Even Well-Intentioned Freeloading Is Tiresome
Have you heard the saying, “it takes money to make money”? I don’t hear it as often as I once did, and this parallels a shift in attitudes I have noticed, both in business and in other aspects of culture.
I do understand that for many, it is an unpopular notion. Most people identify with a state of wishing they had more wealth than they currently possess. The saying invokes pictures of a small group of “rich” people guarding and not allowing others to have it, while they use their wealth to accumulate more. But my aim is not to open up that political can of worms. Rather, I want to look at the underlying meaning with a much wider-angled lens.
What does the statement really mean? Technically, it is the principle of risk-and-reward. If you have five hundred dollars and you invest it in something (real estate, stocks, a small venture) you expect that investment to generate a return. Without your capital investment, you cannot earn the return. “Hey bud, I haven’t got the cash right now to invest in that rental house with you, but I pass by it every day. So if I keep an eye on it for you, would you give me a percent when you sell?” Silly, right?
Not so fast. People are increasingly mixing up equity, risk, work and reward and their confusion leads to a lot of hurt feelings and attitudes. If not corrected, beliefs get formed that find their way into how we advocate for resources in limited supply (and even vote) that spells trouble for our long-term economic stability & opportunities.
Let’s start with two of small business examples. A couple with kids wants to start a niche retail business out of their home and eventually grow it into a main-street storefront. The jobs they work barely pay the bills, which is part of the desire to earn more, hopefully through business ownership. They have little cash, so they approach lenders looking for the loan it would take to get started and buy inventory & advertising. What answer will they get (even if their business idea sounds promising)?
A middle-aged worker with 25 years of experience in a manufacturing industry has some ideas and wants to put them into starting his own brand. He has relationships with factories and distributors that he can leverage, but like the couple above he only has enough start-up capital to make his prototypes and maintain a small office and travel budget. He’s in need of a sales force, a R&D/support team, and, most importantly, retailers willing to display, promote & sell his new brand of products. He has priced them similarly to other longer-established competitors’ products and really cannot afford to consign any inventory without being paid up-front, or even make much inventory without finding dealers willing to sign and commit to buying it sight-unseen. How easy will it be for him to get off the ground?
Both of these stories occur as commonly as the clouds, and you have probably guessed they have their work cut out for them to get anyone to aid them in their dreams. In both cases, I have witnessed many such examples where, after being turned down for the loan or turned away from getting any orders, these entrepreneurs feel like they are being unfairly treated. Don’t they deserve their chance at the American dream? Aren’t they as good as everyone else (in some cosmic sense of human value)? Are others meanly stepping in their way and holding them down?
But they don’t understand how risk and reward works. If you want to use other people’s money to profit yourself, that already has a name – a “job”. That is what employees do. Owners leverage their capital and take the investment risk while the employee lends his or her time for a wage. The employee can do a job well and faithfully for 40 years and, having agreed to the compensation and benefits earned along the way, still not be entitled to any of the profits or proceeds of selling the business which belong solely with the ones who put wealth they already had at risk. Owners/investors bear the risk of going backwards financially if the business goes south. The employees put in their time and know-how (know-how over time often accumulated by doing the job), but their greatest risk per se was in losing future income if the job went away, not going backwards in their own wealth.
What sensibility is it that have we lost over a few decades? For many, it is accepting the need to sacrifice short-term pleasure, live meagerly, save and, once enough has been saved up to invest, buy one’s way into ownership in society. Thereafter, continuing to repeat that process for years in order to build wealth.
But using the big lens, the misunderstanding has not stopped with business investment (including financial markets).
The misunderstanding about appropriate risk-and-reward is pervading other aspects of community life.
Consider ideas of free college education gaining popularity. Does this make sense? It sounds great to say that we want people to be trained and capable of doing work that the society needs in order to thrive, and advanced education is certainly a fundamental piece of that equation. But advanced education is not made possible by nuns on charitable property donating their time to their students. We may have made this work at an elementary education level, but you need very experienced teachers and practitioners to teach the next generations how to do advanced things with technology. That costs. It won’t be accomplished for free. If we are going to make an opportunity for young people to own that know-how and use it to produce the future, shouldn’t they need to invest in themselves (risking wealth, not just time)? They indeed may need to borrow against their future income using government-backed loans or, even better, work hard in secondary education to gain the grades needed to be awarded some “free” money in the form of scholarships. (But they still had to bust their butts to earn scholarships.)
The idea of giving away college education to everyone is alarming, because it is just like the business examples above – people expecting to invest others’ money and take away the capital gain for themselves. Nonetheless, there are talking heads out there turning logic on its ear to suggest that unless taxpayers go along with free college, the ones not being treated fairly are the folks who did not get free education!
Let’s go even deeper with the concept. Health care costs are killing us. No, actually it is unhealthy bodies that kill us. The expense of the health care system trying to fight back against all our illness and disease is becoming unsustainably unaffordable no matter what government does. Someone must be to blame, right?
A very great many are to blame – us. Yes, I mean you and me. Understand this: over half of the costs of health care in our country are the direct result of preventable sickness that results from behaviors of choice, including amounts of food ingested, pills/smokes/liquids consumed for pleasure, frequency/quality of healthy exercise, and even a particular form of exercise often done without clothes or much discrimination of workout partners. I know this delves into some sacred cow territory with some folks, but when illness results, who should pay? Incredibly, people are calling for the whole society to share the bill. Should those who choose not to invest in their physical and mental health enjoy the wealth of those who do? (Meaning that if I take care of myself, the money I have saved on healthcare ought to be taxed from me in order to buy the care for those who live more recklessly?)
Here’s the thing. No one needs to like these concepts or the questions I am asking, but everyone will face the answers whether they like the questions or not. Being sick is painful, yet the work of recovering is not an investment, it’s a job. If you do it right, it will let you come back the next day to try again. But if you want to prevent sickness in the first place and profit with savings, you need to invest, while you are not yet sick, in healthy living and making decisions that mean giving up something else you could be doing with your time and wealth. This is just like business investors who risk wealth to create a better future when they could have just spent it short-term on a lavish vacation instead.
Well, I think the worms crawled out despite my best attempt not to upset the can, so I’ll set that down and let those fume who will.
My urging is that people understand we are only due one thing in life. The Declaration of Independence says three things, but they really are all one-in-the-same: freedom of opportunity. Even capitalizing on opportunity is not owed to us, we must make that investment ourselves with every decision we make – what to pursue, what to save or spend, and what to sacrifice in pursuit of a greater goal. Listen closely between the lines of a lot of narratives that people get excited about today on talk shows, in books or in the public discourse and you will hear a theme emerging that people want both the opportunity and the pursuit of it made on their behalf by others so that they need only enjoy the results. Give someone a starkly unjust example of just such an outcome, and everyone shakes their heads in disgust. But cleverly package it in a litany of good intentions, and a great many people are quickly fooled.
Let’s not be so quickly fooled anymore. It has always been true and I don’t see it ending that if you want to have (control, govern over) more resources, then you need to save more, sacrifice more, and risk more than others to earn a chair at that table. If you get there, will you accept being labeled unjust because others who took a more, shall we say, “relaxed” approach to their decisions expect you to get up and give them your seat?
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