Reengineering Capitalism

Opinion

In the fading months of 2011, we find ourselves in an uncertain world.

On the one hand, America is still reeling from the 2008 financial crisis, and the nation’s faith in free-market capitalism as its guiding principle has been shaken to the core.

On the other hand, Europe is reeling under the burdens of socialism and welfare economics, and the economies of entire countries no longer seem viable.

The emerging markets are growing, but the methods used are complex. China is practicing state-run centralized capitalism that is heavily controlled by policies and bolstered by subsidies, by no means a free market. India, a chaotic democracy, is caught somewhere in between.

The time has come for us to ask the question: Is capitalism still the right answer for the future of our world?

One of the fundamental flaws of capitalism that has collapsed the system is unbridled speculation. If you believe that capital is at the heart of capitalism, then speculators are at the heart of capitalism.

As it happens, the speculators have hijacked the system.

In the process, capitalism has degenerated into an unjust, unpalatable mess with speculators enjoying the lavish benefits of privatized profits and socialized losses while jeopardizing society at large with irresponsible risk-taking. These speculators add little value; move money from here to there; continue to garner multi-million dollar bonuses, unperturbed at the coming Armageddon; and are financed by government handouts. It is no wonder that Wall Street is facing the wrath of the people.

But for some of us, this was the system we believed in as the guiding principle of our lives. By “us” I mean entrepreneurs-the other constituency in the capitalistic pyramid, the one that actually creates value and reaps its rewards. This is the group that holds Steve Jobs, Jeff Bezos, Bill Gates, Reed Hastings, Larry Page, Sergei Brin, and Mark Zuckerberg, among others, as its role models. The group the speculators ride on. The group the people are not angry with, as shown by the outpouring of affection for Steve Jobs following his recent death.

The system needs to be re-engineered. In effect, the entrepreneurs need to hijack it back from the speculators and marginalize their ability to create destruction.

How do we do it? What is a reasonable framework for capitalism 2.0?

For me, the most logical next step would be to democratize capitalism in the same way that Henry Ford democratized the personal automobile and Steve Jobs and Bill Gates democratized personal computing. But we need to focus on democratizing entrepreneurship, not speculation. Speculation has already been democratized to disastrous ends, as we saw in the dotcom crash at the beginning of the millennium.

Another problem is that entrepreneurship remains the province of the elite. There is tremendously high “infant entrepreneur mortality” owing to a lack of education, guidance, and resources. Every year, 600,000 companies go out of business in America. Again and again, entrepreneurs make the same avoidable errors and end up in the dead pool.

One of these fundamental errors is chasing capital straight out of the gate. The media, business schools, and of course, the capitalists themselves have fostered a myth that entrepreneurship equals financing. This is why each young entrepreneur chases investors before doing any business validation.

In consequence, more than 99 percent of the entrepreneurs looking for financing are rejected—some because they are too early and unprepared and some because … Next Page »

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Sramana Mitra is the founder of One Million by One Million (1M/1M), a global virtual incubator that aims to help one million entrepreneurs globally to reach $1 million in revenue and beyond. She is a Silicon Valley entrepreneur and strategy consultant, she writes the blog Sramana Mitra On Strategy, and is author of the Entrepreneur Journeys book series and Vision India 2020. From 2008 to 2010, Mitra was a columnist for Forbes. As an entrepreneur CEO, she ran three companies: DAIS, Intarka, and Uuma. Sramana has a master’s degree in electrical engineering and computer science from the Massachusetts Institute of Technology. Follow @sramana

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