More people needs to understand this. It's fine being a small(ish) business that turns a profit and provides a service that's beneficial to society. You don't need to be a billion dollar company to be important or do great work.
But the whole "Tech" economy is based on the premise that everything must grow indefinitely and indefinitely means that at some point will be a unicorn.
Europe is considered economical failure because there are not enough unicorns, there are lists on Twitter with list of unicorns per country that are supposed to show the decline of Europe. No matter if Europe has some of the best living condition for large group of people.
IMHO this thing is ideological, I even feel uneasy mentioning this because it is something we are not supposed to talk since it can start a flamewar and flamewars are how you get your account restricted.
Consider a city, paying two gardeners 25k each per year, and an extra 5k for two month. Spending is 55k+oil+chemicals+tool maintenance (that the gardeners usually do). Let's say the annualized cost is 75k. So this service contributions to GDP is 75k.
Now, the city wants to show GDP/capita growth. Simple : let's pay a company X that will pay the gardeners. It'll cost 95k. Now the GDP is 95k+ 55k (let's say the gardeners are on the same pay and have the same work). But wait, maintenance can be done by the company Y! Now the GDP is 95k+55k+20k (maintenance fixed cost 10k+worker time 7k+ 3k profit). But wait, now during winter, our gardeners have nothing to do! That eat into our profits!
Now the GDP is 95k + 50k (what is paid to the temp company)+20k+45k, and gardeners are both paid 20k/year gor this job, and can do other stuff during winter (I hear a repair shop need temp workers during inter to fix gardener tools).
The GDP grew from 75k to 160k, a bit more than 100% growth, and we optimized the economy as now gardeners can keep specializing and do gardener stuff during winter instead of learning about motors and mechanics. Great!
It doesn't work like that at all. You add GVA (https://en.wikipedia.org/wiki/Gross_value_added) of each entities. Adding more intermediate entities doesn't increase GDP as the GVA of each entities is reduced.
There is an assumption behind GDP: people generally pay production for a fair amount of money. The more untrue this assumption is, the less meaningful GDP is.
For this specific example? Just like any company's 95k. They got the initial capital from investors, they sold things to customers, they got loans from a bank, etc.
Or you're asking generally where money comes from? It's a good (and complicated) question. Google monetary and banking. In multiple senses, money DOES come out of thin air.
City budget or loans. Easy enough if your mayor have a friend who want to start a gardening company !
I'm joking: even without corruption, you can find an ideological reason, as a company will surely be more efficient than public servants!
But more likely because of incertitude: what do we do if a gardener resign? Paying an existing company 95k/year instead of spending 75k/year directly isn't a huge expense increase, and if 20k/year is the price for peace of mind (no new equipment to buy, no HR issues...) it can very well be worth it.
I'm not saying this is good or bad by the way, i'm saying this is how GDP work. It's factual. Yes, there is a left-wing slant about how i presented it, but it wasn't heavy, and a liberal could use the same example in the same way and justifying a better distribution of work and concerns (while still finding that GDP is worthless in this case)
This is interesting as an indicator, it's meaningless as a target.
But borrowing that money has implications for the economy and other businesses.
This is the mistake the OP made. You can't "goose" GDP by borrowing because that money has to come from somewhere. And the money used to "goose" GDP is money that doesn't go to other productive uses.
I'm sure there are nuances but according to this particular source European life expectancy went from 75 to 79, US life expectancy went from 78 to 79 with a period of a decline between 2013 and 2018.
The decline in US life expectancy is more complex than a general reduction in quality of life, and mostly unrelated to the US financial culture to leads to unicorns. The American ideal of huge companies that must take over the entire market can be traced at least all the way back to the railway robber barons, and has existed even during periods of immense growth in life expectancy.
At the same time, a lot of the increase in life expectancy in the EU is due to improvements in medicine that are significantly driven by US-funded research.
Why do you think that actions of these huge institutions are not impactful to the life quality of the Americans?
Also, why do you think that the European live longer thanks to the medicine developed in the USA? Maybe the USA develops medicine thanks to the free and equal opportunity education culture in the Europe? If you look closely to the researchers, you will see that lot's of the people who develop these things have European roots and by roots I don't mean their grandpa was Irish, I mean they were educated in Europe and it just happens that the organisation that develops these drugs is incorporated in the USA.
