Servants to the Rich, 1/18
A perspective on the non-profit sector
National chains and online services are replacing many traditional Main Street businesses—the insurance and travel agencies, the local banks, the High Street retailers and restauranteurs. To make matters worse, local smallholders increasingly find themselves dependent on what analyst Mike Lind calls “toll booth” companies like Facebook, Google, and Amazon, tech megaliths which are able to coerce small businesses to give up their data. Amidst the supply chain crisis, firms like Amazon and the big box stores use their bargaining power to minimize delays in deliveries in ways not available to smaller businesses.
The traditional yeomanry—like the “kulaks” or wealthy peasants in Stalin’s day—is losing out. As executive compensation reached the stratosphere at the big tech and finance firms, small businesses faced what Harvard Business Review described as “an existential threat.” Experts are warning that one-third of small businesses, which comprise the majority of U.S. companies and employ nearly 50 percent of all workers, could ultimately shut down for good. Hundreds of thousands have already disappeared, including nearly half of all black-owned businesses.
Some of the components of the twentieth-century middle class are declining . The percentage of the work force that can be called manufacturing production workers is down. Many mom-and-pop retail businesses have been defeated by Wal-Mart and Amazon.
Ten years ago, I wrote Where are the Servants?
In an economy where some folks are very rich and many folks are unemployed, why are there not more personal servants? Why don’t Sergey Brin and Bill Gates have hundreds of people on personal retainer?
Perhaps we are now living in the New Servants economy. Tyler Cowen has a series called “those new service-sector jobs.” My favorites include Coffin Whisperer and Wedding Hashtag Composer. The demand for such services can only come from people with excess wealth, and the supply comes from people who realize that their best source of income is to cater to those with excess wealth. This is very different from the age of mass consumption, when Henry Ford tried to manufacture cars that his workers could afford.
Actually, I think that the biggest engine of the trickle-down economy is the nonprofit sector. I don’t have data on this, but I suspect that if you ask the next 10 young professionals you meet where they work, at least 3 of them will reply that they work for nonprofits.
In the 1970s, the catch-phrase “petro-dollar recycling” became popular among international economic technocrats. The idea was that oil-rich countries accumulated substantial wealth, and this wealth would somehow find its way to poor countries, primarily being channeled as loans.
Today, I think that what we are seeing is “techno-dollar recycling.” Winners in technology and finance have accumulated substantial wealth. This wealth finds its way to young professionals, primarily being channeled through nonprofits.
I think we would be better off with fewer non-profits and more investment in profit-seeking enterprises. I would rather see young professionals trying to work for businesses that are accountable to customers than having them work as servants to the rich. I would much rather see billionaires invest in businesses in minority communities than fund nonprofits that donate to BLM.
Has Glenn Loury identified a nonprofit that does what I would like to see?
And here is Sam Harris interviewing, and slobbering over, young billionaire Sam Bankman-Fried. Not once does Harris ask the question of why it is more ethical for Bankman-Fried to donate his money in an unaccountable way than it is for him to invest his money in profit-seeking business. I don’t count on Congress allocating resources wisely, so I don’t favor wealth taxes. But I don’t count on any billionaire allocating resources wisely without any feedback mechanism.
I find Bankman-Fried scary, and my guess is that I would find other billionaires with his approach to altruism just as scary. I don’t think that any one person has as clear a picture of morality as Bankman-Fried and Harris believe that they own.
Lots of the 'toll booth' companies in reality are just software shells connecting a large network of small businesses that make it possible for those companies to make money. Google is basically a data service and indexing company for webmasters, all social media companies rely on hordes of media companies supplying content, they all rely on ad management companies, and Amazon relies on both third party sellers and a dizzying array of third party logistics providers.
20th century small business just operates using a different non-software layers of communications which 21st century businesses also share: phones, the interstate highway network, in-state highway networks, the ports, freight rail, newspapers, regulated TV, and the mail. I think Kotkin is wrong: small business is going to become more important and not less important, because big companies are becoming like sclerotic Japanese zaibatsus incapable of fresh, innovative action. The companies that have been succeeding have been growing large networks of dynamic, competitive, and efficient small businesses. Alibaba would be a key example of this type of dynamic operating in China, while Google, Amazon, and Instagram are key examples of this dynamic in the US.
NGOs are religious organizations for secular internationalists. They are responsive to their customers: their rich masters, not the general public. Their profit and loss is based on how much their masters give them. If they please master, master rewards them. It's a thin market subject to big swings based on arbitrary and ill-informed decisions, partly because it's driven by rich people dumping money that would be otherwise taxed. The tax issue would be the key issue to address to improve the dynamic: it's driven by rich guys looking for ways to improve their operating environment in a tax efficient manner. They would be stupid not to play the game.
One thing that became very evident during the pandemic to me is that small business kulaks are a reservoir of anti-insanity. For instance, owner owned small businesses around me are dramatically more likely not to make the staff wear masks compared to corporate businesses, even franchises. The only daycare and school in the area that doesn't make kids wear masks are small owner operated affairs.
While it is nice what big business was able to do during the pandemic, it's also true that the government literally shutting their competition down was a big boon to their bottom line and something they ultimately weren't going to protest (or even mildly support). As with everything else, regulation is easier for the big boys to deal with and so they naturally aren't the main enemies of regulation.
Even if they aren't absolutely the most efficient, perhaps keeping a few small business kulaks around is worth it from a societal checks and balances perspective.