Productive vs. Unproductive People

By July 21, 2017 No Comments

“There is one sort of labor which adds to the value of the subject upon which it is bestowed; there is another which has no such effect. The former, as it produces a value, may be called productive; the latter, unproductive labor.” – Adam Smith “The Wealth of Nations”
I am not an economist, but this quote resonates with me.
One might believe that, because I own service businesses (“unproductive labor”), I might argue that all labor is productive and valuable. In a capitalist society work is valuable or it is not be paid for. Conversely, I might argue that “unproductive labor” is a natural byproduct of an upwardly evolving society as it naturally migrates from an agrarian and/or manufacturing base to a service based economy.

All of these arguments may be true and good. I don’t know enough about economics to make any of those arguments.
I do know about business, and I am qualified to see the expanding waste of human capital in our society. Excessive government regulation and “unproductive labor” is being deployed in California and across the US with results varying from moderately positive (not reaching the potential) to extremely negative.

I started my first business 20 years ago, and I had an entity set up and a tax id number from the State of California in 30 minutes (over the phone). Between then and now, California income tax rates have increased over 35%, the size of the California budget is equally expanded, we have this amazing thing called the “Internet”, but it takes California 2-6 weeks to get a tax ID number. This is a massive invisible drag on business formation and entrepreneurship.
When I started in accounting, the tax code was approximately 3,500 pages long. Today, it is over 19,000 pages long.


Tax avoidance is a trillion dollar industry run by really smart people with the entire goal of paying the least amount of tax possible. This industry fails the most basic test of logic: We set up tax laws to raise government revenue. However, we set them up in a manner so that smart people can be paid millions of dollars to help others avoid paying that revenue to the government. It sounds more like a system to keep accountants employed rather than a system to bring in revenue.

When I went to high school, the non-entrepreneurial, smart kids wanted to be doctors. Today, if you don’t have the personality for Silicon Valley, the smart kids are headed into the legal profession where they will spend the rest of their lives stressed out, charging by the hour, fighting with others, and, thanks to many of our current laws, never out of work. Laws designed to encourage litigation hurt the very people they purport to protect.

While I understand and agree that laws and administrative services are necessary, it is more important to enforce the laws in existence. Why set up administrative systems designed with the overriding purpose of furthering employment in administration? This is a giant waste of talent.

I suggest we minimize the talent suck into what I believe is “real unproductive labor”, and instead, begin to open up “productive” labor jobs in areas like building infrastructure, creating life-saving treatments and drugs, and improving the education of all youth.

Here are a few places (and I am sure there are thousands of others) where I see “unproductive labor” damaging our economy and our quality of life:

Law: Why are so many laws written to encourage lawsuits?
Tax: Why do we need to make the tax code so complex that it requires thousands of full-time accountants just to avoid the tax laws put in place to raise revenue?
Government: Why do we need more people in administration yet get less from our governmental agencies?
Education: Why does California need 1 administrative personnel for every 2 teachers?

Imagine the businesses that could be created, the products invented, the disease cured, and the overall societal benefit by reducing the “unproductive labor” in any one of these areas. Smart, hard-working people should be given an incentive to be “productive”.

Consider the possibilities if your accountant was out of a job (because the tax law was simple and easily enforced). Your accountant would not be unemployed, but she might be employed in an area that was “productive”.
Now imagine if your attorney was working on the drug discovery process rather than the judicial discovery process. If sensible “loser pays” legislation was implemented into our court system, the loser of a lawsuit would be required to pay all of the costs and fees of both sides (roughly the system in Canada and the UK).

With a “loser pays” system most lawsuits (and with them most lawyers) would go away. Unburdened the court system would save billions. Attorneys would take only cases where they were confident they would win. A “loser pays” system expands protection for the poor (see Canada), because you would not need a ton of money to file a lawsuit (if you were going to win). Additionally, this “loser pays” system encourages positive litigation keeping those predatory people and businesses in check while eliminating predatory lawsuits.

What would change if half of the 152,744 California school administrators were teaching our kids (note: if this were the case, California would have class sizes of less than 12 on average)?

Finally, consider the loss of all of those wasteful government jobs. Then, utilize those same governmental employees modernizing the way the government uses the Internet or, perhaps more importantly, improving commerce by fixing roads and improving infrastructure.

A perfect system does not exist, but a society that encourages reliance on the system depletes talent from the remainder of society. Let’s get productive!

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