Andrew Pollack's Blog

Technology, Family, Entertainment, Politics, and Random Noise

Is the growing social-sourced economy the modern back door into socialism?

By Andrew Pollack on 05/05/2016 at 09:30 AM EDT

Is the growing social-sourced economy the modern back door into socialism? I read a really insightful post a couple of days ago that suggested the use of social network funding sites like “Go Fund Me” and “Kickstarter” have come about and gained popularity in part because the existing economy in no longer serving its purpose for anyone who isn’t already wealthy. Have the traditional ways to get new ventures funded become closed to all but a few who aren’t already connected to them and so onerous as to make them unpalatable?

In the current investment economy, the locally owned bank is largely gone as a source of funds. To the big banks and venture funds, any idea not big enough to promise a half a billion dollar IPO isn’t interesting and any project that needs long term development is a non-starter. That leaves out a vast range of businesses that may never make millions of dollars but can provide quality goods, useful services, and a healthy income for their owners and employees. The few exceptions to this are service businesses, primarily the restaurants and trades, and even those are increasingly getting swallowed up by the giant homogenized national organizations. The result is an abject failure of our current economy to fund the kinds of small business that support a healthy middle class.

Traditional funding sources say that for truly vetted ideas there is plenty of capital to be found. Many entrepreneurs argue that getting access to that funding means turning over control of their venture to management teams who are only interested in the rapid rise and public offering payout. Further, the original owner is expected to personally guarantee large parts of that funding even as they hand over control of how it is spent. The entrepreneur keeps the risks even as they lose the control and most of the likely reward. The model is only possible when the potential gain is far more than any small business can look for. Today’s entrepreneur has to go big or go home. There is no room for the local business.

The problem resonates for me with a similar problem I have written about before. The problem of our information technology organizations being unable to adequately explain their costs to management which has led to repeated rounds of job loss as management looks for a simple cost per desktop number. First it was outsourcing – moving the I.T. organization to an outside company. That failed to reign in cost because the requirements on the technical team remained, but any interest in corporate success by the IT people was lost. Next, insourcing was tried – bringing a third party organization into the building to manage the infrastructure. Both failed to rein in costs and were expensive to back out of. The current trend is cloud-sourcing and it will meet the same end for much of the larger corporate attempts as it plays out because like the attempts before it, it doesn’t address the underlying problem. Our economy faces a similar problem, and while the result in corporate outsourcing has been lost jobs and reduced wages, the result of failing to successfully fund small business is resulting in a destruction of the middle class.

Unfortunately, social capital schemes like “Go Fund Me” and “Kickstarter” are no panacea. Recent abuses have shown how easily these investments can go wrong. From fund raising that either never gets to its target or in fact was never intended to, to misrepresented success stories and business plans, social funding opens the door wide to the mistakes of the less skilled investor. The real story of their rise is the reason they have become necessary. Our traditional economy is failing the smart, young, ambitious achievers. That failure should worry us now, because it is going to hurt us later. Our economy needs to begin to embrace social democratic ideals now so it can happen smoothly, because if we hold off until the present system crumbles it is going to be much more unpleasant for everyone.


There are  - loading -  comments....

re: Is the growing social-sourced economy the modern back door into socialism?By Karl-Henry Martinsson on 05/05/2016 at 12:17 PM EDT
I think you got a very good point, and it is a very interesting observation. I
think crowd-sourcing is a great idea, and it is here to stay. I have been able
to get some nice products that way that perhaps would not been on the market
otherwise.
re: Is the growing social-sourced economy the modern back door into socialism?By Mike on 08/02/2016 at 03:47 PM EDT
Well, social*ism* is government control of the means of production. So
crowdfunding not involving government, it's not socialism. It's actually
private choice, and with no returns, it's private benevolence.

Venture capital would be the piece in between -- much of it's taxed away. But
you can see situations like that in certain shows, like CNBC's "The Profit". It
takes a lot of business understanding to figure out how to make a go of it, and
the VC on this show reveals how much human management must exist to carry out
even a small business in big markets. The whole thing's very interesting to me.

There are commercial loaners, too. Most loan to businesses with a proven track
record of return on their money, but they'll take a degree more of risk. The
issue for them is one of failure, which is normally 100%, and they get pennies
on the dollar due to failure. They evaluate cost/benefit. And too many ideas
are not worth the risk.

Where the banks have become very reluctant to invest, it's kinda obvious why:
the government bait & switched them in & out of real estate mortgages as a
primary asset, and now they only allow government-based bonds as a primary
asset.

You can still find corporate investment banks, but they're not the big banks,
and if they're FDIC insured, they're also nearly as risk-averse. Some have been
willing to stick their necks out. A recession will probably stop that.


Other Recent Stories...

  1. 05/05/2016Is the growing social-sourced economy the modern back door into socialism?Is the growing social-sourced economy the modern back door into socialism? I read a really insightful post a couple of days ago that suggested the use of social network funding sites like “Go Fund Me” and “Kickstarter” have come about and gained popularity in part because the existing economy in no longer serving its purpose for anyone who isn’t already wealthy. Have the traditional ways to get new ventures funded become closed to all but a few who aren’t already connected to them and so onerous as to make ...... 
  2. 04/20/2016Want to be whitelisted? Here are some sensible rules for web site advertisingAn increasing number of websites are now detecting when users have ad-blocking enabled, and refuse to show content unless you "whitelist" their site (disable your ad-blocking for them). I think that is a fair decision on their part, it's how they pay for the site. However, if you want me (and many others) to white list your site, there are some rules you should follow. If you violate these rules, I won't whitelist your site, I'll just find content elsewhere. 1. The total space taken up by advertisements ...... 
  3. 12/30/2015Fantastic new series on Syfy called “The Expanse” – for people who love traditional science fiction[] “The Expanse” is a new science fiction series being broadcast onthe Syfy channelthis winter. It’s closely based on a series of books by author James S. A. Corey beginning with “Leviathan Wakes”. There are 5 books in the “Expanse” series so far. If you’re a fan of the novels you’ll appreciate how closely the books are followed.TIP: The first five episodes are already available on Syfy.com. If you’re having trouble getting into the characters and plot, use those to get up to speed.The worlds created for ...... 
  4. 10/20/2015My suggestion is to stay away from PayAnywhere(dot)com  
  5. 08/07/2015Here is one for you VMWARE gurus - particularly if you run ESXi without fancy drive arrays 
  6. 08/06/2015The Killer of Orphans (Orphan Documents) 
  7. 06/02/2015Homeopathic Marketing: Traveler on my Android is now calling itself VERSE. Allow me to translate that for the IBM Notes community... 
  8. 03/17/2015A review of British Airways Premium Economy Service – How to destroy customer goodwill all at once 
  9. 02/26/2015There's a bug in how @TextToTime() and @ToTime() process date strings related to international standards and browser settings. 
  10. 01/21/2015Delivering two new presentations at Developer Camp (EntwicklerCamp) 2015 in Germany 
Click here for more articles.....


pen icon Comment Entry
Subject
Your Name
Homepage
*Your Email
* Your email address is required, but not displayed.
 
Your thoughts....
 
Remember Me  

Please wait while your document is saved.