Do you want to get rich? A few people would probably answer this question in the negative, but most of us, c’mon: a sweet sour anyone. Yet the people who say no may have a point because… do you know what it takes to get rich?
Years ago I read “Wealth and Democracy”, a book by Kevin Phillips which traces back the origin of American fortunes from the American Revolution to what he calls “the Second Gilded Age” at the turn of the twenty-first century(*). From Privateers and the Robber Barons of XIX century to Warren Buffet and Bill Gates, Kevin Philips argues that great fortunes have always been built on cooperation between government and business, not on free trade or hands-off policies by government.
Laissez-faire is a pretense. Government power and preferment has been used by the rich, not shunned
My take away of the book: there are three main levers to get rich:
- Technological innovation
- Friends in high places
- Acting on the fringes of the law
Of the three, only the first one has true potential to create wealth. The other two are ways to either foster or hinder the first one, and of course to re-distribute wealth. To get rich you will have to be able to shrewdly pull the three levers. It makes sense: something new will usually require new “rules”, sometimes breaking the old ones. And if you are sailing uncharted waters, a little help from some good “friends” won’t hurt you.
Nevertheless the third one is the most interesting because it broadly contradicts what we are taught. Most developed economies today emphasize the value of creativity and innovation, but we are all educated to respect the law and play by the rules. It makes sense to comply, otherwise chaos would reign. However, as Bernard Shaw said:
The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.
A couple of articles last week help clarify the meaning of this not much talked about angle of getting rich. In “Shredding the rules”, The Economist explores how a striking number of innovative companies have business models that flout the law:
PIONEERING entrepreneurs have often had an uneasy relationship with the law. America’s ruthless 19th-century “robber barons” believed it was easier to go ahead and do something, and seek forgiveness later, than to ask permission first.
The tension between innovators and regulators has been particularly intense of late. Uber and Lyft have had complaints that their car-hailing services break all sorts of taxi regulations; people renting out rooms on Airbnb have been accused of running unlicensed hotels; Tesla, a maker of electric cars, has suffered legal setbacks in its attempts to sell directly to motorists rather than through independent dealers; and in its early days Prosper Marketplace, a peer-to-peer lending platform, suffered a “cease and desist” order from the Securities and Exchange Commission. It sometimes seems as if the best way to identify a hot new company is to look at the legal trouble it is in.
Innovative companies that put growth before legal niceties have money to spend on PR and lobbying. Airbnb has sponsored the New York marathon; Uber has hired David Plouffe, formerly one of Barack Obama’s leading advisers, as head of policy.
And in “Tech’s Next Big Legal Clash Will Be Over Selling Insurance”, you can read.
Regulatory clashes have become a badge of honor in Silicon Valley. If you’re making enough of an impact to piss off the powers that be, the idea goes, you’re probably doing something right. (Think Uber and Airbnb.)
Venture capital industry is increasingly willing to back businesses that operate in murky political territory. As Andreessen Horowitz partner Margit Wennmachers recently told WIRED, “If you pass on all the opportunities because of potential regulatory hurdles, we wouldn’t have Google, Facebook, Amazon, Airbnb, or Lyft.”
To be sure, the strategy is risky. Napster was crushed by lawsuits. Uber, Airbnb, and the like, face a tough opposition in most markets today. And I am terribly curious to see whether fintech—one of the hottest innovation areas today—will bring true disruption to financial services.
Most of us would like to get rich, but few of us have neither the determination to piss off the powers that be nor the friends in high places to help us fight them.
So you say you want to be a new baron, but are you prepared to be a robber? Umm! We have not been programmed to break the rules. Quite the contrary.
(*) Being a spaniard, I would love to read a similar history of wealth and power in Spain. Can anyone recommend me one?
Featured Image: Horace Taylor, “What a Funny Little Government” 1899