Reengineering Capitalism


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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21 responses to “Reengineering Capitalism”

  1. CHalasz says:

    The reason the USA became a world superpower was because it had the structure of a republic and not a democratic structure. Try dusting off your constitution and weighing in the negative 30-year spin resulting from the impact of certain foolish misinterpretations— try reverse-engineering all the phoney-baloney and see what you come up with. Anything’s got to be better than this pool of collective insanity. Whoever thought allowing hordes of fraudulent mystery voters on informal message boards to trample all over our collective rights and freedoms while simultaneously magnifying the weakest elements of our collective consciousness was a good idea was insane, end of story.

  2. Macka says:

    A republic and a democracy are identical in every aspect except one. In a republic the sovereignty is in each individual person. In a democracy the sovereignty is in the group, majority. I am sure the author did not used word democracy in political meaning, i.e type of government, but rather in meaning”of or for the people”. I think it is great idea.

  3. Drew E says:

    Sramana- great analysis of the problem, the socialization of the losses of speculation. The solution is not new laws to regulate this, but to stop legalizing that socialization. Freddie and Fannie have socialized $100s of B’s not because we had too few laws, but our government INTENTIONALLY in law socialized those losses. That is the crime- we did so for Citibank, for General Motors, and for others. We must simply stop accepting their losses, and the speculation will stop- no one will risk such absurd losses if there is no free downside insurance.

  4. Chris Noble says:

    The problem is in Sramana’s question: “Is capitalism still THE right answer for the future of our world?” Neither capitalism nor socialism is THE answer. Our society requires a balance between the interests of capital, the interests of society and the interests of the biosphere around us. Unfortunalely, our political process has been hijacked and brought to a halt by those whose faith is in a single silver-bullet solution, on the Right and on the Left.

    I agree wholeheartedly with Sramana on the benefits of small and mid-size capitalism. 1M/1M sounds like a powerful idea!

  5. Brava, Sramana. Beautifully, truthfully and generously written and I agree with every word.

    What we now call “capitalism” seems to have only BIG implementation, yet our nation was founded on commerce, the giving of value for value in a mom ‘n’ pop store or at a folding table with a cigar box holding change.

    We’ve seemingly come to define “success” as launch-to-global *only*, where “good enough” just isn’t unless a business gets huge. And there are many millions of families who live plenty well on “good enough”.

    When I pitched my start-up I was reminded that (customer + revenue + profits) = entrepreneurship, and went off to focus on that … the core of my business.

    As a strategic marketer I’ve had recent successes advising a number of those incubator ventures to which you’ve alluded, reminding them to start one customer, message and order at a time — and it has resonated.

    Distributed capitalism takes businesses of every size, across every sector, involving the widest possible spectrum of population.

    And teaching/learning *how to do it* is key, from elementary school (when those lemonade and cookie stands go up) forward with a “Yes, you too can think of something great and you don’t have to be a genius or have a lot of degrees” attitude.

    Imagination + powers of observation + problem-solving skills + the mechanics of how to launch and grow an idea into a business, and what help is needed — are all elements of fostering entrepreneurship … which through centuries would also be called simply figuring out how to feed, clothe and shelter one’s family.

  6. GhiOm says:

    “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.”

    Not at all. Europe is reeling under the burden of refunding the banks. There is no socialist government in Europe, only social-democrat ones, which by many ways have the same kind of policy than liberal ones: whenever major banks loose too many assets and threat of collapsing if not refunded by the taxpayers’ money, the governments bend and dig their public debt.

    Europe has decided with its several treatises not to lend money from the central bank to the nations directly, but only through commercial banks (which can borrow from the central bank). This leads to commercial banks sucking up huge fees (up to 25% in 2 years for greece in the last months). The nations’ debt goes sky high. Then politicians point at the social wages, which are not in cause at all (most of them were started after WWII, when the continent was in ruins).

