in Things that make you go "hmm"

The Lucky Rich

Do rich people really earn their wealth?

In ancient times, kings and nobles made the circular claim that if they had achieved power, it must be because heaven wanted them to be leaders and receive special treatment.

That argument rings hollow in modern society where it’s been replaced by a new refrain: “we worked hard for our money.” It’s a popular phrase in North America where the belief that anyone can be successful with hard work runs rampant through our cultural consciousness. The belief that hard work leads to success is practically a religion. But is it true?

Let’s start by ignoring the people who were born independently wealthy, because there’s no debate there. Instead, let’s look at a billionaire’s claim that since he earned his wealth from scratch, he deserves every penny.

Famous hacker and venture capitalist Paul Graham argues a merit-based perspective. As a renowned programmer himself, he talks about the enormous differences in productivity between programmers. A truly great programmer isn’t just 5% or even 20% better than the other programmers. They may write ten times as much code in the same amount of time. Or since the amount of code written doesn’t really reflect productivity, great programmer can literally create 10 or 20 times the value they’re paid. A single act of brilliance can conceivably save or earn thousands or even millions of dollars.

In contrast, a really bad programmer isn’t worth the salary they’re paid. In fact, they often cause major problems, whether by creating horrendous security flaws, or by introducing so many bugs that every other programmer’s development grinds to a halt as teams try to track down obscure errors that no sane programmer would make.

Grahams point is this: if a programmer can create 10x or even 100x more value, isn’t it fair for them to be paid accordingly? By extension, isn’t it fair for some people to be paid vastly more than others, since a free market economy should take care of setting salaries that are commensurate with contribution?

The answer isn’t simple. Let’s take a maxim from the sports world: “practice doesn’t make perfect, perfect practice makes perfect.” Or to rephrase it for the business world, “working hard won’t make you successful, doing the right¬†work will.”

That actually underscores the complexity of the wealth issue, because there are two components to “doing the right work.”

The first component is that the work that will get you rich, varies frequently with time and by geographic region. If you worked in the textile industry in India on the eve of the British conquest, you had a shot at a good living because of the English demand for high-quality Indian textiles. But only a few decades later, the Industrial Revolution in England brought the mass manufacture of cheap textiles to the Indian market, impoverishing native artisans.

In the modern world, Bill Gates is a great example of this kind of success. He’s an extremely hard-working, brilliant entrepreneur, but his success depended on a lot of amazing timing, such as being born in just in time to make software for the first personal computers, and being lucky enough to get a wildly advantageous deal with IBM. Warren Buffet is famous for arguing this point:

“If you stick me down in the middle of Bangladesh or Peru or someplace, you find out how much this talent is going to produce in the wrong kind of soil … I work in a market system that happens to reward what I do very well — disproportionately well.”

Amazingly this point was argued extremely well on Cracked.com, by writer David Wong.[1]

As a dance teacher I’ve noticed this as well: what is commonly perceived as talent in dance is very frequently just the happy coincidence that your body naturally moves the way a certain dance style prefers. You might be a “natural” at Tango, but not at Hip Hop. Now, some people have real talent for dance: their brains and bodies adapt well to different styles and ways of moving. But in most cases, our bodies just choose at random a default way to move, and it works better for some situations than others.

In that sense, success requires some amount of hard work, but it still depends a lot on luck.

And it requires even more luck. I mentioned above that Bill Gates was extremely lucky to land an amazing deal with IBM early on. The best entrepreneurs work hard to create¬†luck for themselves, in the sense that they seek out opportunities and learn to adapt. But Hollywood and Silicon Valley both show that extremely talented, hard-working people still need to get a “break” to make it.

But “doing the right work” has a second component that isn’t pure luck.

One of the things that extremely successful people have in common is frequently the willingness to “do anything to win.” If what they enjoy and find easy brings them success, they’ll just work harder at that. But if it doesn’t, they’ll adapt and find a new strategy. Having fun might be important, but it’s not enough.

If someone achieves success by being willing to do whatever it takes to succeed, then success is a choice. It’s the choice to stay at home studying instead of going out to a party. It’s the willingness to work 16-hour days if that’s what is needed. It’s about enjoying pottery but working in real estate because you can make better money that way.

Is wealth just a matter of luck? The final answer is vague: “not entirely.” Hard work and talent are a big factor, and sometimes they’re enough. But for many successful people, luck plays a greater part than they are willing to admit.

Links:

  1. http://www.cracked.com/blog/6-things-rich-people-need-to-stop-saying/

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