Why Equality Drives Entrepreneurship and Innovation

Coming at this question from my typical perspective: a business owner facing a national economy.

You run a mid-sized business selling high-quality furniture. You’ve developed a new chair that’s better than the other chairs on the market. (Think: the Herman Miller Aeron Chair.) Say you’re planning to sell it for $700. (You can’t sell it for much less, no matter the volume, without losing money.)

Would you rather be selling into an economy with wide disparities of income and wealth, or one that’s more equal?

Let’s build one of each.

Imagine a million-dollar economy with ten people in it.

Economy 1: Each person has an income of $100,000.

Economy 2: Two people earn $300K each, and the other eight earn $50K each.

In which economy can you expect to sell more chairs?

In which economy would you expect to see more innovators and entrepreneurs thriving?

This is not quantum physics.

Cross-posted at Angry Bear.







4 responses to “Why Equality Drives Entrepreneurship and Innovation”

  1. john fremomt Avatar
    john fremomt

    From J Paul Getty’s How To Be Rich
    “… Labor costs are also high, but I’ve often observed that the man who complains the loudest about excessive wages is the same one who spends fortunes on advertising and sales campaigns to sell his products to the millions. How on earth he expects the workers who form the bulk of those millions to buy his chinaware, garden furniture or whirling-spray pipe-cleaners unless they are well paid is beyond my comprehension. Labor is entitled to good pay, to its share of the wealth it helps produce. Unless there is a prosperous “working class,” there can be no mass-markets and no mass-sales for merchants or manufacturers–and there will be precious little prosperity for anyone…”

    Sounds like the late Mr. Getty understood this quite well.

  2. Tom Hickey Avatar
    Tom Hickey

    @john fremomt

    Getty is repeating what Henry Ford had said decades before about paying his workers well so they could afford to buy his cars. Duh. It’s the effective demand, stupid, and that is ultimately income dependent. No worker can go into debt forever without the income or selling assets to sustain the monthly nut, and few workers have asset bases large enough fund them for very long. WTF is so hard to understand about this?

    Either firms have to take a chance and invest in the face of lagging demand, or exports have to make up for the demand leakage, or else government has to increase its fiscal deficit (or some combo of these). Persistence of an output gap and high UE is evidence of insufficient effective demand.

  3. malcolmspeakeasy Avatar

    I think corporate America should look on the existence of the middle class as a “commons” from which their profits are derived from. But the problem is analogous to the “tragedy” in that each corporate entity seeks to maximize its profits at the expense of the middle class by destroying it through wage reductions. That commons will be destroyed if corporate America does not police itself to ensure the continuation of the middle class. More real wealth can be accrued if the middle class is prosperous. It is better to have 5% of $100 than 15% of $20, as an example.


  4. Tom Hickey Avatar
    Tom Hickey


    Take a look at the trend of US corporate investment, corporate profits, and employees. All rising abroad and falling at home. The large multinationals are abandoning the US, with dire consequences for the soon to be former “American dream” of the middle class.

    Add to that the rise of financialization in the US as a % of GDP and go figure. The new “American dream” is to escape debt servitude, undertaken initially to get an education, with the monthly nut added to by housing and car payments, and assorted other rents.