Human Capital in the 21st Century – What Thomas Piketty Doesn’t Get

I don’t know anyone under 30 who thinks they work for anyone anymore. They see themselves as ‘Individual Capitalists’ – whether they would use that term or not. Oh they may be putting in the hours somewhere, but trust me, their mind is all about how they are going to set up a business. And lest you think this is a middle class phenomenon, it’s probably more the immigrant, lower-income, working class situation. Landing in JFK airport recently, Juan the taxi driver started pitching me his business idea without even knowing I was a venture capitalist. Entrepreneurship – big, small, disruptive, enabling – is the big story ripping around the globe right now, redefining continent after continent.

Which is why Thomas Piketty’s book, Capital in the 21 Century, though it has provoked a global debate about capital and inequality, is ultimately a sad book. It’s zero-sum and it misses the point, and this big story: Never before have the tools for becoming an owner of a business ever been so distributed, democratised and free to grab hold of by those who aspire to design their lives.

Piketty is looking backwards. He’s thinking of capital exclusively in a narrow way, and he’s defining labour in an old-fashioned way. Human capital is the most important force in the world. The objective of every citizen should be how to increase the return on human capital instead of confiscating capital or lowering the return on financial capital, which kills the engine of wealth creation in society leading us all to become more poor.

Jobs are important. NESTA, the UK organisation, has done research twice on how job creation happens, and 57% of all new job creation comes from the 6% of small, young, high-growth businesses in society. They call this the Vital 6%, and around the world, this has been proven again and again. Entrepreneurs create jobs. A global wealth tax of 80% on the wealthy, as Piketty proposes but quickly admits won’t be effective, won’t do that – atleast not in any kind of direct way.

Sometimes that alignment between entrepreneurship and job creation is tight. Assured Labor helps people in low-income economies to find jobs with their cell phones. 5 to 6 billion people have a mobile phone.

When Maktoob in the Middle East was acquired by Yahoo in 2009 for $175 million, it spawned dozens of start-ups, half a dozen of which have become much more valuable than Maktoob. It is through these kind of supernovas that wealth is generated – from entrepreneurial management team to 6 derivative ones to the next 3 dozen etc. People are inspired to and learn how to build companies by being a part of successful ones.

So what PIketty appears to want is a new War on Drugs. We all know that the War on Drugs is not working, and the War on the Wealthy won’t work either. By the time that you make (or inherit) hundreds of millions of pounds, dollars or euros, you also know how to protect it. Two weeks and a good lawyer keeps most capital safe. I’m not saying it’s good; I’m just being a realist.

Entrepreneurs are the most generous people I know. I am thrilled that individuals like Bill Gates, Richard Branson, and others who have created great fortunes are sharing most of that fortune with others – creating a more level playing field. There will always be a % of the global wealthy who will remain, unreconstructed egoists and jerks, and not invest any of their wealth in changing the world. That’s their problem. But why try to re-engineer the entire world a la a War on Drugs to go after that percentage of jerks. Why not encourage more of the wealthy to share their wealth, and celebrate those actions when they do. Carrots have always worked better than sticks.

The real issue is not about wealth redistribution. It’s about who distributes and whether the pie is growing. As The Atlantic reported in its article, Can Government Play Moneyball?, government is massively inefficient. In addition, Government is no more than a proxy for how society decides to collectively organise itself. Thousands of years ago it was kings, and in the future, with the benefit of crowd-sourcing technology in the sharing economy which is unfolding , collective action could be delivered entirely differently than through existing governmental structures.

Let’s not create a society of the richest poor people. Let’s not condescend to people by saying that if you started life as poor, you’ll always be that. The cards are not stacked against you in the 21 Century unless in your own mind you believe they are. Piketty’s book provokes jealousy and insecurity in people rather than freeing them to create and aspire.

I know that Juan the taxi driver in New York City who pitched me that great idea at JFK airport last month won’t read Piketty’s book. He’s too busy planning his start-up’s launch, and soon he’ll be building wealth, his new company and creating jobs.

Yes, entrepreneurship is back. The return on human capital is emerging as growing far more rapidly than the return on financial capital. Individual Capitalism is the force for the 21 century, not big business. Net net: society works best for everyone when it’s organised around the entrepreneur.

Photo: bikeriderlondon / shutterstock