

Parable of the Shoe Salesman - Capitalism rewards wealth owners, not creators - nickb
http://www.charityfocus.org/blog/view.php?id=1758

======
BrandonM
This article is bad mainly because it relies on a strawman as an example. Any
(reasonably rational) business owner would love to have a salesman like John,
probably promoting him to a higher position where he can have an even better
influence. The whole idea of putting a cap on what an employee can earn is a
socialistic practice, anyways (don't want employees getting too "unequal"),
and has nothing at all to do with capitalism.

Do mistakes happen? Yes. Do companies, owners, and other people in power make
bad decisions? All the time. Does that mean that capitalism doesn't work?

The problem, in my mind, is the one that YCombinator is trying to solve. There
are not enough owners. There is not enough competition. The more competition
there is among smallish businesses, the more likely that big, inefficient
companies and other companies that make bad decisions (like firing your best
salesman) will fail.

One reason there aren't many owners is all the red tape and government
control. Two examples:

My stepmother has been breeding and selling German Shepherds for over ten
years now, and she gets customers from all over the US. To go along with the
dog-selling aspect, she would like to open up a small shop to sell dog food,
leashes, toys, etc. Simple enough, right? In order to do so, they would have
to install a new septic/sewage system, just so that they can run a business.
Why is this important? Also, in spite of the fact that she is always
accommodating to people with special needs (e.g. she would be perfectly
willing to carry out an entire litter of puppies in order to show someone in a
wheelchair), she would have to take special measures to ensure that all public
areas are wheelchair accessible. So she hasn't opened the place up yet.

I just watched _Be Kind, Rewind_ today, and although several of the ideas were
far-fetched and irrational, one part in particular hit home. A new developer
would like to take over an old building in the downtown area of a small town,
and the city can basically force the owner out of his business by citing
"building code" requirements. Things like this actually happen in real life;
I've seen a similar situation with a building in Columbus, OH, that was not up
to fire code.

In both instances, small businesses are suffering because of big government.
In both cases, laws were made "in the interest of the people," but in the end,
they hurt the people.

In my ideal world, the government would be more responsible for ensuring
consumer awareness without the use of coercion. Clearly, people have the right
to know that they are preparing to enter a dangerous building. Beyond that,
however, if that individual wants to take the calculated risk of going in,
anyways (whether to work or conduct business), it should be up to the
individual. Government hand-holding only causes more problems, and the
implication of the article that government needs to step in and make measures
to ensure that capitalism "rewards wealth creators" is mistaken.

/rant (sorry about that)

~~~
mrevelle
Interesting stuff.

Perhaps "startup generators" are an example of free market solutions
overcoming market restrictions (e.g. government regulations).

Or maybe startup generators are toll booths constructed by the "ownership
class". ;)

------
nandan
Assumptions the article makes: 1\. People are stupid, they cant and dont
adapt. 2\. The market system is rigid and exploitative.

Can we expect the three people who were hired instead of John Ulviden to make
the same "mistake" he made? Probably not. If they were people looking out for
their own self-interests, they would factor in the "mistake" John made and
make sure they dont step over the "acceptable" amount of sales. What sort of
an effect does this have for Adidias? They reach a high-point in sales due to
the energy and creativity of John, but then because of what they did to him,
their sales are no longer going up. They have just lost the opportunity to
have John take their sales to the next level.

And what sort of an opportunity does this present to a competitor like Nike
for example? They would probably want John for more than one reason: For his
abilities and also for the relationships he has with the customers he won over
for Adidas.

Heck, why ramble when there is such eloquent exposition at hand:

"In addition to these endless pleadings of self-interest, there is a second
main factor that spawns new economic fallacies every day. This is the
persistent tendency of men to see only the immediate effects of a given
policy, or its effects only on a special group, and to neglect to inquire what
the long-run effects of that policy will be not only on that special group but
on all groups. It is the fallacy of overlooking secondary consequences." -
Henry Hazlitt in "Economics in One Lesson"

<http://jim.com/econ/contents.html>

~~~
NSX2
But most people either are stupid and/or can't change because the system is
setup to maintain the status quo. If you had any clue how money is introduced
into the system, you'd be outraged that banks had the nerve to try to pull
such a scam at the expense of the general population. Yet it's been going on
since the Medicis and nothing much has changed, even to this modern day.

