Collateral Damage: The Venture Capital Outlook and Potential

Joseph Schumpeter, in a celebrated phrase, noted that capitalism depends, for its foundation and longevity, on the “animal spirits” of the entrepreneurial class in a given region. Absent the turbo charge which the entrepreneurial culture has in the past projected into the U.S. economy, we in this country are in for an indefinite slide to economic stagnation. The national balance sheet is alarming, in the vicinity of insolvency; our manufactures are increasingly non-competitive; our labor force is displacing itself in favor of, eg, China, our currency is depreciating. I often use hypothetical benchmarks called (by me) the Fidelity Index ' an assumed list of factors professional investors are wont to use when rating and distinguishing between the debt of a AAA national credit and a Third World obligor state. Absent robust growth, look at our score card on the Index ' increasing debt as a percentage of GDP and GNP; balance sheet insolvency (in legal terms, insolvency 'in the bankruptcy sense'); extraordinary spending in the military sector growing rich/poor disparity; continuing barriers to women's rights; environmental indifference; wide spread tax evasion; attempts by both the Left and Right to politicize the judiciary; elections for sale; tainted election procedures; a state highly dependent on imported capital to recycle its debt.

Can we, as the current administration hopes and plans, grow our way out of the “no” or “slow” growth box? Taking the long view, we can ' at least we have in the past and very successfully. But the impetus, the sine qua non ingredient in our success, has been our system of generously rewarding risk takers ' from William Penn to William Gates. If, as current trends suggest, our cultural mandarins, our press, our law enforcement personnel, our academics, our opinion makers (from Talk Radio on up) … if all the above (driven by their internal metabolisms and/or perceptions of their personal advantage) are bent on (worst case) criminalizing risk, on making business failure at least a tort and perhaps a crime, on raising the bar of managerial responsibility until it is insurmountable, of bureaucratizing the private economy ' of, in a word, reintroducing the once-discredited theses of command, top-down economies ' we are on our way to a different economic and social outcome in the years ahead. And the signs are ominous. One of the most disturbing is the growing influence of tort lawyers on the political process – rich enough to buy ball teams (Angelos), a Senate seat and even (perhaps) the Presidency (Edwards).