We are all obsessed with all kinds of growth. When we are children, we want to grow and become adults. When we are adults we want our wealth to grow to quit that job we don’t like, to have the security that we’ll have enough to provide for shelter and food. And when we have enough wealth, we want to grow our power so we can help more people or change society.
So when business magazines, Venture Capital Funds and governments encourage us to pursue exponential growth to get out of any past or current economic crisis, we nod in approval. It seems fair to believe it will help solve unemployment, inequality and dictatorships…
The exponential game is mainly motivated by the few VCs and investors who want to make exponential returns on their investments. They have the funds and luck to invest at the right time in companies like Facebook, Google, Amazon or Microsoft.
But do we really need exponential growth?
I don’t think so. And I don’t think because there are very few really benefiting from it.
Business Founders rarely benefit from their businesses and risk taking since 90% of startups will fail at the exponential game within four years.
Among the remaining 10% that managed to get exponential growth for their platform, many of them will either be forced out of their company, and get it sold by their investors, or be expelled of the company they created, like Steve Jobs was at one point. The exception of the few successful founders that managed to remain at the head of their creations are among the GAFA companies.
Employees and users also rarely benefit exponentially from their exponential platforms.
Google, Amazon, Facebook or Apple employees have a pretty nice life, but they don’t get nearly as much back as they brought to help the company become an exponential organization either.
Ok, let’s do a little calculation.
- Google made $74 billion in revenue and $20 billion in profits in 2015
- And Google has 57,000 employees (in 2015)
- So Google makes over $1 million per employee in revenue
- And it also makes $350,000 of profit per employee (which means after paying operating costs, taxes and salaries)
- But the average salary of a Google engineer is $128,000.
If I am wrong at my calculations let me know and I’ll happily correct. But for the moment this looks pretty unequal. Google is making over 2 times more per employee than they are paying them.
So from this light, Google employees are not getting such a good deal in comparison to the investors and the remaining founders either.
And what about providers, users or society at large? Do they get to reap the rewards of exponential growth?
Well, not quite. Every other common citizen outside of finance won’t get nearly as many benefits of the exponential growth brought by tech or gig-economy platforms.
Uber drivers, Deliveroo bikers or Airbnb hosts can decide when they work and how much they make, but the saddest part is that despite the super efficient technology they use, they are not earning more or working less hours than any other employed person. Most wealth keeps concentrating in people who will earn more than they could ever spend.
So that means that the only ones getting a good deal on this affair are the super rich founders and investors, right?
Hmm, that would be the obvious conclusion. But maybe not. Let’s explore why those successful rich people are also victims of their exponential wealth.
How much can a person earn?
As Nicole Ferroni, a french comedian and radio talking head, asks how much can a person earn? Not from a moral angle, but from a scientific angle. Until what point is it useful to be rich?
“Look at Liliane Bettencourt, L’Oreal’s founder.” Nicole says, “She’s the richest woman in the world. She makes 31 billion Euros and made 300 millions euros in 2016 alone.
That might sound lovely, but it is actually a problem for Ms Bettencourt, because all this money only becomes useful if she exchanges it to buy other things. But spending 300 million euros per year is worse than rolling in a Hamster wheel. It’s simply impossible because you are making 800.000€ per day. Even if you bought in a week a house by the sea, a loft in the snowy mountains, a duplex in LA, a big boat, real estate, big cars, designer dresses and jewelry, after a month you’ll have pushed everything to the max.
And even if Ms Bettencourt wanted to spend her money in the finest things, while she chews the best bite of the best steak, her interests and dividends will have made her 10 times more money than the cost of the steak. Since she makes money much faster than she can spend it, her life will never be long enough to make sense of this money.
Or she’d have to stop sleeping, stop reading, and stop doing free and pleasant activities that cost nothing like playing with her grand children or watching the sunset’s golden rays falling on a green hill. Otherwise, she’ll never be able to spend her money and all the wealth she’ll have accumulated will be worthless. Her life will be senseless. And that’s why I’m in favor of a maximum revenue, because it would help Liliane Bettencourt feel better.”
At a certain point, the most successful CEOs’ money starts being meaningless, and detract the good it could make in the world.
Once they start earning way more than they can ever spend, why wouldn’t they share it with those employees that help them build their companies or with the society at large that helps them make those crazy profits?
You see, even the biggest winners at the exponential lottery are not necessarily finding it very useful. And the rest of us could certainly use the money to do better stuff with it.
I’m pretty sure that if you are reading this, you’re probably not as rich as Ms. Bettencourt or a Google employee, and might never experience their kind of “problems”. But you might have a very different problem. You might want to be as rich as they are.
Or you might have the nagging sensation that that’s what society expects of you. And that’s a trap that can only drive you to pursue dreams that other people have had for you.
At least I know I’ve had this feeling. I’ve started a couple startups, and each time I felt like they had to be million dollar ideas to have an impact in the world.
