Paul Graham - Essays

Nothing shows more clearly that employment is not an ordinary economic relationship than companies being sued for firing people. In any purely economic relationship you're free to do what you want. If you want to stop buying steel pipe from one supplier and start buying it from another, you don't have to explain why. No one can accuse you of unjustly switching pipe suppliers. Justice implies some kind of paternal obligation that isn't there in transactions between equals.

Most of the legal restrictions on employers are intended to protect employees. But you can't have action without an equal and opposite reaction. You can't expect employers to have some kind of paternal responsibility toward employees without putting employees in the position of children. And that seems a bad road to go down.

Next time you're in a moderately large city, drop by the main post office and watch the body language of the people working there. They have the same sullen resentment as children made to do something they don't want to. Their union has exacted pay increases and work restrictions that would have been the envy of previous generations of postal workers, and yet they don't seem any happier for it. It's demoralizing to be on the receiving end of a paternalistic relationship, no matter how cozy the terms. Just ask any teenager.

I see the disadvantages of the employer-employee relationship because I've been on both sides of a better one: the investor-founder relationship. I wouldn't claim it's painless. When I was running a startup, the thought of our investors used to keep me up at night. And now that I'm an investor, the thought of our startups keeps me up at night. All the pain of whatever problem you're trying to solve is still there. But the pain hurts less when it isn't mixed with resentment.

I had the misfortune to participate in what amounted to a controlled experiment to prove that. After Yahoo bought our startup I went to work for them. I was doing exactly the same work, except with bosses. And to my horror I started acting like a child. The situation pushed buttons I'd forgotten I had.

The big advantage of investment over employment, as the examples of open source and blogging suggest, is that people working on projects of their own are enormously more productive. And a startup is a project of one's own in two senses, both of them important: it's creatively one's own, and also economically ones's own.

Google is a rare example of a big company in tune with the forces I've described. They've tried hard to make their offices less sterile than the usual cube farm. They give employees who do great work large grants of stock to simulate the rewards of a startup. They even let hackers spend 20% of their time on their own projects.

Why not let people spend 100% of their time on their own projects, and instead of trying to approximate the value of what they create, give them the actual market value? Impossible? That is in fact what venture capitalists do.

So am I claiming that no one is going to be an employee anymore-- that everyone should go and start a startup? Of course not. But more people could do it than do it now. At the moment, even the smartest students leave school thinking they have to get a job. Actually what they need to do is make something valuable. A job is one way to do that, but the more ambitious ones will ordinarily be better off taking money from an investor than an employer.

Hackers tend to think business is for MBAs. But business administration is not what you're doing in a startup. What you're doing is business creation . And the first phase of that is mostly product creation-- that is, hacking. That's the hard part. It's a lot harder to create something people love than to take something people love and figure out how to make money from it.

Another thing that keeps people away from starting startups is the risk. Someone with kids and a mortgage should think twice before doing it. But most young hackers have neither.

And as the example of open source and blogging suggests, you'll enjoy it more, even if you fail. You'll be working on your own thing, instead of going to some office and doing what you're told. There may be more pain in your own company, but it won't hurt as much.

That may be the greatest effect, in the long run, of the forces underlying open source and blogging: finally ditching the old paternalistic employer-employee relationship, and replacing it with a purely economic one, between equals.

[1] Survey by Forrester Research reported in the cover story of Business Week, 31 Jan 2005. Apparently someone believed you have to replace the actual server in order to switch the operating system.

[2] It derives from the late Latin trepalium , a torture device so called because it consisted of three stakes. I don't know how the stakes were used. "Travel" has the same root.

[3] It would be much bigger news, in that sense, if the president faced unscripted questions by giving a press conference.

[4] One measure of the incompetence of newspapers is that so many still make you register to read stories. I have yet to find a blog that tried that.

[5] They accepted the article, but I took so long to send them the final version that by the time I did the section of the magazine they'd accepted it for had disappeared in a reorganization.

[6] The word "boss" is derived from the Dutch baas , meaning "master."

Thanksto Sarah Harlin, Jessica Livingston, and Robert Morris for reading drafts of this.

Thirty years ago, one was supposed to work one's way up the corporate ladder. That's less the rule now. Our generation wants to get paid up front. Instead of developing a product for some big company in the expectation of getting job security in return, we develop the product ourselves, in a startup, and sell it to the big company. At the very least we want options.

Among other things, this shift has created the appearance of a rapid increase in economic inequality. But really the two cases are not as different as they look in economic statistics.

Economic statistics are misleading because they ignore the value of safe jobs. An easy job from which one can't be fired is worth money; exchanging the two is one of the commonest forms of corruption. A sinecure is, in effect, an annuity. Except sinecures don't appear in economic statistics. If they did, it would be clear that in practice socialist countries have nontrivial disparities of wealth, because they usually have a class of powerful bureaucrats who are paid mostly by seniority and can never be fired.

While not a sinecure, a position on the corporate ladder was genuinely valuable, because big companies tried not to fire people, and promoted from within based largely on seniority. A position on the corporate ladder had a value analogous to the "goodwill" that is a very real element in the valuation of companies. It meant one could expect future high paying jobs.

One of main causes of the decay of the corporate ladder is the trend for takeovers that began in the 1980s. Why waste your time climbing a ladder that might disappear before you reach the top?

And, by no coincidence, the corporate ladder was one of the reasons the early corporate raiders were so successful. It's not only economic statistics that ignore the value of safe jobs. Corporate balance sheets do too. One reason it was profitable to carve up 1980s companies and sell them for parts was that they hadn't formally acknowledged their implicit debt to employees who had done good work and expected to be rewarded with high-paying executive jobs when their time came.

In the movie Wall Street , Gordon Gekko ridicules a company overloaded with vice presidents. But the company may not be as corrupt as it seems; those VPs' cushy jobs were probably payment for work done earlier.