Socialization of risk
Established companies no longer outsource just the development of new products. Now, they outsource the ideation and planning stages as well. Out of a few hundred teams working from basements throughout the world at any given moment, only a few would reach good results. An established company can choose to only acquire these few, and save up on the costs of trying to innovate internally.
To the economy at large, this isn’t good at all. Established companies no longer spend enough resources on advancing innovation, because they can mitigate the risks of failure by transferring these risks to individuals. Most of these individuals lose. And so, on top of the loss in potential innovation, an important portion of the workforce is busy at work building things that would amount to nothing instead of doing productive work that produces real goods that people can use.
Seizure of public funds
In the U.S a lot of the money in hands of VCs come from people’s pension funds. In Israel, where I live, a large portion of the VC industry is funded by the government. In both cases the money is poured into two main venues - wages for highly skilled workers, and fees paid to a few platform owners - Google’s Adwords, Amazon’s Web Services, Apple’s App Store, etc. In all of these cases, money is being poured from the regular economy with its normal wages to the high tech economy with its disproportionate wages.
A built-in lack of innovation
The startups favored by VCs are those for which there’s already a precedent and a clear business model, i.e not the really innovative ideas, but small improvements to existing tools and services.
There’s an alternative to the startup approach:
- Just build the things you think are most likely to be helpful to other people.
- Build tools in the evenings and on weekends and holidays, and whenever you can.
- Keep in mind that anything for which there’s a clear business model and monetization strategy has already been built. Instead, build things people would find helpful, no matter what the profitability of it might be, and no matter if it can scale.
- Build for your own sake, instead of working for the sake of potential future income.