What the U.S. Can Learn from Canada's Safety Net + The Real Cost of Private Schools and Clubs

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1:34Welcome to Office Hours with Prop G. This is the part of the show where we answer your questions about business, big tech, entrepreneurship, and whatever else is on your mind. If you'd like to submit a question for next time, you can send a voice recording to officehours at propgmedia.com. Again, that's officehours at propgmedia.com. Or post your question on the Scott Galloway subreddit, and we just might feature it in our next episode. Question number one. Hi, Scott. I'm Betty from Edmonton, Canada. At the Toronto Pivot Live event, Scott said that innovation basically stops the Canadian border.

2:05My daughter, who now lives in the U.S., argues that Canada's stronger social safety net kills ambition and makes people less hungry to innovate. My question is, how would you strengthen the U.S. social safety net without dampening the country's innovation engine or ambitious culture? And second, do you think the U.S. could adopt any parts of Canada's safety net without losing what makes its economy dynamic in the first place? Thanks. Okay, so just some data. The U.S. and Canada spend about the same share of their economies on social programs, but they do it very differently. Canada mostly uses public benefits.

2:41The U.S. leans heavily on private ones, including employer health, insurance, and pensions. On average, a family gets about$21 ,000 a year in support from Canadian provinces compared to about$12 ,000 from U.S. state programs. When it comes to startups, the U.S. massively outperformed Canada at almost any scale. Canada needs about 55 % more investment to produce a single big startup success. Over the last decade, U.S. venture capital exits totaled$2.6 trillion in the U.S. compared to just$56 billion in Canada. And while some of that is misleading because of the population, it's still on any level dwarfs what happens in Canada.

3:19And the U.S. produced more than 4 ,000 exits, over 10 million. Canada had fewer than 200. The trade-off is security versus upside. Canada offers a stronger safety net that isn't tied to having a job. In the U.S., health care benefits are often tied to work, so losing a job or a startup can mean losing coverage too. In sum, America delivers bigger wins. Canada delivers more protection. So let's take a step back. Why do we do startups? Why do we want economic growth and exits? It's economic security is a wonderful thing. But if you look at happiness and where people are the happiest, it's not only it's not typically the countries that have the most upside.

4:00It's countries that oftentimes have a decent amount of upside and less real harsh downside. In other words, happiness is not only a function of what you can get or what you have. It's a function of an absence of anxiety of what can be taken from you. I think four or six of the 10 happiest countries are in Northern Europe where there's still capitalism and upside opportunity, but there's some dignity knowing you're not going to be homeless or lose your house or be able to find healthcare for your kid. I would argue that in the US, we believe in winners and losers. And if you want to enter into kind of the thunderdome of unlimited upside that is America, that we have actively decided to have a lower safety net,

4:43Scott Galloway:The question is when that safety net is just a cement floor and it ends up being economically damaging and just inhuman. There's just no reason that people should feel like they risk bankruptcy if their wife is diagnosed with lung cancer. No child, one in five households with children are food insecure. We have, we now spend more money on ice than we spend on children. We have a health care system that results in extraordinary additional health care costs because of a lack of preventive care. We end up spending more on the homeless or the mentally ill because we don't have, I would argue, kind of a social safety net that is just not only empathetic, but it's just not smart in terms of preventing more expensive downstream solutions, whether it's incarceration or hospitalization.

5:30So I think that beyond the basic humanity and kind of the social safety net, I think America has entered into an environment where we're just not making investments that would pay off and actually reduce government expenditures down the road because we have become so harsh or cut so many programs in order to fund tax cuts. I think that almost everything we do in America is essentially a thinly veiled transfer of wealth from from the poor to the rich and from the young to the old. And a lot of that comes at the expense of social safety programs. It does feel as if the war on the young continues in the United States.

6:09I think it was John Tudor Jones, I think, said that in the last 40 years, we've increased benefits for seniors by nine hundred billion a year and we've increased them for kids by 20 billion a year. That's just not sustainable. And young people, 60 % of 30-year-olds used to have one child in the house. Now it's 27%. And I think a lot of that is because we have essentially made it more difficult for young people to be economically viable and choose to have a family. The child tax credit gets stripped out of the infrastructure bill, but the$120 billion cost of living adjustment for Social Security flies right through Congress.

