4th Feb 2023


Wishing for a kinder capitalism in 2023

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Capitalism's reputation is on trial. The US Securities and Exchange commission is examining whether cryptocurrency is a complex Ponzi scheme. The Commodity Futures Trading Commission has sued FTX founder, former CEO, and disgraced crypto magnate Sam Bankman-Fried, accusing him and his companies of fraud. In September, Meta was fined €405 million for breaking EU data privacy laws by failing to protect children's data on Instagram.

Social media, once heralded as an innovation that would nurture direct democracy and empower patients to collaborate and share their data securely, has been exposed for mishandling personal information. We now know these platforms are helping to spread and normalise racist tropes. Meta allegedly sat on information that discloses its technology's demonstrable harms to children. Instagram's persistent inability to expunge content that glamourises anorexia shows that something is rotten in pockets of today's brand of capitalism.

Even Ayn Rand would object

Read and decide

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No less a proponent of free-market capitalism than Ayn Rand, the libertarian writer and philosopher, would be horrified by the risible representations of modern entrepreneurialism: fraudster Elizabeth Holmes of bankrupt blood-testing firm Theranos, and Sam Bankman-Fried of FTX — both former Silicon Valley darlings.

Ayn Rand and economist Friedrich von Hayek championed property law as capitalism's guardrail against graft: without that protection, non-fungible tokens and ephemeral cryptocurrencies invite thievery. When the crypto exchanges blow up, the investors left holding the bag want cash, not NFTs or crypto. That's why big-name celebrities were paid in cash to promote crypto.

Economist Adam Smith distinguished between productive and unproductive economic effort. Labour is productive if it adds value to something; it is unproductive if it does not. What 2022 has shown us is that the so-called 'smart money' can be terrible at predicting productive value; it often hypes speed over substance — its due diligence system is broken.

Sequoia Capital, the storied investment firm, reportedly invested in Bankman-Fried's crypto vision partly because he was brash, had gone to MIT, and played League of Legends during his fundraising pitch. But it's easy to be irreverent when people think you're going to be as rich as Croesus. Today, Bankman-Fried's mea culpas in the financial media show him to be subdued.

Capitalism gone wild

The ills of modern capitalism started around 2008 when Silicon Valley and financiers across the world ploughed investments into start-ups built on little more than a PowerPoint presentation and the flash and impressive-sounding credentials of young entrepreneur founders. Being a charmer and an Ivy League grad could quickly turn your start-up into a 'unicorn,' a company with an implied valuation north of US $1 billion in the unregulated private markets. Then, poof! Those multi-billion dollar valuations, when interest rates spiked, crumbled in 2022.

Rising interest rates made it more expensive to raise debt capital, the fuel of a start-up culture that celebrates frenetic hustle and sleepless nights.

For capitalism to return to its productive roots, we need to slow the system down. Ideas on how to do this abound. They include reducing the short-termism of quarterly earnings reports, increasing regulation of the private markets, and demanding that corporations pay for externalities in a fair exchange: for example, users can be compensated for monetising their personal data. Investors should demand that innovations be validated by outside experts; entrepreneurs, in turn, should demand that early investors be committed to investing for the long-term.

What is capitalism?

Yet none of these ideas solve the underlying problem with modern capitalism; we need to change the messaging about what capitalism is, and what it is not. We need to tell young people the truth. Steve Jobs was only half right about how far passion can get you; yes, follow your passion, but go in with eyes open to hard truths about starting and sustaining a business.

I was raised to think business needs to focus on what is real: employing people and building products to solve real problems. Entrepreneurialism is hard. Most ventures fail. Patient, intelligent growth — in friendly competition with other firms — is generally a safer strategy than maniacal ambition with monopolistic intent.

If small and medium-sized businesses can kickstart the world's economy, we need to ensure that job creators are chasing the right goals—and at the right pace.

"When you see corruption being rewarded and honesty becoming a self-sacrifice — You may know that society is doomed," Ayn Rand warned us in her 1957 classic, Atlas Shrugged.

To promote prosperity, we can put the fast-money charlatans in cold storage to play with their crypto and NFTs—and change the narrative about what being a business-builder means in 2023. As any caring capitalist knows, 'reputation isn't everything—it's the only thing.'

Author bio

Neil Seeman is a Canadian writer, Internet entrepreneur, and mental health advocate. A Senior Fellow at Massey College in the University of Toronto, his forthcoming book is Accelerated Minds: Unlocking the Fascinating, Inspiring, and Often Destructive Impulses that Drive the Entrepreneurial Brain (Sutherland House).


The views expressed in this opinion piece are the author's, not those of EUobserver.

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