I
Invite someone who lived in Boston ten years ago to go to karaoke in Allston and you will conjure a specific vibe.
The neighborhood of Allston sits between Boston College and Boston University, and it isn’t far from Northeastern or Harvard either. It was known until recently for a high concentration of college students, recent graduates, immigrants, and anyone else looking for cheap, dense housing. So it acquired the usual businesses that service that population: a wide variety of takeout restaurants, laundromats, liquor stores, comic book stores, and more than its share of karaoke studios. You could rent a private room at Jin Karaoke or Do Re Mi for a floating rate—never clearly stated; frequently subject to change—and page through a sticky binder of mostly Korean songs in search of a 90s hit you recognized. What the venue lacked in service, they made up for in a blind eye to your concealed fifth of Jack Daniels.
When some friends invited me to a karaoke bar in Allston this past Saturday, that was the context I had in mind. But when I showed up, a young man at the door checked my ID. “Wand him,” said an older man leaning on the wall nearby. “All males get wanded.” I was wearing my travel vest with over a dozen pockets that evening, so I had to take quite a few things out—sunglasses, pen, flashlight—as the bouncer scanned me.
“It’s his first night,” said the older man. “Got to show him how it’s done.”
Once inside, I gave my name and the name of my party to a host at a podium console. “You’re a few minutes early,” he said, “but you’re welcome to wait at the bar.” When I assented, he keyed a walkie talkie on the host stand. “One coming up.”
At the top of the stairs, a man in a suit touched his earpiece. “I got him.”
I would expect this level of security for a club in Miami, not a karaoke bar in Allston. But the vibe has changed in ten years. None of the bars or restaurants I remember are open anymore. The karaoke place I went to on Saturday used to be Sunset Bar and Grille, an Allston staple. But even Sunset wouldn’t have asked for more than an ID check at the front. And the idea of any bar on Harvard Ave charging for bottle service—$450 for a handle of Hennessy VSOP; $800 for Henny XO—would’ve been a punchline when I lived there.
I recounted all this to S. when I got home, much to her amusement. “We always joked about Do Re Mi being a front for something,” she said. “But … maybe you actually found one?”
That’s a common joke when you find the fourth mattress store in a three-block stretch, or a furniture retailer that’s been “going out of business” for the last six years, or a Boston karaoke bar with South Beach prices: it’s a front; it’s money laundering; it’s organized crime. You see the prices, you consult your own sense of what constitutes a “successful” business, and you can’t reconcile the two. You can’t prove it, but you can’t shake the sense that no one could afford to keep their doors open with this little foot traffic. Who is this for?
You’re struck by this comical disbelief because you can’t imagine this venue doing enough business to cover its overhead. And if that were the purpose of a business, you’d be right.
II
In the U.S., the median wage worker of 25 years or older has been at their job for 4.9 years (BLS data for 2022). That’s a 10% decline over the last decade (5.4 years in January 2012). A wide variety of factors may have contributed to shorter tenures: rapid economic growth post-pandemic leading people to change jobs; an older and longer-serving cohort of workers retiring or being retired by COVID; and other factors.
Four to five years, by some coincidence, is the average longevity of a small business in the U.S. (JPMorgan Chase, also citing BLS data). That’s pre-pandemic data, but I doubt 2020 improved those numbers.
So owning your own small business or working for an employer (large or small) seem to be equally as risky. I call attention to this because entrepreneurs are often cited as “risk takers” whose “gamble” on a small venture entitles them to the profits it generates. Based solely on recent data, the “risk” seems about the same as punching a clock.
(I’ll be the first to admit that BLS data on employee tenure aggregates workers who voluntarily separated from their job as well as workers who got laid off. BLS data on small business lifespan also aggregates establishments that closed involuntarily with establishments that closed because their owner found a better opportunity. But the people defending entrepreneurs as “risk takers” aren’t coming at this from a more robust view of the data than I am, so I’m in good company.)
So if owning your own business is no more stable than collecting a paycheck, why do it? One advantage: tax law favors an entrepreneur in ways that it doesn’t favor a wage worker. I can’t deduct the cost of my commute from my wage income; I could account for mileage if I were self-employed. The ability to deduct business expenses, write off losses, and shelter oneself from liability are all advantages that an entrepreneur has over a wage worker.
Moreover, running a small business allows you to spend someone else’s money. Whether you take out a bank loan, solicit private equity, or sell shares on a publicly traded exchange, you can take a gamble with a stranger’s chips rather than your own. And if the gamble completely fails, you have legal protections available to you as well.
I’m not suggesting that small business owners have it all worked out for them. I know too many freelancers to say that with a straight face. For one thing, it’s not easy to get your hands on someone else’s money. Venture capitalists won’t take a meeting with just anyone. Loan officers at banks are notoriously picky. For all the talk of “free” enterprise, credit—the fuel that powers business expansion—still hinges on who you know and what you look like.
But the market for credit was a lot freer when interest rates were lower! When capital is free, or nearly free, it means riskier businesses can pursue different business models. Rather than trying to build a workable product, the goal is to Get Big Fast. Find an opportunity, flood the market with ads and sign-up bonuses to attract subscribers, then become the monopoly price-setter. You can afford to run your business at a loss for years if the money spigot never shuts off.
There are, broadly generalizing, two ways to make money in business: either create a product or service that customers are willing to exchange money for, or tell a story about how valuable your company will be when market conditions are right and let investors give you money.
When interest rates—the cost of credit—are at or near zero, why bother with the first option? If you’re a good salesperson, you can try selling a thousand different customers, or you can try selling yourself to a loan officer.
And on the other side of the equation, if you oversee a pool of funds that must be invested for growth, you can afford to wager on riskier enterprises. If you make a hundred bets, ten bets that pay off tenfold will cover ninety bets that lose everything. And everything looks like a good bet in a growing economy.
III
But as of late, I’ve wondered if some larger, structural issues might have been more to blame for the decline of organized crime, starting in the late Seventies and early Eighties. What if a better explanation is that crime was legalized, allowing corporations to seize their lucrative markets?
Put simply: the massive economic “reforms” initiated by neoliberal politicians in that era, now responsible for the massive inequality in the world today, also essentially legalized most forms of fraud and vice. Having been bolstered at the expense of everyone else, Big Business found that it could out-compete the mob, purchasing the kind of no-consequence, laissez faire attitude from politicians and police which organized crime had once had—only at a scale of which the wiseguys could only dream.
- Dan O’Sullivan, “Legitimate Business“
IV
When you think of a business as a “front” for a criminal enterprise, you think of an establishment that does not deliver on its ostensible purpose. The mattresses, or the imported furs, or the bottles of liquor behind the bar, are a facade. The real purpose is to legitimize a flow of money from an illicit source.
But, in my lifetime, the dividing line between a self-sufficient business and a bootstrapped front has grown harder to see. We’ve lived through a housing crisis brought on by “NINJA loans” and ended with a bank bailout. We’ve lived through WeWork, Theranos, and Juicero. The fever dream of cryptocurrency and NFTs is about to break, and if the final chapter of the Elon Musk hasn’t been written we’ve at least seen the outline.
When I started this train of thought, I was debating whether a business that appeared to have overhead costs vastly exceeding its potential revenue was a legitimate establishment or a criminal front. Now, what I’m saying to you is this: in an era of easy credit, labor exploitation, and “job creator” mythology, what’s the difference?
Ideas are cheap; labor is dear.