6:44The DN democracy is working a little bit too well in the U.S., and that is old people vote, and they keep voting themselves more money. There might be a society where there's a lack of empathy because everybody thinks that they're going to be rich, so they don't need to worry about social programs or veterans affairs. But I think America has the money to create a more, I don't know, elastic or stronger social safety net, but chooses not to and allocates it to things that, in my opinion, just aren't economically productive, whether it's taking our military budget from$900 million to$1.5 trillion in the last few years.

7:16That's just stupid when you think about the asymmetry of warfare right now and where we should be spending money and not. And also tying health insurance to people's jobs creates a lack of economic mobility where human capital is allocated to its best source creates tremendous strain,$12 ,500. I think it's maybe$13 ,500 per capita on health care versus$6 ,500 in the other six of the G7 nations who get better outcomes for half the price. So the monetization of certain aspects of social service, whether it's privatizing prisons, privatizing education or monetizing education, and most specifically privatizing and monetizing health care, has resulted in this constant or this leakage or reallocation of capital.

7:59If you think of the economy, loosely speaking, as three parties, the worker, the owner, the shareholder, and the consumer, essentially have passed a series of laws and allowed for regulatory capture such that more power, prosperity, and money has leaked from the consumer and the earner to the shareholder. So that's great if you're already a shareholder, but if you are an entrant, things have just gotten harder for you. And I think a lot of that is a constant decision to keep capital gains tax lower and favor shareholders and keeping corporate tax lows in exchange for investments in things like education and infrastructure that benefit younger people and also a safety net.

8:40So I'm not as familiar with the social safety net in Canada and what we can learn from it. What I would say is that the primary difference, I get asked a lot, what's the difference between the UK and America in terms of success? And a lot of it is economic programs, but there's a decent amount of strong universities in Europe. The question is, why is the US so successful versus other nations? I think more about its success relative to Europe. And the answer I give a European audience is the following. You're the ones that decided to stay. America promotes a very risk-aggressive culture, and that is the people who initially came here were risk-takers.

9:17My parents came here, left their families, safety, and had nothing in the U.S. and decided to come here with little money because they were risk-takers. And then even within the U.S., the most successful companies with the biggest exits tend to be on the West Coast where the riskiest of the risk takers kept, you know, go West young man and risk starvation or scurvy over the Rockies during a winter trying to get to the West Coast. And I just don't think it's any accident that within a seven mile radius of San Francisco International Airport, you have exits that are greater than the GDP of Germany just in the last 10 years.

9:50So part of that risk culture is that the upside is greater and the downside is greater. I think of Germany, where If you graduate from a high school in Stuttgart, you can, in your senior year or junior year, start a vocational program and kind of slipstream into working for Daimler-Benz or Volkswagen and make 70 or 80 ,000

10:12Scott Galloway:euros right out of high school. And then the housing there is less expensive. And also, there just seems to be more of a culture on or focus on how the middle class can live a good lifestyle. The example I used is a pedestrian one. There's beer gardens there that also have trampolines. So there's kind of something for everybody. So the downside risk of not getting a college degree, not doing a startup, not really going for it is lesser because you can have a good life. So there's not, you know, and in addition, there might be a little less upside because we have a tendency to cut taxes when people get rich.

10:47Scott Galloway:And America is so focused on money and the idolatry of the tech innovator. And the downside is lower. So it creates an environment where there's not as much risk-aggressive behavior. And also, just culturally, I don't think they've had that DNA kind of burnt into them. So where are we in the U.S.? We believe and actively promote in winners versus losers, which means more risk to the downside and more risk, if you will, to the upside in a good way. The question is whether it's gone too far. And the result is a series of expenses and anxiety and depression among young people because of a total absence of a social safety net or a reduction in it such that we can continue to fund this transfer of wealth from the young to the old.