  7. Keith says:

    Capitalism is the idea of distributed stewardship of property. The erosion of private property rights replaced with compulsory, monopolistic, fascist, non-market regulatory agencies that can not die has destroyed the social safety net of private gain and loss, and mutually voluntary exchange. Price controls from minimum wage and farming subsidies to “price stabilization” and “quantitative easing” can only cause small harm or great harm to society as a whole no matter how creatively we imagine them to be something other than what they are.

    The world operates with or without academic understanding of human social behavior. All prices are speculative whether or not they change. All people that deal with prices are speculators.

    The financial collapse came from subsidizing failures both directly from legislation and through artificially loose credit. Not complicated. Money continued to be spent to catch the cascading failures of resource mismanagement until such failures were so huge that the destruction could no longer be hidden in creative accounting tricks. People had to come to terms with the reality of how poor they had become.

    What people need to do is learn what capitalism and private property are from books and not from the news. “We” are not the government, but we ARE the economy. When all else fails, try freedom. I think we have already tried everything else.

  8. David L says:

    Sramana–let me say first that I wholeheartedly agree education and entrepreneurship are the keys to real economic growth. However, you take for granted capitalism is broken. In reality, though, you have to recognize that the “socialized losses” you deride are not at all a hallmark of capitalism, but of cronyism. Furthermore, I think most people would be hard-pressed to disagree that our policy-making mechanism has been largely hijacked by special interests. That is not capitalism either. And the cumulative impact of cronyism and special-interest influence is an intractably regressive and opaque regime of regulatory macrame that cannot possibly be considered a free market.

    In a system of free-market capitalism, speculators suffer the pain of their own errors in judgment, and so speculation plays an indispensable role in price discovery. To blame speculators for a crash is like blaming Copernicus for the tides.

  9. Moe H says:

    I agree that our system of capitalism has been hijaked by speculators. We DO NOT need them for price discovery. They only create price manipulation. That is why the stock market is so volitale.
    As Mark Cuban stated today on MSNBC, the stock market is being manipulated and is not a legitimate investment mechanism any longer.
    If this is the case then we should eliminate it from the tools of capitalism. It does not serve its original intent of providng capital.

  10. David, Moe — You are right that speculators have been ‘allowed’ to misbehave. Without the checks and balances – read regulations – greed takes over, as it has. Free market capitalism – unbridled and unregulated – is definitely NOT the answer.

  11. Drew E says:

    The speculators were much more than ‘allowed’ to misbehave- they were given free downside insurance to misbehave- they kept the upside, we ate the downside. Senior management at fannie and freddie made tens of millions, and continue to do so, while we continue to eat the losses. GM paid execs bonuses while we paid for the losses. AIG lenders were made 100% whole, at taxpayer expense. The list goes on. If that were not the case, none of those individuals or organizations would have misbehaved so badly. Perhaps not perfectly, but no where near so badly.

  12. I have the exact platform for you. This platform synthesizes the benefits of both the socialist and capitalist ideals and is Open Source. It uses the Internet to create a peer-2-peer “Creative Economy”.

    It’s still in its infant stages, but you can check out the wiki at Be sure to view the main “diagram” and “macrocosm” (actual page names you can type in the search box) that shows how it works.


    Santa Fe, NM

  13. Mauricio Brazil says:

    Just the richest benefit the poorest in the world. In one way or another ends up getting the economy back on track. You can not stare at that all countries have huge losses for capitalism to be saved. At this point the occupation of wall street on the right track.
    Basta que os mais ricos beneficiem os mais pobres do planeta. De uma forma ou de outra a economia acaba entrando nos eixos. Não dá para ficar olhando que todos os países apresentem perdas gigantescas para que o capitalismo seja salvo. Nesse ponto a ocupação de wall street vai no cominho correto.

  14. Dear Sramana:
    We certainly have more reengineering to do. Click on my name for another one, in a few words.

    Also keep in mind that we, the consumers, are king/queen. By means of boycott, well organized and respectful, we can get real respect. Money talks, “occupy” walks.

    Just an example: if we cancel our health insurance, say above 90% of the insured population, the U.S. will finally have a health policy and passed in record time.