Every day, moneyed interests invest millions of dollars into companies whose societal value ranges from zero to extremely harmful. There are well-known examples, like “Juicero, the infamous maker of an overpriced and overhyped juice squeezer…which [had] raised more than $100 million from Silicon Valley venture capitalists” before shutting down. But for every Juicero, there are 100 quiet examples of bad / useless ideas–gadgets and gizmos and apps–that raise millions of dollars from investors seeking double and triple-digit returns.
The last part is key: if one’s goal is to make as much money as possible, one will invest in any idea, regardless of its value to people or the planet, so long as there is a profitable exit strategy. As a result, our economic system rewards the wrong kind of ambition: money tends not to flow to ideas that create the right kind of value because, as I often note, it is rarely possible to do well and do good. That is, if I want to start a venture that addresses homelessness, say, I can’t also make myself and other people rich in the process.
Yes, this is the system that has given us iPhones and Google Maps and Teslas and mRNA vaccines, but it has also brought about a climate emergency, global poverty, and a viciously unequal rollout of COVID19- vaccines. A kinder and gentler version of the venture capital / private equity model of capitalizing ventures is a bit of a joke to the billions of people dying and suffering from these outcomes.
Fundamentally, there are two failures here. The first is of public policy, and the second is of moral imagination. With respect to policy, let’s consider taxation. As a nation, we have decided that income from capital is more important than income from labor. If I am wealthy, invest my money in a startup, and then realize a significant return–known as a capital gain–that profit will be taxed at anywhere from 0% to 20% (assuming it’s a long-term capital gain). However, the actual tax rate is almost always much lower, because the wealthy have dozens of loopholes in the tax code that they can take advantage of.
Stunningly, the taxes the wealthy pay on capital gains are similar to what lower-income workers pay on income from their labor. In fact, as a result of the Republican-passed 2017 tax reform, “ultra-wealthy households [now] pay a total rate of about 23%, [compared] with 24.2% for the bottom half of households.” Think about that: we now live in a country where the rich pay LESS in taxes than the non-rich, even though a capital gain requires minimal work: an investment is, aside from some due diligence, a matter of writing a check.
Consider also that teachers make less than hedge fund managers, public defenders less than white shoe attorneys who defend Big Oil, legislative staffers less than lobbyists. Yes, this is partly due to the way the labor market works, but we have also chosen to underpay government employees and others who are essential to a vibrant and healthy democracy. And these are merely a handful of countless examples of where public policy rewards the wrong thing (by the “right thing” I mean what’s broadly beneficial to people and the planet.)
Our failure of moral imagination is perhaps more insidious, for we have sold ourselves–and been sold on–the notion that it is naive to expect people to not maximize profits, to choose lower returns in exchange for positive impact. The do well / do good mantra I referenced earlier means that we will only solve those issues that happen to be profitable to solve, and even then, we are not equitably solving them. COVID-19 vaccines are an excellent example. Rich governments promised to buy billions of dollars worth of any vaccines that were developed; this guarantee helped spur companies like Pfizer to put significant resources behind the vaccine. The result? The pandemic is nearing an end in America, yes, but residents of non-wealthy countries, unable to access the vaccine, are dying in drives: well over 3,000 a day in India, nearly 1,000 in Brazil, etc. At the same time, “the vaccine brought in $3.5 billion in revenue in the first three months of this year, nearly a quarter of [Pfizer’s] total revenue.”
Yet from the vantage point of those who believe that business is the solution to everything, Pfizer’s profits and America’s successful vaccine rollout show that things are working as they should be. And that’s because of the aforementioned failure of moral imagination.
So here we are, facing an interlocking series of crises that threaten democracy, freedom, and life on Earth. Where once it was possible to dismiss as unrealistic ideas to tackle these problems because the ideas required significant grant subsidy and below-market-rate returns, it is now unrealistic NOT to do something. We must immediately begin to reward, through good policy and a reframing of our expectations about risk and financial return, the right kind of ambition: ideas, policies, and business models that urgently foster a better world.
In the next post I share a particular idea for dealing with climate change and inequality through a bold business model. Check out that post here. As always, I welcome your feedback!