepts it’s flaws. It fails, for example, to sufficiently “knit together agreements” thereby undermining the potential for a more equitable and sustainable distribution of the wealth that growth brings:

“In my state”, he says, “since 1990, close to 100% of growth has been accrued to just 1% of the top earners. People are beginning to get angry and increasingly less patient with a system that rewards nearly all of the benefits of growth to a tiny minority at the top.”

According to Hanauer, the crisis of capitalism is more acute than ever before and its problems are exacerbated by any lack of purpose which capitalism encourages: “Because we are social creatures, the only thing that gets to define society is our capacity to cooperate. In the absence of a shared purpose, people will not cooperate at which point the society will dissolve”, he says.

“Trickle down economics – the idea that the money of people who become rich – permeates down to the poor, is nonsense. How can it be anything other than nonsense given the fact that inequality is on the rise and socioeconomic mobility is in reverse? I’m not arguing against capitalism but simply saying that there are ways to optimize it – to make it better for everybody.”

Hanaeur is clear that his argument isn’t intended to be a moral one: “I’m not saying that we capitalists should pay workers more because we feel sorry for them, But the more they get paid, the better it will be for venture capitalists like me. The more money ordinary folks’ make, the greater the opportunity people like me have to innovate, create enterprises and sell them stuff. The better they do, the better I do”,

Hanauer then goes on to make the contention that the converse isn’t true: “A thriving middle class causes growth, not the other way round”, he suggests. “You can’t drive a consumer-based economy – which our economies are based on – with only the extreme wealth of the few. What we need to do is to boost the minimum wage in the U.S to 15 dollars an hour.”

Hanauer then goes on to imply that capitalism needs to be further controlled through a system of planned and coordinated regulation:

“Capitalists have the idea that THEIR things will be bought by everybody else as a result of higher wages paid by OTHER capitalists. But this logic of paying higher wages to staff to help improve business activity more generally, doesn’t seem to apply equally to them since they will insist on paying THEIR OWN workers next to nothing thereby not absorbing the costs themselves. The simple truth is, if a higher minimum wage was introduced universally, not only would it be affordable, but something like 40% of American’s would be able to buy more products from everybody thus benefiting all capitalists across the board. Business is challenged today because fewer and fewer people are able to buy things.”

As far as the possibility of change in the future?:

“Most American’s have accepted this bankrupt idea of how you create growth in capitalist economies. If you think that wealth trickles down from the top; if you think that the rich are the wealth creators, and if you think that the more rich people you have the more jobs you will create, then the notion that the introduction of a high rate of tax for rich people makes no sense. However, if you reject that false idea of how capitalism works and you accept a more realistic 21st century notion that the more workers earn, the more customers’ businesses have and the greater the level of jobs that will be created, then you will understand that it’s part of a feedback loop in which everybody wins. The battle ahead is to change the parameters of debate around these things. At the moment we are on the wrong track.”

http://www.bbc.co.uk/iplayer/episode/b05ndjm9/hardtalk-nick-hanauer-venture-capitalist