Meanwhile we've created unprecedented wealth over the last 50 years, and yet
while being obsessed with money, every person and company, big or small owes
the banking establishment tons of money which we either must pay off by
assuming more debt - or by handing over the stuff of our production - as is
happening now with the housing industry and foreclosures.

~~~
chaostheory
what's a better system then - more socialism and government control? imho that
too will lead to maintaining a status quo.

The only things that change are the people at the top (gov officials and their
families), a lot of resources will be wasted (compared to a more capitalist
system), and that it's much much harder for people at the bottom to move up
(not to mention less incentive). O yeah, since we're talking about government
controlling most of the resources and distribution, you can probably kiss your
rights goodbye too. It's not like this hasn't been done before with
disasterous results... there's a reason China changed economic systems...

"most people either are stupid and/or can't change"

doesn't it make sense then for the system not to reward them for their
behavior; and instead to reward people that can change and work both hard and
smart?

~~~
NSX2
I don't think you understand how the hidden side of "capitalism" works - as
long as a few people continuously control how much money is in the money
supply via banks, whether you realize/like it or not, the whole world is
socialist in that respect.

>doesn't it make sense then for the system not to reward them for their
behavior; and instead to reward people that can change and work both hard and
smart?

I think you're a bit too optimistic about the nature of the system and the
people who run it; it's not setup to "reward" anybody but the people who set
it up to reap wealth at other's expense.

Do you think if you "do the right thing" and "work hard" and be really smart
the bankers and billionaire's are secretly getting together going, "That guy's
doing the right thing - let's reward him"

Please. First they'll see you as a threat and try to figure out how to get rid
of you or control you. Last thing they want is to "reward" you for "smart
behavior"

~~~
chaostheory
"as long as a few people continuously control how much money is in the money
supply via banks, whether you realize/like it or not, the whole world is
socialist in that respect."

I agree that is a problem with capitalism, specifically with fiat currency;
but it can be corrected if we slowly move back to something akin to the gold
standard. It's fixable. Not to mention this level of corruption pales in
comparison to a non-capitalistic system. Capitalism isn't perfect, but it is
the lesser evil.

"Do you think if you "do the right thing" and "work hard" [that you'll be
rewarded]"

I live in silicon valley. I meet people all the time who have been rewarded
for being clever (who come from lower class or middle class backgrounds). A
lot of posts on YC have already disproven this point. You're ignoring a lot of
data; not to mention you're just giving a lot of conjecture without hard
facts.

No offense, but I can list a lot of examples: Paul Graham, Jerry Yang, Bill
Gates, Sam Walton, the list goes on and I'm not even including foreign
business men. Your argument is really weak.

Just look at China and the changes that occurred after they switched economic
systems.

"First they'll see you as a threat and try to figure out how to get rid of you
or control you. Last thing they want is to "reward" you for "smart behavior""

Yes, that called traditional communism, not capitalism. Again why do you think
China switched? (even N. Korea is trying to switch) History has already
disproven your argument.

O yeah if you actually believe in what you're writing WHY are you trying to do
a startup?

~~~
NSX2
>> I agree that is a problem with capitalism, specifically with fiat currency;
but it can be corrected if we slowly move back to something akin to the gold
standard. It's fixable.

Funny you say it's fixable when all my research over the last 10 years of the
writings of BOTH conspiracy cranks AND people who have held positions at
federal reserve banks indicate that (1) it's not fixable (2) it's going to
break big-time, sooner than we expect and (3) the most important thing smart
people should be doing right now is dropping everything and figuring out a new
money system because the "old guard" can't come up with an answer and we're
going to need one soon. For example, here's some "data" for you: I'm sure
you're aware that Bush jacked up national debt to close to 10 trillion (from
about 2 when he got here). But did you know state and municipal debt far
exceeds that, and private debt exceeds even that?

Here's a sobering thought: when you compile the total debt in this country,
private and public, and the amount of money needed to service that debt, and
the cost of life (which will go up as we start experiencing inflation as the
dollar is falling apart), SOME TIME between 2011 and 2013, it will be
impossible to both continuously service that debt AND pay for the needs of
life on an individual/corporate/government basis.

