[FoRK] Capitalism's Fatal Flaw

Jeff Bone jbone at place.org
Sun Nov 8 05:15:22 PST 2009


Apropos Sramana Mitra's piece on Forbes:

   http://www.forbes.com/2009/11/05/innovation-ayn-rand-intelligent-technology-capitalism.html

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  
bigger explanation.

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.


jb



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