I think you're responding to just one part of the claim, namely that a person would be better off doing something else than a startup.
The more interesting point, I think, is not the entrepreneur side of the equation, but the YC side. The author claims that YC is exploiting entrepreneurs. This claim is more interesting (in the social-studies sense) as it seeks to uncover a particular kind of exploitation that's a feature of our current age. First, it's important to point out that this question is completely orthogonal to whether the allegedly exploited person is better off or not. A capitalist could start an iPhone factory on an island full of starving people and pay each a loaf of bread a day; while the people are certainly better off, they're still being exploited.
YC specifically is most certainly not exploiting anyone, as on average it gives companies much more value than it takes. But the question remains on whether the Silicon Valley ecosystem in general is exploitative, and I think the answer to that is yes, although this kind of exploitation is rather mild – I would call it "taking advantage" more than "exploiting". I think those taking advantage are not VCs, but large tech companies. Rather than paying regular salaries to large research departments, the SV ecosystem encourages a lottery-style payoff. Lots of people work trying to invent a novel product, or find an unexplored market niche, and instead of paying them all for their efforts, there's a large prize offered to those who succeed. I think that large tech companies are taking much more value out of this arrangement than they're putting in, so there's probably some exploitation there (in fact, any lottery-style economic construct, be it based on "merit" or sheer luck, suggests some sort of exploitation taking place).
That's a bad example. I read your island example and thought to myself: "that's not exploitation." Is there a specific reason you think it's exploitation?
Certainly. Exploitation is taking advantage of the other party's lack of options – which results in its lack of bargaining power – for an unfair distribution, in this case the workers get far below their contribution, even when adjusting for the capitalist's risk. The meager payment ensures the workers will never have options.
The theoretical economic model for this case is the dictator game[1]. In the dictator game, one player receives an amount of money, and he has to offer the second player a portion of it. If the second player rejects the offer, neither gets any money. Often, the only distribution accepted will be 50% or close to it, but when a rich person plays a very poor person, the rich person knows that the poor player will take any offer rather than go home empty-handed. That's exploitation.
Now, a misguided free-market advocate, not familiar with both theory and practice might say that the islanders do have bargaining power, as they can invite another employer to their island in exchange for a loaf of bread plus a burger per day. But, of course, this can't happen, as the second capitalist knows the first will retaliate on their own islands. This is a digression, but in fact, in a saturated market, the best strategy for competitors of roughly equal size (even quite far from equal) is almost never to compete, certainly not on price. Lowering prices is not an option as your competitor has the resources to do the same, which will result in the same market distribution, only with all competitors worse off. Again, this is supported both by theory and practice.
FYI, a lot of the regulation in the US government came as a result of the US economy under the rule of the robber barons a little over one hundred years ago. Similar to the island story, some employers would pay their employees not in US dollars, but in their own currency, which the workers could only use in stores owned by the employer ("the company store").
Of course, the situation in Silicon Valley is not that of full blown exploitation, since startup founders are not without options. Still, large tech companies benefit from the lottery model, as they profit more from it than from large research departments; the founders, on the other hand, get an unfair share of the cake. In this case, the large companies are not exploiting the entrepreneurs lack of options, but are simply taking advantage of their psychological preference for the lottery. There is more to that, as all parties know that if the lottery were to go away (say VC money stops), and everyone would have to work for the large companies, salaries would drop (that's a sort of a sword those companies hold over the workers should anyone decide to rebel). We don't even need to speculate, as we know that large SV employers already colluded to lower salaries.
Okay, thanks for clarifying. I myself lean towards the free market side of this example, and don't necessarily agree with the idea that exploitation is taking advantage of another's lack of options.
Take the dictator's game. The flaw with your model is that it's not iterated. A more realistic dictator's game would be iterated (repeated). In which case over time a poor party can force the rich party to give it a higher share.
>Okay, thanks for clarifying. I myself lean towards the free market side of this example, and don't necessarily agree with the idea that exploitation is taking advantage of another's lack of options.
You think of exploitation as just something like slavery.
But slavery is too an example of taking advantage of another's lack of options.
In slavery it is: "You either do this or I kill you".
Which is not that different from "You either do this, or you and your family die of hunger / end up homeless".
You either have options -- so you get to pick and you're not exploited.
Or you don't have options, in which case, you either get a fair price for your work (compared to what value your employer gets out of it), or you are exploited.
Sharecropping, the post-slavery solution to keep poor blacks and whites in their place, was also exploitation, based on their lack of options.
The more interesting point, I think, is not the entrepreneur side of the equation, but the YC side. The author claims that YC is exploiting entrepreneurs. This claim is more interesting (in the social-studies sense) as it seeks to uncover a particular kind of exploitation that's a feature of our current age. First, it's important to point out that this question is completely orthogonal to whether the allegedly exploited person is better off or not. A capitalist could start an iPhone factory on an island full of starving people and pay each a loaf of bread a day; while the people are certainly better off, they're still being exploited.
YC specifically is most certainly not exploiting anyone, as on average it gives companies much more value than it takes. But the question remains on whether the Silicon Valley ecosystem in general is exploitative, and I think the answer to that is yes, although this kind of exploitation is rather mild – I would call it "taking advantage" more than "exploiting". I think those taking advantage are not VCs, but large tech companies. Rather than paying regular salaries to large research departments, the SV ecosystem encourages a lottery-style payoff. Lots of people work trying to invent a novel product, or find an unexplored market niche, and instead of paying them all for their efforts, there's a large prize offered to those who succeed. I think that large tech companies are taking much more value out of this arrangement than they're putting in, so there's probably some exploitation there (in fact, any lottery-style economic construct, be it based on "merit" or sheer luck, suggests some sort of exploitation taking place).