The tech revolution that changed the world was also developed in Europe, the web was developed by the British in EU institution, Linux was made by a Finnish guy called Linus, Nginx is Russian-made.
Also, we are at a verge of AI revolution and some of the leading researchers are Europe educated people. Just check the bio of the top researchers who were instrumental at Tesla or OpenAI.
Maybe the USA is just the industrial zone of Europe? Maybe the US appears rich and acts poor simply because because the richness comes from the accounting choices? Just kidding of course, the USA is a superpower and is actually rich thanks to many things like its abundant resources and brilliant people but the notion that the Europe is doing better because they just drink smoothies and meditate all day on the American resources and innovation is ridiculous.
I would love for this to be true. Europeans do seem to enjoy a higher quality of life among several axis.
However the US subsidizes European defense (refer to current events) allowing European countries to spend less GDP on their military.
Talent comes to the US from all over the world. That's how it works and has since almost the beginning of the country.
Easier access to capital (and easy bankruptcy, etc), entrepreneurial mindset (less Tall Poppy syndrome), etc etc means business is generally easier in US.
Linus moved to the US. The web was possible bc the internet was funded by the US (arpanet, etc).
Europeans enjoy the Pax Americana without paying tribute to the Amerian empire.
Maybe the US is spending so much in defence in it's own interests? Maybe that's how US can enforce business benefits like copyrights to the American corporations and business decisions on what other countries can invest into? Maybe that's why US can print USD at will but other countries have to earn it?
But I like the Linus argument, however this complicates things further: Are tech becoming European when the tech CEO's are having a vacation in the French riviera?
The American military is paid for by debt. The US can only take on this debt because they have the world’s reserve currency. It’s essentially a flat tax on the rest of the world.
Subsidizes????? You mean selling weapons at highly inflated prices benefitting the US economy while eroding Europes industrial base? Not to forget that Europe and Taiwan supplies many of the sub-systems used in US weapons. The Abraham main battle tank gun is German for example.
I don't think most of what you wrote, almost phrase by phrase. You took an extreme version of what I said and rebutted it. Just because I said that the US had major influence in European medicine and life expectancy, you took it as meaning that Europeans are bad scientists and "just drink smoothies". I think nothing of this sort.
It's very safe to say that US-originated science had a major influence in life expectancy worldwide, including Europe. What's so controversial about it? The increase in life expectancy in Europe, then, was "significantly" influenced by US innovations.
Of course US "originated" science had influence, just like Russia originated one or Korea originated one. Also, Science is not something you dig from the ground to claim it’s origins. Depending on what you want to claim, you can change your definition. You can claim that we are having it so good thanks to the German science from the 1940s. Pick a cut off date and ownership method to suit your argument needs.
> At the same time, a lot of the increase in life expectancy in the EU is due to improvements in medicine that are significantly driven by US-funded research.
Frankly, I don't believe it's true, for two reasons. First, the European Big Pharma is quite strong. It would be more fair - but not precise - to say the rest of the world benefits from the advances made in the West.
As for the second point, it was succinctly put by Dr. Marcia Angell from The New England Journal of Medicine in her famous book. From the blurb: "Drug companies, she shows, routinely rely on publicly funded institutions for their basic research; they rig clinical trials to make their products look better than they are; and they use their legions of lawyers to stretch out government-granted exclusive marketing rights for years. They also flood the market with copycat drugs that cost a lot more than the drugs they mimic but are no more effective."
If the US is funding the research, what is it about the US political system which prevents Americans from enjoying those same gains?
I suggest that perhaps it’s a difference in perspective on rights. In Europe, there is a positive right to healthcare. In the US, there is no such right apart from certain circumstances. We turn our nose up at “handouts”. The US expects the free market to handle it instead, which it has. This has led to large portions of the country with few doctors and even fewer affordable ones.
Research mostly done by underpaid researchers from China, India and Europe coming to the US in the hope to get a better life. The whole system is complex.
This has come up before (searching for ref) but the basic explanation is GDP when adjusted for PPP in eurozone is more or less same as USA over that period (ie both economies grew at much same rate).
Basically things in America got more expensive (gas, health, education being big contributors). There is lots of wriggle room in the numbers but the vast gulf by nominal GDP is surprising and so unlikely .
