America is feeling pessimistic these days about its dwindling economic prospects. Some among the population are positively angry. The Occupy Wall Street movement is emblematic of a dissatisfied nation that for lack of a deeper understanding of the system, has been protesting, seemingly, against all of capitalism.
Contrast this with another event and the nation’s—or rather, the world’s— response to it: the death of Steve Jobs. There were eulogies, outpourings of grief, and moving tributes for a man who was an entrepreneur. That’s right, an entrepreneur deeply engaged in the business of building products that led to extremely high profits for his company and immense personal wealth.
How do you interpret these two parallel developments?
The answer to this question is key to changing the course of capitalism.
Today’s version of capitalism has created fortune at the tip of the pyramid, with a tremendous concentration of wealth in the hands of a few. In a way, capitalism rewards those who succeed in their endeavours. Thus, it is designed to be precisely that way.
However, if you segment who those members are, two primary classes emerge: entrepreneurs and speculators. Steve Jobs is representative of the former class. He was a man who started with nothing and innovated his way through an illustrious career and created value every step of the way. As is evident in the outpouring of love from the world, he is admired for his achievements. In other words, no one begrudges an entrepreneur’s fortune.
The members of the latter class—the speculators—are a different animal. They produce no value. Rather, they move money from here to there, take risks that destroy society, reap the benefits of a system of privatized profits and socialized losses, and are bailed out when their callous risk-taking result in apocalyptic outcomes. This is a class that the current version of capitalism fosters to an unworthy extent.
It is unfortunate that the rhetoric in America is bordering on class warfare these days because people are unable to distinguish between these two classes: the entrepreneur (value creator) and the speculator (often, value destroyer).
I have come to the conclusion that the current brand of capitalism needs to be retired. In its stead, a more just system needs to come into existence whereby the primary commercial transactions in society are between the producers of value (entrepreneurs) and the consumers of value (customers), with the financier being optional. In addition, many more people need to be trained to become entrepreneurs. They may not be billionaire entrepreneurs but small entrepreneurs running $1 million, $5 million, $15 million, or $30 million annual revenue businesses. These businesses would most likely never go public or even be purchased by larger companies. They would just go on as healthy sustainable profit-making entities, far from the reach of destructive speculators. In the process, entrepreneurship would become democratized, in the same way Steve Jobs democratized personal computing and Henry Ford democratized the personal automobile.
This would create a strong basis for a healthy society and still remain true to the basic philosophy of capitalism: Those who create value and succeed reap the financial benefits of their endeavours.
The speculators, on the other hand, need to be dealt with. As much as businesspeople dislike regulation, it is essential to keep the speculators in check. Banks need to maintain higher reserve ratios and be prevented from taking undue risks that destabilize society. Even tax policies can be organised to incentivise entrepreneurship and penalise mindless speculation.
With this premise in mind, I have started the One Million by One Million (1M/1M) initiative, a virtual incubator whose goal is to help a million entrepreneurs reach a million dollars in annual revenue and beyond, create a trillion dollars of global GDP, and create at least 10 million jobs by 2020. At scale, we believe this will establish the framework for capitalism 2.0: a distributed, democratic capitalism around the world.
In summary, my sincere request to politicians, business leaders, the media, and people is to move the current debate from class warfare to something more subtle and important. Our constructive agenda needs to be to design a better system that offers incentives to entrepreneurs and checks the speculators from destructive behaviour.
I am doing my part. Please do yours.