Connect with us

General

Wealthy venture capitalist Nick Hanauer is on a mission to fix the American economy before it’s too late – Strategy – Pulselive.co.ke

Published

on

Loading...


  • Nick Hanauer is a wealthy, Seattle-based venture capitalist and progressive political activist.
  • He successfully lobbied for a raise in Seattle’s minimum wage, and has been outspoken about raising it throughout the country.
  • Hanauer said we should not fear capitalism as a whole, but fear the system neoliberalism has given us — and change it.
  • This article is part of Business Insider’s ongoing series on Better Capitalism.

Nick Hanauer isn’t a self-loathing rich guy. But he is furious that he and his fellow wealthy Americans have reaped the majority of benefits from the United States’ economic growth for the last few decades.

He’s far from a leftist, but he does want to see significant changes made to the way capitalism is practiced in America. “I want to hold capitalism to a high standard,” he told me.

He and his wife Leslie are signers of the Giving Pledge, which means their combined net worth is at least $1 billion. He made his money from both investing in Amazon during its infancy and from the $6.4 billion sale of his online advertising company aQuantive to Microsoft in 2007. Today he’s one of the founding partners of the Seattle-based venture capital firm Second Ave Partners.

Hanauer told me that he comes from a politically active family and had experience in political campaigns, and that it was only natural for him to use his newfound wealth and the influence it brought him to further the issues he was passionate about.

He’s gotten national attention for popular essays like “The Pitchforks are Coming… for us Plutocrats,” and for being a prominent lobbyist for the successful raising of the minimum wage in Seattle. He’s also partnered with Eric Beinhocker, executive director of the University of Oxford’s branch of the Instititute for New Economic Thinking, serving as an outspoken loudspeaker for their particular critique of the economy.

In the abridged interview below, Hanauer and I discuss some of the issues he’s most passionate about, including inequality, which he started studying after seeing the IRS tax table a couple years before the financial crisis.

Inequality’s not good for anyone

Hanauer: I was like, “OK, that’s not going to work out for anybody!” That is not going to work out for anybody.

And you do not have to be a deep student of history to know that down that path leads despair.

And so I started digging in. The more I dug in, the more it became obvious that this thing that had happened was it wasn’t — this didn’t happen to us like the weather happens to us. This happened to us as a consequence of a set of very deliberate decisions that we had made on policy, people on the right and left, and that those decisions continue to be made and the situation was going to go from bad to worse. And as all cataclysms do, the financial crisis moderated the effects of inequality somewhat, like the rich did get poorer, for a minute.

But the trends have continued and are getting worse. I began to write about this 10 years ago, and made the argument then and I continue to make it now, that this is going to end badly, for everybody, and that an increasing amount of economic inequality shreds the reciprocity norms upon which social cohesion, and therefore democracy, depends. You were just going to end up with a police state, or a revolution, or both.

And I wouldn’t say I’m proud to be vindicated, but I do feel like the election of Donald Trump in 2016 was a vindication of that argument. I predicted a populous revolt and we got one. Not exactly that one, but Donald Trump is a manifestation of the anger that is created when you build an economy that egregiously enriches the few and structurally impoverishes everybody else. And so, it’s bad. And if we want to save our country, we have to fix it.

Time to rethink the economy

Feloni: In our Better Capitalism series, we’ve been looking at long-term value creation. I’ve been seeing some of that language, and the rejection of Milton Friedman’s economics, from business leaders. You’ve got BlackRock CEO Larry Fink’s letter about that getting passed around Davos earlier this year. Do you see this as just some savvy PR among these firms, or are they genuinely scared that they’re on the verge of losing traction?

Hanauer: Well, I definitely think that there are a bunch of business leaders in the country who are beginning to acknowledge that we have gone off the rails a bit, and that we have to find a better way of including more people in the economy. But converting that sentiment into the policy change necessary to do it, that’s a long and difficult road. Because those changes will involve trade-offs that lots of capitalists are not going to want to make.