11:29I would argue that it's gone too far. I do believe that shelter is a basic human right for Americans, or just more basically, I don't even like saying the term human right. There's just not enough rights to go around for what's deserved or enough resources to give every individual the human rights that we all like to think they deserve. What I would argue is in a country like America that has registered the prosperity it has, that just too much of it has been crammed into the people who are the most fortunate and at some point just don't need any more resources. And those resources would be better allocated across a middle class that requires constant reinvestment in terms of infrastructure, lack of anxiety from healthcare scares, more money in terms of unemployment and insurance, more investment in the young that will ultimately have a positive ROI.

12:18Sorry for the word salad here, but I think that the U.S. having a more risk-aggressive culture, believing in winners and losers is a good thing. But at some point, it's become the Hunger Games. And what's most tragic about it is not that we don't take care to the extent we should of our less fortunate, but that we have the money to do it. We just decide to reallocate it to people who, quite frankly, at some point just don't need it. I appreciate the question. Question number two comes from Clay Davis on Reddit. Clay says, What do you think about the effects of private schools and private clubs?

12:53What are the long-tail effects on a community having places for people of different economic means? The question here is what happens when wealthy people increasingly opt out of shared institutions? So let's talk about private member clubs. Demand for private clubs is rising. About 60 % of clubs say they grew membership in 2022 to 2023. The private club market hit 32 billion in 2024 and is on track to reach 59 billion by 2033, roughly 7 % annual growth, outpacing most of the hospitality industry. So I'm a member of a lot of private clubs and I would argue that the value proposition is mostly knowing if you're lazy or not lazy, but you wanna know somewhere you're gonna go with a certain vibe.

13:36You don't wanna worry about reservations. It's curated. the economic model creates capital such that they can invest in an infrastructure. And quite frankly, you curate the people that you want to be around. The bad news is more generally, this is a very ugly trend because what it's creating is that essentially wealthy people are opting out or sequestering from the things that give them a vested interest in the success of America. What do I mean by that? Do you care that TSA is on strike if you're flying private? Are you worried about crime when your neighborhood has cameras everywhere and crime has hit historic lows, which is has in most wealthy cities and actually across America, crime is way down?

14:19Do you care about ACA subsidies going away if you have, well, you know, great insurance or just more enough income as I do that I don't need health care insurance? I can absorb a hit. But health insurance is essentially a transfer of wealth from the lower and the middle class for people who can't absorb the risk of a big one or a big hit to wealthier people who can't absorb. I don't even have oftentimes fire and flood insurance on my homes because I could lose one and still survive it. And 45 cents on the dollar in insurance goes to profits and administrations. So technically you're giving an insurance company a dollar for 55 cents on risk-adjusted claims.

14:59So, you know, do you care that 40 % of third graders can't read or write when your kid goes to a school that on average private schools spend$75 ,000 per student and the average public school spends$15 ,000? So a kid from a lower middle income household that goes to private schools is getting approximately$600 ,000 or$700 ,000 less invested in that kid over 12 years. And just think about that. Think about how better prepared, emotionally stable, secure, warm, well-fed an 18-year-old coming out with three-quarters of a million of additional investment through an infrastructure called primary education.

15:39Scott Galloway:So the private member clubs are essentially just at the tip of the iceberg of something of a dangerous trend where the wealthy who have a disproportionate amount of control over our policies don't feel as invested in the success of America. So quite frankly, don't put as much pressure on the leadership to solve problems and invest in things that the benefits they don't accrue or don't quite frankly don't need. Let's talk a little bit about private schools. In the US, private school enrollment was flat or declining for years, until around 2019 when it started rising again. From 2019 to 2020, private school enrollment grew about 3 % to 4%.

16:21From 2020 to 2021, it jumped nearly 6%. But over the last 50 years, who goes to private school has changed. Middle-income families are sending the kids far less, down almost by half, while wealthy families are enrolling at about the same rate as Ola's. the result, a much wider gap between rich and middle-class students in private schools. See above an additional three-quarters of a million dollars in investment. On the SAT, the difference between a lower middle-income home kid in terms of scores is 130 points on average. Now, this is what's crazy. That delta is significant, but it goes parabolic when you compare the average SAT score of a middle-class student or a student from a middle-class home versus an upper-income home.

