"Greed" Is Never Good

Fred Wilson is a NYC-based venture capitalist and principle at Union Square Ventures. His blog, "A VC" is a treasure trove of thoughtful commentary on the state of the venture industry and the economy as a whole. He wrote a post this morning which got me fired up. The post is titled "When Greed Is Good," and while I agree with the principle behind it whole-heartedly, the name raises my hackles.

First, the broad point of the post is spot on. The idea is that we have to find ways to get investors viewing this economy, toxic assets and all, as opportunities. Today's deflated stock is tomorrow's fortune. He uses a comment that appeared on his blog a few months earlier to illustrate the point by example. Essentially he's talking about confidence and perception. Recessions end in part because we reach a tipping point where more capital sees the market as opportunity rather than minefield.

This I completely agree with. We absolutely need clarion calls for new financial opportunity that become self-fulfilling prophecy.The phrase that he uses to reinforce his point is "Greed is good when fear rules the roost and fear is good when greed rules the roost. Now is the time for greed."

The poetry and the point of the line are great, but the prose needs work. I think that it reflects our all-too-easy conflagration of the concepts of "self-interest," "opportunity," and "greed."

Healthy capitalism is driven by self-interest and opportunity: Investors and entrepreneurs recognizing unmet (or poorly met) needs that can be harnessed to create new financial opportunities for themselves and their stakeholders; consumers who find products or services to fit what they want and need.

But healthy capitalism is also driven by responsibility and stewardship. Resources are finite, and every company and product creates not only financial but social and environmental impact. Milton Friedman's argument that the corporation's only responsibility to society is to create financial value and jobs is crushed (or should be) under the weight of the shuddered doors and foreclosures stemming from predatory loans.

Greed is the enemy of stewardship, because of its insatiable quality. "Greed" began to take on its current meaning in the Middle Ages, as the word with a relatively benign meaning of "love of money" began to become intertwined with avarice, which referred more specifically to wanting more than is enough.

The problem is the upper limit, or lack thereof, that just doesn't exist within the gospel of profit maximization. And profit maximization has at its core an embrace of the terminology of greed. Accepting "greed" as a framework for capitalism crowds our understanding of the full range of impact every action has. And yes, I do believe that words matter. Simple words frame our understanding of complicated concepts, and when we use the wrong words, we open ourselves up to poor understanding.

So, "self-interest" yes. "Seizing opportunity" yes. But greed? Lets close the door on that word for good.

Closing with some great writing from Umair Haque's "Manifesto for the Next Industrial Revolution:"

21st century capitalism needs a revolution. How does growth happen – from a strategic point of view? The great Joseph Schumpeter argued that growth happens through a process of creative destruction. There’s a simpler word for that: turbulence.

I think there’s a problem with this thesis. In an interconnected world, there are more and more players creating and destroying – as a simple example, the pool of workers in export-oriented industries has tripled, from 300 million to about 900, over the last 20 years. And so, today, turbulence is intensifying.

Creative destruction has two sides – the costs of destruction as well as the benefits of creation. And as creative destruction intensifies, the costs of this great tradeoff are going to sharpen. The price of growth, it seems, is a world that’s always riskier, more uncertain, and more brutal at the margin.

I think that accepting this tradeoff, perhaps, is the single most toxic orthodoxy that holds boardrooms back today. Why? The problem is that value creation isn’t just about productivity gains: it’s also about human welfare.

Consider this. When the last bubble was in internet technology, welfare was minimally affected – jobs were lost. When it shifted to housing and credit, welfare was affected more – houses and saving were lost.

Today, it’s shifting in large part to energy and food. What happens when hypercapitalism causes a food bubble? What happens when the masters of the universe in Greenwich bid up the price of food for India, China, and Africa's huddled masses?

Here’s the answer: marginal starvation. Lives are lost.

That's the very real toll that creative destruction extracts. It's the price that a better food industry tomorrow demands of us today.

If that’s 21st century capitalism – maybe it’s time for a revolution. One where the price of a dynamic economy isn't relentless damage to everything and everyone else.