Capitalism 2.0: Speculator vs. Creator

One of the flaws I see in Capitalism 1.0 is that speculators get compensated at a substantially higher rate than value creators. As a result, I am hearing from more and more entrepreneurs, CEOs, senior executives – the builders, so to speak – that they are no longer willing to work 60-80 hour weeks. They feel that the system is becoming unfair. This is one of the most severe bugs in Capitalism 1.0.

I have talked about this before in multiple different posts, the most notable of which was the VC-Entrepreneur Compensation Disbalance, where we discussed how the 2:20 compensation structure of the venture capital industry pushes talent toward venture capital, and away from entrepreneurship. Yet, VCs can only exist as parasites, feeding on entrepreneurs’ creation. If the entrepreneurs don’t want to work with VCs, the industry will die. Not desirable either, because I firmly believe that venture capital is a fundamentally important tool of capitalism, and needs to be adjusted to a functional model in capitalism 2.0. Probably, the adjustment will need to happen with the 2:20 rule, changing such that management fees go down significantly and the compensation structure becomes more of true pay-for-performance.

Ayn Rand writes on “The Soul of an Individualist”: “Men have been taught that the highest virtue is not to achieve, but to give. Yet one cannot give that which has not been created. Creation comes before distribution—or there will be nothing to distribute. The need of the creator comes before the need of any possible beneficiary. Yet we are taught to admire the second-hander who dispenses gifts he has not produced above the man who made the gifts possible. We praise an act of charity. We shrug at an act of achievement.”

Rewarding the speculator so far above the creator is actually much worse.

Here’s another great Rand passage also about the creator: “Throughout the centuries there were men who took first steps down new roads armed with nothing but their own vision. Their goals differed, but they all had this in common: that the step was first, the road new, the vision unborrowed, and the response they received—hatred. The great creators—the thinkers, the artists, the scientists, the inventors—stood alone against the men of their time. Every great new thought was opposed. Every great new invention was denounced. The first motor was considered foolish. The airplane was considered impossible. The power loom was considered vicious. Anesthesia was considered sinful. But the men of unborrowed vision went ahead. They fought, they suffered and they paid. But they won.

No creator was prompted by a desire to serve his brothers, for his brothers rejected the gift he offered and that gift destroyed the slothful routine of their lives. His truth was his only motive. His own truth, and his own work to achieve it in his own way. A symphony, a book, an engine, a philosophy, an airplane or a building—that was his goal and his life. Not those who heard, read, operated, believed, flew or inhabited the thing he had created. The creation, not its users. The creation, not the benefits others derived from it. The creation which gave form to his truth. He held his truth above all things and against all men.

His vision, his strength, his courage came from his own spirit. A man’s spirit, however, is his self. That entity which is his consciousness. To think, to feel, to judge, to act are functions of the ego.

The creators were not selfless. It is the whole secret of their power—that it was self-sufficient, self-motivated, self-generated. A first cause, a fount of energy, a life force, a Prime Mover. The creator served nothing and no one. He lived for himself.

And only by living for himself was he able to achieve the things which are the glory of mankind. Such is the nature of achievement.”

In these times of confusion, let us not forget the needs of the creator. One of those needs is Justice.

This segment is a part in the series : Capitalism 2.0