But what would I need all of this money for? That’s a question I never asked, I just let someone else plant it in my head. After years of reading about so many startups raising millions in technology blogs, my brain started associating money with the impact and fun I could have in the world. So it became the obvious mountain to climb.
So pursuing exponential growth seems to be a distressing experience for company founders, for employees, for users and society at large.
Why do we need exponential growth if our bodies and our society’s needs grow logarithmically?
You and your needs are not meant to grow exponentially, even though you need to grow up to your adult phase
You might agree that our bodies grow up to a point. So no need to earn exponentially.
And even if you want to earn more to transmit it to your children, their needs won’t grow exponentially either, so once you’ve earned enough to cover everyone’s situation, there won’t be any reason to keep growing exponentially.
As we’ve seen with Ms. Bettencourt, money only makes us happy up to a point. Once we reach a certain amount of wealth and can cover for our needs, our happiness and life satisfaction stops increasing.
This graphs shows that happiness increases very quickly from $0 to $10000 in GDP per capita, but grows way less after that.
Growth is important as long as people can’t cover for their needs.
The above happiness vs wealth curve would put the ideal wealth ratio somewhere between $30,000 and $50,000 per year to go beyond covering everyone’s needs.
Beyond that point we should start discussing how much is the amount that makes us happy and set it as a maximum salary so we can start distributing wealth to those that are still not covering their needs.
Once we’ve reached our maximum salary, we will still have many things to focus on to keep developing like nurturing our personal selves, our relationships, our communities and nature.
In his book the seven day week-end, Ricardo Semler puts the maximum personal wealth limit at $12 million. He admits it’s a somewhat cabalistic number, but argues that this is probably the right proportion of wealth in which humans can indulge.
He recalls the story of a neighbour of his in Sao Paulo who build a house that reminded him of a South American dictator’s compound:
“ He may have spent his entire allotment of $12 million on the house. But now his problem is Leonardo [Da Vinci], who points out that a human cannot possibly feel at ease in such a disproportionate house. Certainly my neighbour can live there, open it to photographers, from design magazines, and be admired from afar. But in winter he’ll huddle in the tiny TV room on the second floor, withdrawing from the cavernous rooms to seek more human scale.”
So what can we do?
Limit C-suits Maximum Pay
Dan Price, a software company CEO, slashed his salary from $1.1 million to $70.000. His goal was to increase his employees’ minimum wage to $70.000 in order to increase their happiness.
Some Japanese firms voluntarily impose maximum pay ratios limiting the gap between the top and bottom pay. Organisations like the English Royal Navy, for example, has a pay differential of eight.
Increase taxes to the super rich
Ultra rich capitalists like Warren Buffet or Nick Hanauer also argue that taxes should be increased to those making more than $1 million to allow for greater equality and ensure we can meet everybody’s needs, because the market is completely unbalanced in how it rewards certain skills.
Warren Buffet says: “To see why that is true, imagine we lived in a sports-based economy. In such a marketplace, I would be a flop. You could supply me with the world’s best instruction, and I could endlessly strive to improve my skills. But, alas, on the gridiron or basketball court I would never command even a minimum wage. The brutal truth is that an advanced economic system, whether it be geared to physical or mental skills, will leave a great many people behind”.
He is still not asking for a maximum salary, which is what I would call for, but he acknowledges that there is a need to cover for everyone’s needs regardless of their talents:
“You expect unequal results in a market economy, very unequal. But you really shouldn’t have an economy with over $50,000 in GDP per person and have lots of people living in poverty who are willing to work. I mean, that does not make sense” – Warren Buffet in another interview.
When you realize that the world’s 8 richest people have the same wealth as the poorest 50%, it should make us realize that we can do much better.
What can you do?
So if you are in business and you want to grow, grow.
But be aware of your needs. Grow to meet your needs. And then remember to redistribute your extra profit either through taxes, donations or by sharing it with the rest of your staff who might use the financial help.
If you are a business owner, ask yourself and your collaborators what’s the right amount for each one to cover everyone’s needs. Then decide on a maximum salary, and whenever someone reaches it, instead of increasing the salary to the CEO, you can try one of the following ideas:
- Decrease your hours to enjoy life outside of work and hire someone else who fill in
- Set a participatory fund to help causes you believe in (like other open source projects you use in your project)
If you work for an organisation, also be aware of your needs. Once you know how much you need to cover your needs and live a meaningful life, you’ll be able to stop the rat race competition with your colleagues. Realizing what you need will allow you stop trading your time to earn more and take more responsibilities you probably didn’t want at work.
In business, once you have realised you have enough, you don’t have to capture more value from people working with you or from your clients. So everybody ends up better off.
Next post we’ll see what kind of companies can help their members reach the right wealth proportions. Keep posted!
Latest posts by Jaime Arredondo (see all)
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- Exponential growth: Why it’s distracting you from your real needs - April 13, 2017