[FoRK] Capitalism's Fatal Flaw
jbone at place.org
Sun Nov 8 05:15:22 PST 2009
Apropos Sramana Mitra's piece on Forbes:
It would be incredibly hypocritical of me to even attempt to dispute
anything she says in here, even if I were inclined to do so. I'm
not. It's all true.
However I'm vacillating between being incredibly amused and
outrageously irritated by this, and here's why. Ms. Mitra should know
better. She correctly identifies a problem and then, with the answer
staring her right in the face, goes searching far afield for some
Venture capitalists are great at coming up with criticisms without
providing any actionable suggestions for addressing their criticisms.
It's an occupational hazard, and the industry as a whole is built on
statistics and the law of large (enough) numbers. False negatives
aren't just a common risk, they are the industry norm. I would
suggest that you quite possibly cannot find *one* VC out there whose
biggest successes consistently dwarf the successes of the best deals
they passed on; and even if you could, they would sit far out on the
tail of the distribution of success among VCs.
Ms. Mitra wrings her hands about the desertion of "talent" from
creative endeavors to the supposedly non-value-creating but more
reliably-rewarding realms of finance. Well, that's certainly
happening. But rather than pining over the failure of her youthful
Randian ideals, she should look in the mirror. Place the blame where
it belongs: in large part this flight is due to the failure of the
"venture capital" industry to appropriately incentivize, resource,
support and reward those talented creators. A scientist, engineer,
technical entrepreneur, or innovative technologist who moves towards
financial markets is merely pursuing his or her own self-interest with
the recognition that, in doing so, their success or failure is more
largely determined by their own actions and abilities rather than the
actions of a bunch of dunderheads that don't "get" what they might
have otherwise attempted in the first place.
Becoming a billionaire by creating e.g. the next Google is, to a too-
large degree, luck; it entails not merely success, but avoidance of
failure induced by any of the myriad folks out there who might
otherwise tank your venture regardless of how big and valuable your
idea or how novel your technology. And guess what, Startup Johnny?
*You* can't control that! OTOH, blocking-and-tackling your way to
"only" an order-magnitude less wealth by applying your technical
skills in the finance industry is (rather ironically) *far* less
subject to the same kinds of random externalities and failure modes.
That increasing numbers of the best-of-the-best would seek these
financial pursuits that are higher-paying on a risk-adjusted basis is
no surprise whatsoever. It's not a systemic failure with the ideas of
free choice and reward, i.e. capitalism. It's a failure of certain
elements of the existing capital markets to function effectively.
Looking for "Capitalism's fatal flaw?" Too easy: start with VCs.
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