It's probably a very complex thing and both sides of the discussion can pick something to attribute for. For example, you can say that it's because of the opioid crisis in the USA and pretend that it's happening in isolation - just some bad actors doing bad things that don't have anything to do with anything else.
Hong Kong has one of the highest life expectancy of the world and a major contributing factor is high population density. Paramedics are able (and must) arrive within 12 minutes of an emergency call, which is probably the most important time to keep people alive. Doesn't mean Hong Kong is a decent place to live though.
I would not cite this as a success story. Europe does not seem to be heading in a good direction imo. The consequences are largely unrealized. Even pretending the war never happened and they continued slurping Russian gas.
Please be informed before commenting. Europe has undergone the hardest and most painful decoupling from Russian gas for quite a while. As of 2022 no gas in Europe is imported from Russia.
It's essentially killed the German economy. It's all by design. The Americans don't want Germany and Russia teaming up to be a Regional Hegemon of Eurasia.
It has not. Germany is in technical recession, but people are not dying in the streets, have jobs, and can take care of their families.
In the US the economy is stellar, yet homelessness is peaking, with people unable to afford housing even if they have a job.
Stop calling it “the economy” as if it was a direct translation of the reality of a society. It’s not.
Signed: a business journalist.
But I think your analysis is poor. The homeless rate is higher in Germany than the US for example. Germany isn’t on fire, but I think it’s awkward to color it in a way that implies people are doing better there than the US. It will be a painful economic transition.
Hahahaha that’s funny. Europe has one of the richest and strongest economies in the world. Thousands of European companies are world leading in high tech areas, exporting high tech to U.S. and other companies around the world.
The worlds most advanced microchips can’t be built without machines made in Europe. European Airbus came from nowhere overtaking Boeing in a short number of years. The European invented ARM is now the leading CPU instruction set used worldwide etc. etc. etc. There are many more examples.
And focusing just on software: C++, C#, Linux etc. were invented by Europeans.
You might as well argue that the US economy is a failure because European and Japanese companies overtook US car manufacturers or that the US is a failure because Americans needs to take illegal drugs to handle the misery of living in the US. All equally silly arguments.
The digital economy is agricultural revolution 2.0 (probably more like 20.0).
Claim a small corner of (digital) land so you can grow some revenue. Now you can produce content. But now you need to sustain your content production infrastructure for the benefits of revenue. We've now justified our initial claim. Then claim more land, tilling over organic content for an optimized, manufactured experience! Now that you have more land, you can grow more revenue! Now that you have revenue, expand your business! Oops, now your business needs more revenue or else it will starve. Claim more land! Rinse and repeat.
Thanks for saying this. This is absolutely the case. We forget venture capitalism is absolutely first and foremost a framework built on an ideological system.
Founders NEED to be convinced they’ll change the world with their juice press or the game won’t work.
The growth myth is part of this as well.
I'd even argue that the burden of proof is reversed. There might be billion dollar companies which bring good, but I'll be skeptical of that fact at first.
I would argue that there is plenty of large(above billion dollars) companies that bring net good to world. Manufacturing is good field. Producing things like machinery improves quality of live and productivity.
Not that these often doesn't have negative aspects when they strive for even higher value extraction, looking at something like John Deere. Still it does allow massive efficiency gains in farming.
I wonder if there's a general rule that the larger an organisation the more pronounced the diffusion of responsibility and the higher the likelihood of shady behaviour? It would be interesting to see some studies into this either way.
I think the simplest way to measure that is by asking 'what would we truly lose if this company disappeared tomorrow?'. With one follow-up question of 'how easily could the important bits actually be replaced?'
I think it does the opposite, it makes you think about whether the company is big because of its products/services or other reasons. It's not a yes/no answer, it's a prompt.
> 'what would we truly lose if this company disappeared tomorrow?'
I guess such a big company is here because they managed to create a need. The question may be: "were we really worse off before we had what this company built?".
Example: if GitHub disappears tomorrow, that's likely a pretty big problem. But we were fine before GitHub, we just had different (not worse) workflows. GitHub created a dependency.
The problem is ambitious management on all levels. When you're running a billion dollar business, you can extract far better compensation (base, bonus, stock options) than if you're running a hundred million dollar business.