That means either banks get paid and we starve or there will be a civil war or
something to suspend life as we know it.

What is your easy fixing solution to that (please don't say "gold" or
"silver")?

Or perhaps you've looked at recent events over the last 8 years and have
noticed ramp up in militarization, war for resources, and a huge spike in
private prison construction and militarization of police forces in this
country - almost like the establishment is getting ready for a big change.

Actually, we need fiat currency - we just need it distributed differently.
Right now it's issued as debt-creation collateral, so debt always outpaces
wealth creation on an exponential growth curve. Eventually you run out of
possibilities of taking on new debt; for example, current value of "mega-
derivatives" (institution-to-institution) is roughly now at about 11x total
WORLD GDP. If you think the housing bubble is bad, wait until somebody figures
out it's technically impossible for all derivative writers to give anywhere
near the coverage they promise in case a worse-case scenario comes along.

Having said that, gold is useless because (1) it fails to account for
population growth (2) it fails to account for real wealth creation and (3) the
same people who control our fiat-based system currently control most of the
existing gold supply in the world and have investments / buy options on most
new discoveries of gold. So even if we switch ... what then? Do you think the
"establishment" is going to help us setup a system to overthrow them by
sharing the gold they own? Do you own gold? A lot? I don't and most people
don't. And don't believe that B.S. about "gold call options" because most gold
investment houses currently sell at about 10x ability to physically deliver,
so unless you have it in your hand it counts for squat ...

>> I live in silicon valley.

Hence, you live in a fantasy la-la land where everything works in ways it
doesn't anywhere else on the planet, so keep in mind your perception is warped
and inapplicable elsewhere

>> I meet people all the time who have been rewarded for being clever (who
come from lower class or middle class backgrounds). A lot of posts on YC have
already disproven this point. You're ignoring a lot of data; not to mention
you're just giving a lot of conjecture without hard facts.

Try that now as the reality sets in that most of the last 10 years (dot-com,
expected oil bonanza in Iraq, housing bubble, etc.) was just one distraction
after another to keep our minds off the fact that the underlying system is
coming to the end of the track with no solution.

>> No offense, but I can list a lot of examples: Paul Graham, Jerry Yang, Bill
Gates, Sam Walton, the list goes on and I'm not even including foreign
business men. Your argument is really weak.

 _Sigh_. I envy the gleam in your eyes. No offense to Paul Graham, but I'd
like to see his effort duplicated now ... same with Yang. Doubt it would even
be possible.

Bill Gates. Um ... Bill Gates is about as establishment as they come ... let's
see ... his first customer was IBM, which fronted him money for a then non-
existent product. But as everyone who know Phil Greenspan's writing knows, the
CEO of IBM was friends with Bill's mommy. Gee ... wonder if that had anything
to do with how a 21 year old got a face-to-face with the CEO of the biggest
tech company of that time ...

Sam walton? Sam walton succeeded because of a one-time massive systematic non-
repeatable even (globalization). You think anything that massive is just
around the corner for you to exploit - any day now?

Not too familiar with China, so I'll pass comment, but it wreaks a lot of
South Korea when it was being pegged as the "New Japan" and then it turned out
to be a massive fraud.

>> Yes, that called traditional communism,

Wow. Read up on how standard oil got set up. Or even microsoft. If you think
the "big business" aspect of capitalism is any different from what you imagine
communism to be ... you need to read a lot more.

>> Again why do you think China switched

I don't know what you mean by "china switched" ... last time I checked China
was a carefully micro-managed mixed economy, similar to Japan after WWII.

> History has already disproven your argument.

Really? How so? Last time I turned on my t.v. every presidential candidate was
telling me that we're currently borrowing money from semi-communist china to
finance oil from Sharia-law-based-commerce Saudi Arabia to go around playing
make-pretend capitalism and the situation can't go on much longer.

If anything, recent analysis from many perspectives tell me that history has
proven the exact opposite - that much of what we call the "capitalist success"
story is a well-managed prop piece.

Tell me, have you ever travelled much across this country?

I have. Aside from a few pockets of development, most of this country is just
one big poverty-inflicted, systematically busted wasteland.