You can, in fact, characterize the degree to which the middle class has been behind. If you held the median family income from rising inequality since 1980, instead of $59,000 a year, they’d earn $86,000 a year. So if you want to understand why people are so pissed off, it is that delta. It’s that delta! It’s not $300 a year, it’s $25,000 a year. And that $25,000 has to come out of somewhere. And one of the place it has to come out of is the net worth of the Walton family.


play

null

(Business Insider/Andy Kiersz, data from FRED)

Feloni: Can you explain how you reject the ideals of the free market economy that have reigned for decades?

Hanauer: Yeah, so neoclassical economics and neoliberalism, which is the ideological layer that sits on top of neoclassical economics, is based on — and this is a massive oversimplification — three foundational mistakes about how the world works.

The first is a profound misunderstanding about human behavior, the idea of homo economicus, that people are rational, calculating, and selfish. All of neoclassical economics is built on that assumption and it is objectively false. We now know with scientific certainty that people are emotional, heuristic, reciprocal, and fundamentally moral creatures because human societies are built on, and constructed of, norms and moral structures that enable cooperation and trust.

The second foundational mistake is the idea that the system itself is efficient, Pareto optimal, and in equilibrium. That’s all just objectively false. An economy is an open, complex system. It is an ecology. It is a non-equilibrium system. It is not subject to negative feedback loops, which is like, if this goes up, something must come down. It’s actually subject to positive feedback loops, like when workers are paid more, they buy more stuff, and the people they buy stuff from have to hire more workers, which creates more demand. It’s an ecosystemic metaphor, if you guide your thinking about and your intuitions about how the system works, not a mechanical metaphor.

The final mistake was to believe that GDP was an adequate measure of human welfare and a good way of characterizing economic progress. Which it is not, for a variety of really super obvious reasons, including the fact that it doesn’t talk about distribution— that you can have GDP going up and only 10 people out of 10 million benefit from that GDP while everybody else gets left behind. That’s to say nothing of what economists call externalities, which is, yeah, we created a lot of GDP and burned down all the shit, and now we’re all going to die because we polluted the atmosphere to the point where we can’t breathe.

So when you line up those three mistakes, which is what all economic thinking and all economic policy is currently based on, yeah, things go wrong.

A fight to raise the minimum wage

Feloni: Unemployment is very low, but wages are growing slowly. Is one of the reasons you’re pushing for higher minimum wages across the country to adjust this?

Hanauer: People are not paid what they are worth. [The marginal revenue productivity theory of wages] is a made-up concept that has nothing to do with how the economy actually works. People are paid what they negotiate, not what they are worth. And in a world where most workers have no power and we have let corporate power consolidate more and more, there’s no reason in the world for most businesses to give ordinary workers wage increases. And that’s why we have low levels of unemployment, but high levels of immiseration and a ton of people just staying out of the job market. Because frankly, if all you do is get a job making $7.25 an hour with no benefits, like, why would you do that? Like, f— it. Stay home.

Loading...

Hanauer has been a vocal supporter of raising the minimum wage across the country.play

Hanauer has been a vocal supporter of raising the minimum wage across the country.

(REUTERS/Lucy Nicholson/Files)

Feloni: You highlighted on your site the working paper from the Census Bureau where they took a look at a rise in the minimum wage and saw it went against the Econ 101 notion, and the common critique from opponents, that raising the minimum wage reduces jobs.

Hanauer: That critique is just nonsense. It’s never been true, but it is the anchor claim of neoliberalism and trickle-down economics. Here’s the thing: If you can’t show that raising wages kills jobs, then why in the world wouldn’t you want to raise wages, by a lot? This is why the chamber of commerce clings so tightly to that claim. In the absence of that claim there’s no morally justified reason to keep wages low.

A system that works for everyone

Feloni: Alongside rising inequality in the US, we’ve seen increasing market concentration. Amazon’s a great example.

Hanauer: It’s bad. It’s super bad. Monopoly and monopsony are the evil cousins to one another, right? Nothing about either of these things is good for anyone except the shareholders of the companies.

Here’s a great way to see why it’s bad. Amazon is out shopping for what they’re calling HQ2 and because we have allowed power to concentrate so much, that decision is incredibly important to cities. And as a consequence, you’ve got this ridiculous race to the bottom to find America’s dumbest and most vulnerable mayor.

