
Entrepreneurs are redesigning the basic building block of capitalism - linhmtran168
http://www.economist.com/news/leaders/21676767-entrepreneurs-are-redesigning-basic-building-block-capitalism-reinventing-company
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roymurdock
Someone commented this but deleted it because they were getting downvoted:

 _Land ownership, intellectual property and limited liability ownership of
companies by individuals are the basic building blocks of capitalism. I.e.,
property forms guaranteed by the government. Which one of these are being
challenged by unicorn startups, again?_

I think this is spot on and deserves repeating.

Unicorn startups are changing the way we utilize capital (Uber=cars and labor,
Airbnb=property) but they are not changing the fundamental fabric of
capitalism. Our legal framework forms the backbone of our society, and
regulation/policy is the tool we use to adjust that foundation. Entrepreneurs
and investors respond accordingly.

Uber and AirBNB might hire some lobbyists to change a few minor rules in the
hoteling/taxi industry, but the really important variables are the
distribution of government spending, scope of and resources committed to
regulatory oversight, and the tax code.

The article lacks a comprehensive review of the data and its arguments come
across as surface level speculation.

~~~
demian
Some people argue that Uber and AirBNB are not actually changing the way we
use capital on a fundamental economic level, but are instead using new
channels in a way, and with a magnitude, never used before.

IMHO I tend not to agree with the hole "Sharing Economy is The Next Capitalist
Revolution" thesis.

~~~
loceng
Uber and AirBnb are simply reducing the friction and reducing barriers to
entry.

~~~
carapace
Or are they eroding laws and customs built up and evolved over time to manage
complicated situations without clear-cut solutions in order that they can
extract wealth and feed off society without contributing value? Frankly, I see
both of those companies as parasites.

~~~
rakoo
If they _really_ didn't contribute any value we wouldn't be talking about
them, they'd have died a long time ago.

~~~
carapace
That is such a foolish statement I hesitate to reply. I use the term
"parasite", do parasites die out?

Really the point hinges on your definition of "value". I don't credit these
particular companies with adding any particular value to the domains in which
they operate, and they are arguably degrading the local economic environments
where they operate.

Part of my umbrage with airbnb in particular is personal: I live in the San
Francisco Bay Area and I am looking for a new place to live. In the past I've
used Craigslist for a long time with very good results, but these days it's
very obvious that opportunistic landlords have colluded with airbnb to turn
quite a lot of available rental spaces into poorly-managed quasi-hotels.

There are _important reasons_ why we don't allow ourselves to e.g. drive and
operate illicit taxis, or run unregulated hotels. We have, collectively,
thousands of years of experience with letting to lodgers and hiring porters
and carriages, etc.

If _you_ got in your car and started driving people around for money, that's
not legal. If _you_ started a hotel in your spare bedroom, that's not legal.
Just adding computers doesn't make it legal. Calling it "disruption" doesn't
make it legal or right. These companies are criminals, they are extracting
money and degrading the domains they operate in, and (as Airbnb's recent
appalling ad campaign demonstrates) they are fully up their own asses when it
comes to owning up to the consequences of their behaviour.

With any luck at all they _will_ "die" soon and we _won 't_ be talking about
them anymore.

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malchow
Not a great article, and I think it misses the one big thing that is genuinely
revolutionary about the Silicon Valley form of entrepreneurship. And that's
that venture-backed entrepreneurial companies are, by and large, the new
Research & Development Departments. Acquihires can in fact be great deals for
VCs, founders, employees, and acquirers. Many companies are curtailing their
own research agendas and relying upon smart technology investments to position
them for the 5-10-15 year time horizon. I suspect we will ultimately consider
this a vastly more efficient form of capital allocation than the old-fashioned
"R&D Department" at IBM, GE, DuPont, AT&T, etc.

~~~
TTPrograms
Which Silicon Valley companies are pursuing the high risk R&D these days? I
can only think of a few that are building high risk hardware (Theranos, some
of the small photonics shops), and even many of those have proof-of-concepts
already built in academia. Many of the medtech startups I've seen revolve
around algorithms, which is kind of hard to compare in terms of risk profile
to Bell Labs putting a bunch of researchers in a room to figure out how
semiconductors work or needing a couple million to build a prototype.

When I think of R&D departments these day I think of non-silicon/non-
electronic computing, lab-on-a-chip, and maybe some other medtech stuff. I'm
under the impression that companies doing these sorts of things are currently
a minority of "Silicon Valley entreprenuership".

~~~
malchow
Others here can better answer this than me. All I would say is that
"5%-better-marketing-dashboard-optmization-platform" type companies get far
more attention from the tech press than they probably merit. There is a lot of
high risk R&D going on here: medicine, medical devices, transport, semis,
crypto, and insurance, to name a few disparate areas.

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dismal2
Maybe the current set of unicorn startups are just very clever financial
inventions to get returns in todays crazy financial world of ZIRP and never
ending QE.

~~~
TTPrograms
I'm more concerned that they're financial consequences rather than
inventions...

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azernik
This article tries to refute two different types of arguments, and in the
process confuses them. The empirical arguments ("this isn't happening!") it
refutes quite well.

The normative argument ("this is a bad thing!") it does less well at.
Ownership in these companies _is_ cut off from the rest of the economy, but
the Economist seems to think that this trend is only worth reporting if the
social issues can be brushed off. They cannot. SeedInvest is not a substantial
source of capital on the same level as privately VC funds. Mutual funds,
maybe.

------
Animats
But VCs are funds, not long term owners. Their goal is an exit, so they can
pay off their investors in cash. Their goal is not to become conglomerates or
zaibatsu or chaebol. YCombinator is not in the business of becoming the next
Samsung.

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tonomics
Hm... no.

These innovations are just a child of capitalism, not something unexpectedly
changing it.

~~~
azernik
I don't think the article was claiming that this is an innovation outside of
the capitalist box - just that it's a form of capitalism that's different from
the way it's been practiced in past decades.

~~~
notahacker
The article does relatively little to justify that though. It's not as if
companies being privately owned before they go public (or private equity
buyouts of public companies) is a new thing. The time-to-IPO is the only non-
anecdotal difference in ownership structures it notes, and that's easily
explained away by market conditions.

Indeed the first example it cites - Uber - is arguably an example of the
opposite to the trend it purports to spot... it's a market traditionally
dominated by plucky privately held small companies that's becoming centralised
under a large company or two that probably will go public. Even if Uber (and
Lyft and a couple of others) doesn't IPO they still are and will be owned and
managed in a way that resembles a public company more than your neighbourhood
cab firm.

I'd give the article more props for identifying interesting but not really
connected phenomena in new companies if it didn't include lines like "whereas
nobody is sure who owns public companies, startups go to great lengths to
define who owns what". The idea that startup share options are more
transparent than employee shareholdings in publicly held companies traded on
liquid markets is _dangerously_ misleading nonsense that looks really out of
place in a publication aimed at the financially literate

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chrismealy
The exception was the post war managerial capitalism that Galbraith wrote
about. This is really just a return to the older model.

------
oluwie
"All this has happened before and will happen again"

