An Interview with DHH, Co-Founder of Basecamp, Creator of Ruby on Rails, and Winner of the FIA World Endurance Championship
David Heinemeier Hansson (“DHH”) is Co-founder and Chief Technology Officer at Basecamp, a remote software company based in Chicago, Illinois, which he runs with Jason Fried and a team of some fifty programmers, designers, supporters, and sysops. In 2003, DHH famously created the Ruby on Rails, on top of which hundreds of thousands of programmers have built applications, including Github, Spotify, Airbnb, Square, and Kickstarter. For the past seven years, he has also raced in the FIA World Endurance Championship (WEC). In 2014, he placed first in the WEC for his category, winning the 6 Hours of Silverstone, the 6 Hours of Fuji, the 6 Hours of Bahrain, and the 82nd 24 Hours of Le Mans, the world’s biggest endurance race. DHH is also the co-author of a number of NYT, WSJ, Sunday Times, and Amazon bestselling books, including REWORK, It Doesn’t Have To Be Crazy At Work, REMOTE: Office Not Required, and Getting Real.
The Politic: I really liked your piece, “The Day I Became a Millionaire.” You start by saying that it’s not a “rags-to-riches story” and that you loathe the “I-did-it-all-by-myself heroic myth mongering.” Run me through that!
DHH: I think it’s an ingrained part of the American entrepreneurial mythology that you have to present as though you pulled yourself up by the bootstraps. But this kind of John Galt ideal of the individual doing everything by themselves is such bullshit. No one does everything by themselves. Everyone relies on some particular circumstances or on broad societal institutions and infrastructure.
The more we pump up the misconception that people are self-contained and self-sufficient, and the more we rationalize ideas like, “Well, of course I shouldn’t pay. I did it all by myself, so it’s all mine to keep,” the more dystopian society becomes. We’re left with this current late-stage capitalist bullshit where the richest 400 households pay a lower effective tax rate than any other percentile in the country. That’s obviously wrong on its face, which is part of why we need this mythology in order to continue justifying the status quo.
Which institutions helped you out?
For me, I was born in Copenhagen, and I enjoyed pretty much every advantage that the welfare state affords its citizens, including universal healthcare. Personally, I had a variety of health issues as a child, including sustained hearing loss in one ear. But it was never even part of the discussion that I wouldn’t receive care just because my family wasn’t wealthy. The whole idea that healthcare is a commercial activity where the quality of care is determined by whether you’re rich was a completely alien concept that didn’t exist in my mind until I was well into my 20s. So, that was a great advantage.
The other one is universal and free higher education. I got a great education that was pretty much entirely funded by the Danish state. Not only did they cover the cost of education, but they even afforded me a stipend to go to school. You’re actually paid to attend higher education. When you hear about the American system, where tuition costs $10,000 to $50,000 and students leave college with debt in the hundreds of thousands… It just seems like a bizarro world that’s utterly foreign.
I essentially grew up “poor” without any idea that “poor” is what I was. I went to great public schools. I received the healthcare I needed. We had subsidies for our housing. I got a great higher education without belonging to the top percentile of my country. I think that experience… I didn’t appreciate it until I arrived in the United States and thought, “Oh, that’s not how it works here?” I’ve been here about 15 years now. I was still in ignorant bliss about the reality of the American system for the first five of those years, but in the past 5 to 10 years, my eyes have opened to all the depressing ways that American society imposes destitution on its citizens, and needlessly so.
How about the counter-argument that Denmark is tiny compared to the U.S., and Denmark’s system would be administratively impossible to implement in America?
That’s not accounting for the fact that most of Europe functions this way. Almost everyone has universal healthcare, free or low-cost higher education, and subsidized housing. Even though it varies from country to country, no western European country has anything that even approximates the American experience. When I say, “Denmark has all these goods,” the response is often, “That’s not representative! You can do that because it’s a smaller country.” But the U.S. is richer. It’s not like Denmark is an oil state with GDP gushing from the ground. In Denmark, GDP per capita is $42,000. In the U.S., it’s $62,000. The U.S. is richer than Denmark, but it chooses to spend money in worse ways. That’s solely a political choice, and it’s completely fixable.