If you live in the Valley and think that just because people there drive lots
of Ferraris, that = America is one big happy successful place, you need to get
some perspective.

Silicon Valley, like Hollywood, is amagical, artificial dream world that
represents reality about as much as a commercial for a luxury resort.

> actually believe in what you're writing WHY are you trying to do a startup?

Because my startup is based on this reality and trying to find a solution to
it, not trying to make a lot of money so I can afford to delude myself by
surrounding myself with the trinkets of success that money can buy in this
country.

I'm specifically trying to start a startup in preperation for a change in
perception of reality, not because I want to have a quick IPO, cash in and
move to Orange County ...

~~~
rms
It might be 100 years, but in the long term I think the wealth transfer
mechanism will be in delivered energy. Barrels of oil work well for now, maybe
we'll switch to Joules eventually.

~~~
moog
So when we eventually crack fusion, we'll all be millionaires!

~~~
rms
Exactly. My point is that energy is the only thing we have that is scarce.
There's water, perhaps, but we can convert salt water to potable water with
enough energy. Why abstract away energy with bills or metals?

<http://en.wikipedia.org/wiki/Kardashev_scale>

~~~
NSX2
Energy isn't that scarce, actually. If we eliminated our military, for
example, there would instantly be a 100% surplus as the military accounts for
about 50% of the fuel this country uses. As for why we abstract energy with
bills, it's because people are easier to control that way. Plus you need to
account for the not to easy to calculate idea of "human energy" represented by
money. If China's population doubles, bankers can increase the money supply to
account for their economic activity - to a point. But how can we increase the
energy "things" to do that? A bit harder.

~~~
rms
Of course energy is scarce! We can't afford to send very heavy things into
space. We can't send a radio signal into space that is so loud that you can be
sure as hell everything within 100 light years is going to know we are here.
We can't build superstructures, even if we got rid of the military. We could
probably build a huge particle accelerator if we got rid of the military
though...

~~~
NSX2
Well, if we use energy for stupid, wasteful projects then of course energy is
scarce; if we use it more effectively/efficiently, then less so. It's all
based on how/what we use it for.

>We can't build superstructures, even if we got rid of the military.

Research Dubai. They're building the world's 1st, 2nd, 3rd, and fourth
greatest structures at the same time. The #1 building is almost twice the
height of those towers in malasia.

> We could probably build a huge particle accelerator if we got rid of the
> military though..

personally making scooters and small hatchbacks sexy like they do in Europe
would be a good idea, as would coordinating flights better to not have half-
full jets wasting fuel taking off ...

~~~
rms
Energy is fundamentally scarce. I am thinking about much larger scale uses of
energy than anything humans are doing right now. Check out the link to the
Kardashev Scale posted above, we need orders of magnitude more energy to build
something like a <http://en.wikipedia.org/wiki/Dyson_sphere>

~~~
NSX2
Okay, I'm talking about energy for a state of practical human affairs, not
building a death star / second sun or whatever that thing is.

------
chaostheory
Besides the lack of the details (it just doesn't make any sense to fire your
top salesman), I just find the article's conclusion to be stupid: "capitalism
sucks (... the gov should regulate even more)"

Correct me if I'm wrong, but a real life example of the "shoe salesman" is
Ross Perot.

"He soon had the highest sales in the company and hence received the highest
commission. Then in 1961, IBM executives decided to set limits on how much
commission a sales person could receive each year. It did not take even three
weeks for Perot to reach his yearly maximum, which caused him great
frustration. Additionally, Perot had some new business concepts that he wanted
IBM to implement. IBM management was extremely resistant to trying his new
ideas. Frustration related to the cap on his commission and the insult of
deciding not to implement his business ideas, resulted in Perot leaving IBM in
1962 to start his own company. His company, Electronic Data Systems (EDS), was
based on the very ideas that IBM rejected."

Don't get me wrong, capitalism is not perfect; but it does favor creativity,
risk taking, and persistence (in the face of adversity).

~~~
wallflower
"Failures are like skinned knees - painful but superficial." - Ross Perot

+1 for the reminder of Perot's infomercials during his 1992 presidential run
in which he delivered his sales pitch for president (charts and all)

~~~
falsestprophet
I am looking for a link, you don't have one do you?