Everything gets worse for most people when you let power consolidate like this because you just have these asymmetries of power that are very, very corrosive.


Amazon's campus in downtown Seattle features play

Amazon’s campus in downtown Seattle features “The Spheres.”

(Elaine Thompson/AP)

Feloni: In both the Gilded Age and our current age of inequality you’ve got weak unions. Do you feel that it’s a necessity to bring back power to organized labor, and if so, how would it need to change to fit the needs of today?

Hanauer: Unions as they sit are not likely to come back in the way that they once were, but we have to find new ways to create power for working and middle class America. I actually cannot disclose what my group of collaborators and I are working on, but we’re working on some models to do that. We’re actively trying to build some organizations to do some of that stuff. But they won’t look like unions, they’ll look like something else.

Feloni: So you have to rethink how labor would organize?

Hanauer: Yeah, the model makes less and less sense. Among other things, the American model of workplace by workplace organizing is just inefficient and it’s bad. You have a situation where one company in an industry gets unionized and another doesn’t. Well, that creates an existential crisis for the one who is. It’s idiotic to have a system where one company that makes hamburgers pays $15 an hour and another company that makes hamburgers pays $7.25. That’s nuts. I feel strongly that a much better solution both for workers and capitalists are standards that are universal.

Feloni: I think a lot of why we’re having these sorts of conversations is because we’re in the early stages of a shift on the scale of the Industrial Revolution.

Hanauer: Right.

Feloni: I’ve seen you talk about your contempt for the so-called Luddites. But how do we make sure that we don’t leave too many people behind?

Hanauer: People are freaking out about robots and jobs and the future of work and all of this stuff. I think that’s bullsh–. We will not run out of jobs until humanity runs out of problems. And that is never going to happen. We do not need to fear innovation. Innovation is how human societies create better living standards. Innovation has been with us since the beginning. The more of it we have, the better.

And we do not need to fear capitalism, which is simply a social technology that enables people to come together in large, complex groups to cooperate to solve to solve human problems. What we need to fear is an ideological framework that uses innovation and capitalism to enrich the few and impoverish the many. Which is not necessary! You can have a highly innovative capitalist economy where everyone benefits from it. You just have to decide that’s what you want to do. And so the only thing we have to fear is neoliberalism, which is the idea, among other things, that the only purpose of the corporation is for its shareholders. Which is bullsh–. Just bullsh–.



Loading...

General

Sordid tale of the bank ‘that would bribe God’

Published

on

Loading...

Bank of Credit and Commerce International. August 1991. [File, Standard]