Another counter-argument. America is only richer because of free enterprise, and without free enterprise we would’ve never been rich enough to afford the kind of welfare state you’re talking about. Thoughts?
All of western Europe operates under “free enterprise.” The notion that the U.S. is unique in its embrace of free enterprise is ignorant. I find that argument is almost always made in conjunction with shouting, “You want the U.S. to be Venezuela!” The implication is that either you have an American dystopia or a failed state, which glosses over the fact that the rest of western Europe, Canada, New Zealand, and even Japan–basically every country to which the U.S. compares itself–provides the basics of healthcare and housing and aren’t “failed states.” That free-enterprise argument is based on a false and bankrupt dichotomy. You don’t need some sophisticated economic analysis to figure that out. There are 600 million people in Europe, yet somehow they figured out how to do it right. When considering the U.S., western Europe, Canada, etc., the uniquely failed state in that comparison is the U.S. The U.S. is the outlier.
To your point, I think the U.S. spends 2 to 3 times as much as any other country on healthcare and still generally has worse outcomes.
In fact, when people say, “I don’t want the government to run healthcare because it’s inefficient or expensive,” I respond, “What the hell are you talking about?” The so-called “free market” is twice as expensive as any other system, often the systems that Americans denigrate for government involvement. These are not private institutions, and they’re outcompeting the American experience by a factor of 2 to 3 times on a societal basis.
On the standard of GDP, the U.S. spends like 18 percent on healthcare. Most other countries spend 9 percent or so. But if you look in terms of taxes collected, they don’t collect nearly enough to pay for these social programs. As a percentage of GDP, they collect 19-24 percent, compared to Denmark which is like 46-50 percent. The math is pretty simple: If you want to have universal healthcare, if you want to have free higher education and other basic goods, you have to pay for it. It’s not a mystery.
But if you look at the lived experience of anyone in the bottom 90 percent of Denmark and compare that to the U.S., even paying more in taxes, your life would be much better. Just imagine living a life where you didn’t have to worry about sending your kids to college, or getting sick and going bankrupt, or affording housing. Imagine if all of that was covered by your government. There’s a reason the U.S. only ranks number 19 in global happiness, whereas Finland, Denmark, and Norway rank one, two, and three. European countries generally rank very high because erasing these fundamental life uncertainties from the equation has a huge impact on whether you live a happy life.
Switching it up a bit. You recently instituted a minimum salary of $70,000 at Basecamp. Mind telling me a bit about that switch?
We put in place a minimum wage of $70,000, and not because the market forced us to do so. We otherwise pay market rates. We pay in the top 10 percent of San Francisco rates for tech work. But even so, with such generous compensation for programmers, there’s a large swatch of people who are not being rewarded by the rising boats of technology even though they work for a tech company. Primarily, that’s customer service, because a lot of tech companies outsource that to some shitty, dystopian contractor who’s got endless reports of the terrible working conditions they put their employees through. And whether those customer service agents or content moderators work for Facebook or Google on a contract basis, or even as full-time employees of the company, they usually never live in the high class areas. Google isn’t hiring a ton of customer service people to live in Palo Alto. They see they can get away with a lot less, so that’s what they do.
I think this is a fundamental undercut of society’s progress. Even though you work for a trillion-dollar company, even though you work in the fastest-growing, most prosperous industry, you’re still going to struggle. That just seems revolting on its face, and doubly so because the money involved isn’t that great for these companies. What would it cost Facebook to pay all of their content moderators a minimum wage of $70,000? It would barely hurt their profits. They do this because they can get away with it, and that’s just a bankrupt way of looking at your broad responsibilities to society. It’s exploitation. And it’s the same for the gig economy, where executives take home billions while exploiting a vast workforce that lives precariously on the edge of poverty. That’s just bad, and I don’t want anything to do with it.
