It is absolutely astounding how quickly the discussion around the appropriate government response to the economic crisis has morphed -- from one around whether it even makes sense, or is the proper thing to do, for government to bail out ailing financial and manufacturing firms -- to one simply around "how much," "how fast," and "how many."
Most dangerously, the implicit agreement amongst the two major players in the discussion -- Washington and Wall Street -- is revealing via their approach their utter lack of understanding of how capitalism in a modern, global, inter-connected economy really works.
Sadly, they are missing or conveniently forgetting that economic growth and job creation always come from the economy's "gazelles" -- its high impact firms -- and that these firms are always disproportionately found in emerging technology sectors. In 2009, this means Internet & Software, Digital Media & Entertainment, Healthcare & Biotechnology, and Green & Alternative Energy. Instead of stimulating these sectors, over 98% of the current governmental stimulus plan is focused on the banking, real estate and automotive sectors.
As distressingly, they have created an enormous moral hazard problem. By bailing out the most foolhardy of borrowers and lenders, they are perverting the basic laws of human incentive -- that with quality results come rewards, and with mistakes and failures come penalties.
These are not esoteric nor scholarly points. Something extremely precious is being lost with so much attention, so much money, and so much faith being misplaced in the U.S. federal government to intervene in the financial system. Let's not confuse the government's proper role in the economy -- to provide the appropriate legal and regulatory "frame" within which to do business -- with the kind of massive socialistic intervention we are now witnessing.
Quite simply, they are making the problem far worse by not letting the capitalistic process work -- by not letting companies fail and go out of business and thereby create room and a climate for both competitors and new entrants to step in and benefit. And this is to say nothing of the huge distortions inherent to any lobbyist-driven governmental action. It is no accident that that the automakers are heard a lot more from than than the software developers.
So what to do? Neither I nor my Growthink colleagues are ranters nor end-of-worlders. Far from it. Rather, we side with those so eloquently described by President Obama in his inaugural: "[T]he risk-takers, the doers, the makers of things -- some celebrated, but more often men and women obscure in their labor -- who have carried us up the long, rugged path towards prosperity and freedom."
Our phrase for this is "Entrepreneurial Capitalism" -- the idea that what has always made America the greatest country in the history of the world is its freedoms, its celebration of individual rights and responsibilities, and its risk-takers. Let's incentivize the scientists and the engineers and the operators of successful companies, not their bankers nor Washington.
Thomas Friedman in his excellent New York Times Op-Ed piece, "Startup the Risk Takers," outlines the simple idea that as opposed to giving government assistance to the automakers, the government should offer it to venture capital firms.
I say go a step further: Offer it directly to the 495,000 Americans that start a new business every month. Give them tax credits, give them real access to capital, and reward and acknowledge them. Within this brave group will be the few superstar entrepreneurs of tomorrow that will create the new jobs and the new technologies that will lead to a massive stock market recovery and create the new tax revenue to actually fund all of the government programs proposed by our representatives in Washington.
Webinar: Keys to Successful Private Company Investing
Please join me on a live, interactive web conference where I will share with you my keys to successful private company investing including:
- How to utilize the Internet to source and research opportunities
- How to conduct data-driven risk analysis on private company deals
- How to exploit the "pricing inefficiency gap" endemic to private equity
- The importance of technology bias (and which technologies to bias) when selecting deals
- How to properly apply "black swan," or "randomness" thinking to private company investing strategy
To register, click here: http://www.growthink.com/livedeals