Why Venture Capitalism is still Exploitation
Yesterday, I was eating midnight burgers with my friends, when the topic of Andrew Yang came up. Who is Andrew Yang, you ask? Well, Yang is a venture capitalist, who is also one of the fifty people running for the Democratic party’s nomination for president. The topic of whether to join the Yang gang brought up the ethics of venture capitalism. What I heard from my two friends was a two-point argument for why capitalists deserve profit from stock are two points: 1. Capitalists endure higher risk for investing in businesses deemed to high risk by traditional banks, 2. That the business would not exist without the capitalist. While reveling in how patty melts taste better after 11, I thought how bullshit both arguments are.
First, investment does not give one the right to perpetual profit. By that argument, banks deserve perpetual interest rates, since, without their loans, the businesses they invest in would not exist. Thus the only reason venture capitalists gain their perpetual source of wealth, through shares, is because they can. Venture capitalists take advantage of startups that banks refuse to lend to, by demanding greater concessions than a bank would. They take advantage of the scarcity of capital.
Our current capitalist system puts a disproportionate value on scarcity, which offers no value on the commodity produced. Think of it this way, if there was a tire part that requires an engineer to build, regardless of if there were 100 or 50 engineers in the market, the value inputted in one tire part would be the same. The value may go down in terms of the quantity of tire parts produced, but the diminishing marginal returns would not be based on the quantity of engineers, but tire parts (the commodity). Scarcity does not add any more value to the product, but only to the producer through greater negotiating leverage.
But more importantly, the VC system is unnecessary. Banks can easily lend to startups if they wanted to with success, as microfinancing has shown. While far from perfect, Grameen Bank has shown large amounts of capital to businesses and members of society considered too “high risk” for traditional banks to invest in, can work with great success. By the beginning of 2005, Grameen Bank had loaned over USD 4.7 billion and by the end of 2008, USD 7.6 billion to the poor. While microfinance gives small loans per borrower, that is irrelevant to the argument, since the argument is that since banks refuse to lend such large amount of capital to high-risk borrowers, venture capitalists deserve the higher concession of perpetual wealth. But Grameen Bank, while gives small loans on the individual level, lends large amount of capital overall to high-risk borrowers. While Grameen asks for higher interest rates than normal banks, that is far from the perpetual wealth that venture capitalists ask for. And more importantly, it is a sustainable model, Grameen has been profitable every year, with the exception of the years: 1983, 1991, and 1992.
On the second point, the idea that because “capitalists” deserve significant amount of shares since the business would not exist without them could apply to anyone involved in the business. The business would not exist without the employees who work there, yet they don’t get the same or significant amount of shares, even though they face the risk of unemployment, whereas many venture capitalists are not actually put at a significant loss in bad investments. For reference, Daymond John lost 750,000 dollars on the first season of Shark Tank. For any normal person, that kinda loss would have been life destroying, as layoffs usually are. Gosh, maybe employees actually risk a lot more than venture capitalists…nah that’s just Marxist propaganda, you dumb fuck.
Originally published at spammunard.home.blog on March 8, 2019.