We were already paying support people pretty well before the switch. We were paying them a starting salary of $50,000, which, compared to the industry, is quite good. But we said, “You know what? It’s not going to cost us that much more. We’ll include them more broadly.” That also helped us compress the salary spectrum at Basecamp so that those employees are now within 5 times our highest-paid employees. If you look at statistics for CEO compensation in the broader economy since 1978, it was 58 times the average employees. Now it’s 300 to 400 times the average employee–and that’s just one symptom of the larger problem.
Does that factor in equity?
We don’t do stock. We don’t do equity. We pay a high salary, and we include the bonus compensation into that salary. We have no intention of selling our company or going public, so we have no intention of issuing stock. (For Basecamp’s plan in the unlikely event of sale or IPO, see here.)
Do you find that your employees appreciate the security and predictability of that model?
I think it’s just that equity is a lottery coupon. If you get a lucky coupon, you can get wealthy. But the vast, vast majority of people don’t enjoy that wealth. They get lottery coupons that end up being worthless. At Basecamp, we don’t play that game because it’s not aligned with our philosophy. We’re big enough as a company. We don’t need to grow. We’re not a rocketship that’s requiring its employees to take on a bunch of risk. We’re not going to be out of business any time soon, knock on wood. The trajectory that we’re taking and the modesty with which we run our business is incredibly sustainable. There’s not a lot of risk in taking a job at Basecamp, so we don’t offer equity to offset that risk that doesn’t exist.
That doesn’t mean our employees couldn’t go somewhere else with equity, like taking a job at Google with restricted stock options. If you want to work in the belly of Google, that’s fine. We never have problems finding competent people. We recently got over 1,200 applications for just one opening to be a programmer, so the opposite is in fact true. There’s way more talent than we can hire. Ultimately, we focus on executing the fundamentals: providing our employees with great personal benefits and guaranteeing them a great salary without stock options.
I saw you’ve been praising Warren’s wealth tax proposal. What’s your pitch?
I think the wealth tax is way overdue and necessary. It’s taken me awhile to come to that conclusion, but the conclusion is now clear to me. When the richest in society pay a lower effective tax rate than the poorest, that’s counterproductive and unfair on its face, and the wealth tax can go a long way in terms of reducing wealth inequality.
I also think it’s an American tradition. The U.S. pioneered a lot of these broad taxes, and they had very high taxes, especially during America’s Golden Age of Capitalism in the ‘50s and ‘60s. (From 1956 to 1963, the top marginal tax rate was 91 percent.) Wealth was more broadly shared during that period than from the 1980s and onwards. So if you’re a billionaire, you should be paying more in taxes. The logic of that argument is so inescapable that I increasingly find any opposition to be in bad faith.
You said it took you a while to come to that conclusion. Why?
There are some concerns. Bozeman raised the issue of technical constraints. Europe’s experiments with a wealth tax had mixed success, largely because of political unwillingness to enforce the requirements of the tax. But first of all, there’s a lot of mobility within Europe. It would be relatively normal for someone living in France to move to Switzerland, whereas it would be an extreme uprooting of an American’s life circumstances to move to Bermuda, or Mexico, or even Europe. People just don’t flee tax regimes in the way that’s being presented. Second, it’s a correctable policy failure that the U.S. is home to so many mega-millionaires–so many people with tens of millions or even hundreds of millions of dollars.
We’re sort of overwhelmed on the political side with billionaires buying influence in elections, whether that’s Trump or Mike Bloomberg. A government that’s been captured by its richest members–its billionaires–is not a democratically sound system; it’s an oligarchy. It’s funny because we in the U.S. always have choice words to use when oligarchical forces express their power elsewhere. We have no problem calling out Russian oligarchs or Russian plutocrats by name. But when it comes to American oligarchs, there’s all this hemming and hawing and dancing around the issue.
What about the argument that billionaires played the game according to one set of rules, and it’s unfair to penalize them ex-post-facto under a different set of rules, i.e., a wealth tax?