“This bank would bribe God.” These words of a former employee of the disgraced Bank of Credit and Commerce International (BCCI) sum up one of the most rotten global financial institutions.
BCCI pitched itself as a top bank for the Third World, but its spectacular collapse would reveal a web of transnational corruption and a playground for dictators, drug lords and terrorists.
It was one of the largest banks cutting across 69 countries and its aftermath would cause despair to innocent depositors, including Kenyans.
BCCI, which had $20 billion (Sh2.1 trillion in today’s exchange rate) assets globally, was revealed to have lost more than its entire capital.
The bank was founded in 1972 by the crafty Pakistani banker Agha Hasan Abedi.
He was loved in his homeland for his charitable acts but would go on to break every rule known to God and man.
In 1991, the Bank of England (BoE) froze its assets, citing large-scale fraud running for several years. This would see the bank cease operations in multiple countries. The Luxembourg-based BCCI was 77 per cent owned by the Gulf Emirate of Abu Dhabi.  
BoE investigations had unearthed laundering of drugs money, terrorism financing and the bank boasted of having high-profile customers such as Panama’s former strongman Manual Noriega as customers.
The Standard, quoting “highly placed” sources reported that Abu Dhabi ruler Sheikh Zayed Sultan would act as guarantor to protect the savings of Kenyan depositors.
The bank had five branches countrywide and panic had gripped depositors on the state of their money.
Central Bank of Kenya (CBK) would then move to appoint a manager to oversee the operations of the BCCI operations in Kenya.
It sent statements assuring depositors that their money was safe.
The Standard reported that the Sheikh would be approaching the Kenyan and other regional subsidiaries of the bank to urge them to maintain operations and assure them of his personal support.
It was said that contact between CBK and Abu Dhabi was “likely.”
This came as the British Ambassador to the UAE Graham Burton implored the gulf state to help compensate Britons, and the Indian government also took similar steps.
The collapse of BCCI was, however, not expect to badly hit the Kenyan banking system. This was during the sleazy 1990s when Kenya’s banking system was badly tested. It was the era of high graft and “political banks,” where the institutions fraudulently lent to firms belonging or connected to politicians, who were sometimes also shareholders.
And even though the impact was expected to be minimal, it was projected that a significant number of depositors would transfer funds from Asian and Arab banks to other local institutions.
“Confidence in Arab banking has taken a serious knock,” the “highly placed” source told The Standard.
BCCI didn’t go down without a fight. It accused the British government of a conspiracy to bring down the Pakistani-run bank.  The Sheikh was said to be furious and would later engage in a protracted legal battle with the British.
“It looks to us like a Western plot to eliminate a successful Muslim-run Third World Bank. We know that it often acted unethically. But that is no excuse for putting it out of business, especially as the Sultan of Abu Dhabi had agreed to a restructuring plan,” said a spokesperson for British Asians.
A CBK statement signed by then-Deputy Governor Wanjohi Murithi said it was keenly monitoring affairs of the mother bank and would go to lengths to protect Kenyan depositors.
“In this respect, the CBK has sought and obtained the assurance of the branch’s management that the interests of depositors are not put at risk by the difficulties facing the parent company and that the bank will meet any withdrawal instructions by depositors in the normal course of business,” said Mr Murithi.
CBK added that it had maintained surveillance of the local branch and was satisfied with its solvency and liquidity.
This was meant to stop Kenyans from making panic withdrawals.
For instance, armed policemen would be deployed at the bank’s Nairobi branch on Koinange Street after the bank had announced it would shut its Kenyan operations.
In Britain, thousands of businesses owned by British Asians were on the verge of financial ruin following the closure of BCCI.
Their firms held almost half of the 120,000 bank accounts registered with BCCI in Britain. 
The African Development Bank was also not spared from this mess, with the bulk of its funds deposited and BCCI and stood to lose every coin.
Criminal culture
In Britain, local authorities from Scotland to the Channel Islands are said to have lost over £100 million (Sh15.2 billion in today’s exchange rate).
The biggest puzzle remained how BCCI was allowed by BoE and other monetary regulation authorities globally to reach such levels of fraudulence.
This was despite the bank being under tight watch owing to the conviction of some of its executives on narcotics laundering charges in the US.
Coast politician, the late Shariff Nassir, would claim that five primary schools in Mombasa lost nearly Sh1 million and appealed to then Education Minister George Saitoti to help recover the savings. Then BoE Governor Robin Leigh-Pemberton condemned it as so deeply immersed in fraud that rescue or recovery – at least in Britain – was out of the question.
“The culture of the bank is criminal,” he said. The bank was revealed to have targeted the Third World and had created several “institutional devices” to promote its operations in developing countries.
These included the Third World Foundation for Social and Economic Studies, a British-registered charity.
“It allowed it to cultivate high-level contacts among international statesmen,” reported The Observer, a British newspaper.
BCCI also arranged an annual Third World lecture and a Third World prize endowment fund of about $10 million (Sh1 billion in today’s exchange rate).
Winners of the annual prize had included Nelson Mandela (1985), sir Bob Geldof (1986) and Archbishop Desmond Tutu (1989).
[email protected]    

Loading...

Monitor water pumps remotely via your phone

Tracking and monitoring motor vehicles is not new to Kenyans. Competition to install affordable tracking devices is fierce but essential for fleet managers who receive reports online and track vehicles from the comfort of their desk.

Loading...
Continue Reading

General

Agricultural Development Corporation Chief Accountant Gerald Karuga on the Spot Over Fraud –

Published

on

Loading...

