Both concern private equity and to my mind are surprisingly related. The first, from venture capitalist Marc Andreessen, issues a plea to build as a means to reboot the American Dream. He points out the need for many of the things we don’t have (from face masks to clean power) and cites the reason as not a lack of money or technical capability, but of desire. We need to want these things. We need to make them a priority. We need to realize the stakes involved.
I’m very sympathetic to his argument. It seems that somewhere along the way we took innovation and growth for granted. We’ve become increasingly concerned with economic risk, regulatory harmony and short term profits and have paid almost no attention to the attendant costs of these policies. This article calls us to action.
It’s Time to Build – Marc Andreesen
The second article, I believe, is a consequence of the first. In a low growth world characterized by rolling economic crisis (tech bubble, ’08 Financial Crisis, Corona Collapse) and entrenched institutional bureaucracies economics starts to warp. When growth isn’t achieved through product innovation then legal and financial innovation rises to fill the void. To that end, private equity appears to have reconfigured the economic and financing landscape to ensure their return objectives are met; using debt, accounting and legal maneuvers to extract whatever profit growth they can.
To focus on the ethical breaches here is to miss the point. Rather, it’s essential to recognize that the incentive structure is broken. Borrower and lender incentives should be aligned and aimed at increasing productivity and profits; not at trying to get the best of one another or obfuscating the books. But in a world where profit growth is hard to come by and banks have removed themselves from financing business then you’re bound to get a suboptimal capitalism.
Modern Private Equity and the End of Creative Destruction – Sebastien Canderle