Of course you should! The people who’ve gotten away with the biggest gains should be the first to line up to pay. The idea that you’ve somehow earned that money goes back to the initial discussion. Did Bezos earn that $120 billion? No, he earned it by accumulating capital, and that itself is not a sufficient justification for his wealth. The only way he became so wealthy is because the tax system had been eroded. If he had made his fortune in the 1960s, for instance, he would have paid a much higher amount in taxes, and he never would’ve been able to accumulate that much wealth.
To be fair, wasn’t the effective tax rate significantly lower than the nominal tax rate during the Golden Age of Capitalism?
The effective tax rate was lower, but that doesn’t mean the high nominal tax rates were not effective. They ensured people didn’t get paid out ludicrous sums. Pikkety’s Capital in the Twenty-First Century is a great primer on the share of income that’s gone to each income bracket. If you look at CEO rates, they’ve gone on an absolute tear, and so has overall inequality, which stems from the fact that corporate tax rates used to be 50 percent in the ‘50s and ‘60s and are now down to 16 percent or even lower with the latest tax cuts. (The average corporation paid an effective tax rate of 11.3 percent in the first year of President Trump’s 2017 tax law, possibly its lowest level in more than three decades.)
All of those factors conspire to funnel more of the national pie into fewer hands. The statistics and lived experience are simply inescapable. Income has stagnated from the 1980s to now, but costs have all skyrocketed. The system is just broken, and I think we need to fix it through democratic means like a wealth tax or else the pot will boil to the point of explosion. Everyone who lives in a mansion thinking they’re “billionaire” will wish they had been worried.
I think it was Jack Kennedy who said, “If a free society cannot help the many who are poor, it cannot save the few who are rich.”
Bingo. If everyone sees how patently unfair this system is but you, you’re living on borrowed time. Society at large rests on the consent of everyone involved. Things fall apart as soon as people believe the system is rigged and patently unfair. Those on the edge of society are putting enormous strain on the political systems of the U.S. and Europe because they’ve suffered.
A large number of them are saying, “I don’t care what it takes. We’re going to burn this shit to the ground if we can’t live together in prosperity.” American society is so much richer than it was in 1980, yet so many people are worse off. Something is simply wrong with that statement. If your society ends up way better off on an aggregate scale, then the vast majority of your populace should be way better off. If that’s not true, the system is broken and needs to be fixed.
It seems like that pot has been boiling forever, but those at the bottom haven’t had the means to express their dissatisfaction.
The poorest are so poor that they get excluded from voter registration. This is the fundamental struggle: Once you have a population that’s been so subdued by its institutions that they can barely make ends meet, how can they engage in the political process to change that? That’s hard, which is why I’m encouraged by the candidates who are trying to include them. We can truly make that change, but I guess we’ll see whether that comes to pass. Maybe we’ll punt on it again and continue with the status quo. Maybe we’ll just add more flames to the raging fire.
I’m happy to say you’ve convinced me to move closer to your side.
Three recommendations: David Graeber’s Debt: The First 500 Years, Anand Gridharadas’ Winners Take All, and Thomas Pikkety’s Capital in the Twenty-First Century. If you read those books, you can’t not come out at least partially radicalized.
Once you get a broader experience, to me, I find that the long arc of history tends toward great humanity and greater consideration. That’s sort of the inevitable arc of anyone who seeks a broad education in this configuration of society. It’s the idea that, “You know what? If I were behind Rawls’ veil of ignorance, I would choose the system in which I had the best opportunities in life regardless of my starting place on the socioeconomic spectrum.”
The great tragedy is that the American dream is dead in America, and has been for a long time. They have the least social mobility of any major western society. It’s ironic because Denmark has a far greater implementation of the American dream we do here in America. That should be a statistical gut punch that makes you smack your head. If we want a society where anyone can pull themselves up and go from rags to riches, we have to approach that in a meaningful way. We can’t just look at the edge cases.