The obvious solution is a compensation cap, not just because CEO comp has exploded while lower rung compensation has virtually stagnated, but also because it might put an end to the constant drive of companies to just gobble up competitors.
Once you take VC money, you don’t really have a choice but to grow large. That’s their entire business model.
I can’t find it now. But Spolsky himself wrote about how Fogs Creek Software could be what we now call a “lifestyle company” that could grow slowly. But he felt he needed outside investment so Stack Exchange could grow fast since it was only useful if it had network effects.
"People" understand this just fine the problem is that the economy is structurally geared towards creating unicorn monstrosities that extract value rather than SMEs that create value.
If there were legal and regulatory pressure that crushed and broke down these behemoths (e.g. a FTC and judges that believed that predatory pricing was real and prosecuted accordingly) the VC model would break and this stuff would stop happening.
It is a startup wisdom that stagnation (i.e. no growth) means death.
The often stated reason why C-level executives are paid so well is that they have to be able to solve the insanely hard problem of finding new growth opportunities for the company over a long(er) period of time; something few people are capable of.
Well: by this criterion, many CxOs fail to deserve this huge pay (more precisely: they build Potemkin villages to pretend growth where in reality they burn the company's substance).
I sounds more like neither one of you has had that choice. Most people, given the chance, would rather add a zero to their savings rather than “doing the right thing for society”
Then we should not depend on people making the right choice. We should limit the opportunities people have to choose between "more for me" and "do something useful for society".
> Then we should not depend on people making the right choice.
Broadly speaking, any system that depends on an unbroken chain of good people who do the right things out of the goodness of their hearts is bound to fail much sooner rather than later. So I agree.
The system should be designed so that people taking action out of their own interests nevertheless advances society as a whole. As Adam Smith put it: "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest." The system that was designed this way is capitalism, warts and all.
> One idea here is more progressive taxation.
I'm not sure how that conclusion follows from your premise. If you want to set up incentive structures such that people chasing their own interests also ends up being useful for society, then you want to make sure that people voluntarily pay money for goods and services that they value. The supplier of that value makes money, the consumer of that value is better off, and society as a whole is enriched as a result.
This also means that the state takes action to break trusts and monopolies, and (more difficultly) guards against regulatory capture, all of which end up making it so that people involuntarily pay for goods and services that they don't necessarily value. Rent-seeking behavior such as this is one of the highest economic ills.
"More progressive taxation" does many things, but it is also exceptionally good at enriching the politically well-connected, often in the form of rent-seeking behavior I described above. Look at world government spending as a fraction of GDP[0] as a good proxy for "more progressive taxation", and tell me between France (58.5%), the US (38.5%) and Singapore (15.4%), which you consider a well-run country where people do more useful things for society.
I don't think that's true, and I think you're revealing something about yourself vs. the majority of people (besides the fact that most folks, especially in the US, don't have enough money for an extra 0 to mean much). I think of the teachers, social workers, public defenders, volunteers, and civil servants who sacrifice greater earning potential because they believe in what they're doing.
It's like folks who claim people are motivated only by money: no, you're only motivated by money. Most folks see money as a means to an end, namely, a safe, normal life lived with loved ones.
On the contrary, it's difficult to sustain the lifestyle of a unicorn founder unless you have a unicorn valuation. In less sarcastic terms, the ecosystem (VCs, founders etc) often is drawn to or selected for those who whish to get rich and get out.
A hundred and fifty years ago people risked incredible suffering in order to strike gold. All when slow and steady profit could be made by owning a farm.
But each CEO of those businesses would like to be the next billionaire. Furthermore if the business doesn't turn out to be as good as they hope they can leave and try to get lucky at another company. They care about the company only up to a (small?) point.
> It's fine being a small(ish) business that turns a profit and provides a service that's beneficial to society.
It's fine, but it's no unicorn. And having such a business might be the closest and only chance the people involved have at real wealth and impact - they are 90% there, and only need a little scale, or so they think.
If you were in their shoes, you would do the same.
More people needs to understand this. It's fine being a small(ish) business that turns a profit and provides a service that's beneficial to society. You don't need to be a billion dollar company to be important or do great work.
DHH talked about this 15 years ago. https://www.youtube.com/watch?v=0CDXJ6bMkMY