17:03It goes to 250 points of difference. So if we were really honest about leveling up the SAT, if you went from a lower income home, we'd spot you 380 points to get you up to what is expected from that kid who's enjoyed an additional three quarters of a million dollars in investment. it.

17:21Scott Galloway:Look, primary school is a complicated issue because you're talking about individual schools. And also, I think the populist argument is let's tax private schools and reinvest that money in public education and start spending more money on public education. That's a fair argument. I would argue that also there needs to be, in concert, greater accountability across many of our institutions in public education, where a failing school, it shows that more resources aren't having any impact. So I think there needs to be greater accountability and stronger metrics across our K through 12. A lot of people push back on that and say that schools are now studying the test versus actually educating students.

18:03Scott Galloway:But they're generally speaking, the biggest problem is the following. America's superpowers are optimism. It's all our Achilles heel because each of us believes that our kid is that remarkable kid where a private or public school is going to excel and do really well. And I can prove to all of us mathematically that 99 % of our children are not in the top 1%. And so there's tremendous optimism that we and our kids will figure it out. And so we like lower taxes on rich people because a lot of us believe we'll be rich someday. And that our kid is an exceptional kid and is going to overcome some of the structural hurdles that face lower middle-income families.

18:38I think it's become a huge source of anxiety when we have colleges that engage in this rejectionist bullshit, LVMH strategy of sequestering supply. We could dramatically expand freshman seats and provide more opportunity to young people. When we consistently transfer, you know, assisted lunch. I got assisted lunch and they're cutting that. Pell grants. That's how I got through college. And guess what they're doing? I'll give you one guess. They're cutting that. And these aren't huge numbers relative to the amount of money we're spending on Social Security, interest on our debt, our military. what it's costing the loss in revenues from tax cuts.

19:15So we're not only trading off the health and well-being of our lower middle income households for continued tax cuts for the wealthy and corporations, it just wouldn't be that expensive to shore up many of these programs. We're talking about just sometimes a mouse of investment versus the elephant of what it costs to maintain some of these other programs which benefit corporations, the wealth and the wealthy. So, you know, what's to be done here?

19:48Scott Galloway:I think there needs to be more accountability and hiring and firing and closing and opening of schools in the public sector. But I do think you are going to need to probably tax private schools such that wealthier and middle-income people decide to keep their kids and middle classes are doing this, I think, for economic reasons. have less disposable income on some discretionary purchase like a private school and provide the resources and the accountability to level up public schools such that more wealthy people send their kids to public schools. Because what's the number one indicator of success of a school?

20:25Scott Galloway:It's not resources. It's actually parental involvement. And when you have a dual parent household that's upper income, one or more of the parents has more time to be engaged in the school and hold the school accountable. That's the strongest indicator, just as the strongest indicator of your health outcomes is actually having an advocate by your side, asking questions, following up, bother people in the healthcare industrial complex. An engaged parent in school has some downsides. And we all see these videos of the Karen giving the principal a tough time, a drop-off. But it's that type of involvement that makes for better schools.

20:55So I think all roads lead to the same place. I think we need to have a more equitable redistribution of capital back into the middle class. That includes infrastructure for education, infrastructure for technology investments, and also putting more money in the pockets of young people, specifically during their childbearing years, such that they can be relieved of some of that anxiety and kids have a likelihood for a better outcome. And the same shot I had, where I had assistant lunch, Pell Grants, $400 a quarter tuition. So I think there are solves here that aren't as expensive and aren't as complex as the incumbents would like you to believe to justify what are extraordinarily expensive tax cuts and investments in the military and corporate bailouts.

21:43So what is my progressive argument is a redistribution of income into the middle class. The middle class is not a self-occurring or self-healing organism, but at the same time, holding the public sector to the same account with metrics and willingness to close schools and fire teachers, some of the same standards that private schools hold themselves to, as do other organizations in the private sector. But again, very hard not to be accused of being reductive here because there are some school districts that do an amazing job. There are others that don't. And you kind of have to go, it's pretty situational.

22:23Anyways, appreciate the question. We'll be right back after a quick break.

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