Gerald Karuga, the acting chief accountant at the Agricultural Development Corporation (ADC), is on the spot over fraud in land dealings.

ADC was established in 1965 through an Act of Parliament Cap 346 to facilitate the land transfer programme from European settlers to locals after Kenya gained independence.

Karuga is under fire for allegedly aiding a former powerful permanent secretary in the KANU era Benjamin Kipkulei to deprive ADC beneficiaries of their land in Naivasha.

Kahawa Tungu understands that the aggrieved parties continue to protest the injustice and are now asking the Ethics and Anti-corruption Commission (EACC) and the Directorate of Criminal Investigations (DCI) to probe Karuga.

A source who spoke to Weekly Citizen publication revealed that Managing Director Mohammed Dulle is also involved in the mess at ADC.

Read: Ministry of Agriculture Apologizes After Sending Out Tweets Portraying the President in bad light

Dulle is accused of sidelining a section of staffers in the parastatal.

The sources at ADC intimated that Karuga has been placed strategically at ADC to safeguard interests of many people who acquired the corporations’ land as “donations” from former President Daniel Arap Moi.

Despite working at ADC for many years Karuga has never been transferred, a trend that has raised eyebrows.

“Karuga has worked here for more than 30 years and unlike other senior officers in other parastatals who are transferred after promotion or moved to different ministries, for him, he has stuck here for all these years and we highly suspect that he is aiding people who were dished out with big chunks of land belonging to the corporation in different parts of the country,” said the source.

In the case of Karuga safeguarding Kipkulei’s interests, workers at the parastatals and the victims who claim to have lost their land in Naivasha revealed that during the Moi regime some senior officials used dubious means to register people as beneficiaries of land without their knowledge and later on colluded with rogue land officials at the Ministry of Lands to acquire title deeds in their names instead of those of the benefactors.

Read Also: Galana Kulalu Irrigation Scheme To Undergo Viability Test Before Being Privatised

Loading...

“We have information that Karuga has benefitted much from Kipkulei through helping him and this can be proved by the fact that since the matter of the Naivasha land began, he has been seen changing and buying high-end vehicles that many people of his rank in government can’t afford to buy or maintain,” the source added.

“He is even building a big apartment for rent in Ruiru town.”

The wealthy officer is valued at over Sh1.5 billion in prime properties and real estate.

Last month, more than 100 squatters caused scenes in Naivasha after raiding a private firm owned by Kipkulei.

The squatters, who claimed to have lived on the land for more than 40 years, were protesting take over of the land by a private developer who had allegedly bought the land from the former PS.

They pulled down a three-kilometre fence that the private developed had erected.

The squatters claimed that the former PS had not informed them that he had sold the land and that the developer was spraying harmful chemicals on the grass affecting their livestock and homes built on a section of the land.

Read Also: DP Ruto Wants NCPB And Other Agricultural Bodies Merged For Efficiency

Naivasha Deputy County Commissioner Kisilu Mutua later issued a statement warning the squatters against encroaching on Kipkuleir’s land.

“They are illegally invading private land. We shall not allow the rule of the jungle to take root,” warned Mutua.

Meanwhile, a parliamentary committee recently demanded to know identities of 10 faceless people who grabbed 30,350 acres of land belonging to the parastatal, exposing the rot at the corporation.

ADC Chairman Nick Salat, who doubles up as the KANU party Secretary-General, denied knowledge of the individuals and has asked DCI to probe the matter.

Email your news TIPS to [email protected] or WhatsApp +254708677607. You can also find us on Telegram through www.t.me/kahawatungu

Loading...
Continue Reading

General

William Ruto eyes Raila Odinga Nyanza backyard

Published

on

Loading...

Deputy President William Ruto will next month take his ‘hustler nation’ campaigns to his main rival, ODM leader Raila Odinga’s Nyanza backyard, in an escalation of the 2022 General Election competition.

Acrimonious fall-out

Development agenda

Won’t bear fruit

Loading...
Continue Reading
Advertisement
Loading...
Advertisement
Loading...

Trending

Kenyan Tribune