------
Xichekolas
Since the owners of the company didn't create any wealth by creating the
company... they just magically were born owning a shoe company and never
worked a day in their lives. </sarcasm>

What happened to this fabled John is pretty crappy, but that is a risk every
employee has always had. The only way to avoid that risk is to put your own
capital on the line and be an owner (a founder is an owner, even if it only
costs him $10 for the domain name).

If anything, this article shows why capitalism _does_ work well. If we weren't
using capitalism, John couldn't start over again. If we were under communism,
and the State fires and blacklists you, you are screwed. All jobs belong to
the state. If we were under feudalism, and the Lord 'fires' you (most likely
by taking your plot of land and possibly just killing you), then you're only
choice is to try and find another Lord to take you in. How is that better?

I'd bet the author wants a benevolent state to give us all jobs that pay the
same amount. That is all fine and dandy, except then what would even be the
point? At that point we'd be living on Airstrip One and enjoying our daily Two
Minutes Hate.

------
joe24pack
This is why I've learned to give only as much as employers expect and
occasionally 5 or 10% more. All my best ideas stay with me, for my own
projects. I've made the mistake that the company's and mine interests were the
same far too often and gotten burned by it. The problem I'll run into is how
to align my interests and those of my employees when I'm running my own shop,
but I'll worry about that when I need to. Right now it is too soon for those
sort of worries.

~~~
h34t
If you limit the ideas or energy you give to your job, I think you'd better be
prepared to give those ideas & that energy to your own project quite quickly
and in a concrete way.

If your "independent dream project" is too far away on the horizon, you might
just get in the habit of holding yourself back from your job, and get used to
the idea that you're the type of person who does mediocre work -- and the
people you work with may also think of you as mediocre.

So the cost of protecting yourself from being burned can cost you in [1]
change of personal habits & [2] reputation among those you work with & know
your track record.

Even in times I've been burned with work/life, I've never regretted the effort
I put into doing my best at whatever I set my mind to. I've wished I could
have foreseen bad events, but not wished I'd tried less hard. I like trying
hard... it's fun; I don't just do it for money. Other people can take away the
rewards that I may have been entitled to, but they can't tell me that my
efforts were mediocre.

~~~
joe24pack
At my present day job, I don't have to hold my ideas back because they are
only tangentially related, if at all, to my employer's line of business. I
give my day job only as much energy and enthusiasm as I need to get the work
done well and in a timely manner. As far as personal habits go, keeping
motivated while working more or less piecemeal on my pet project is difficult,
but I've managed to work through worse.

------
Tichy
What does that story have to do with capitalism? Some random company seems to
have made some decision about some random employee. That has nothing to do
with capitalism - capitalism did not tell the company to act in that way.

I can only shake my head in disbelief at so much nonsense.

------
tx
I find it strange that a salesperson is named to be the one who _creates_
wealth. If they could create wealth at will, why do they always want exclusive
rights to their "territories"?

------
Fuca
There can also be another morale: always be a owner.

------
pchristensen
Lesson learned: creating a profitable, repeatable business process is more
valuable than being an excellent piece of that process. That's something every
startup founder should always remember. Google is more than its engineers,
Goldman Sachs is more than its IBankers, Hollywood is more than its stars,
etc.

Companies are engines that turn money into more money - everything else is
just a part in that engine. Maybe you can make more money being a part in a
big engine than owning your own small engine, but don't complain if the owner
of big engine swaps you out.

------
BornInTheUSSR
All right... owners are rewarded for their capital risk running the factories
and creating the product. John doesn't get paid if he doesn't sell since he's
working on commission. He sells at the risk of wasting his time (but not
capital), makes bank and now he's fired. Where is the injustice of him losing
everything? Did he have to give back his commission? His risk was rewarded.
There's a definite hint of an agenda here.

------
david927
The point of the article, that capitalism has a natural inclination to
increase the disparity between wealthy and poor, has been long assumed as a
self-evident property of capitalism. This doesn’t make it bad, but it does
show how it needs to be tempered. Most countries, including America, use a
combination of socialism and capitalism to find a healthy balance.

------
gscott
Live, learn, then roll your own web application.

