Originally posted by Bob Armstrong
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Bob A., in capitalism we have what are called "VC" firms (Venture Capital). These firms invest in newly-formed companies, at their discretion based on a prospective company's Business Plan documents which outlines the business' expectation of future Return On Investment (ROI).
So DM seems to want to replace these with state lending firms that would give the capital as loans.
But the sad reality is that about 8 or 9 out of every 10 new businesses will go belly-up before seeing any actual returns. The VC firms counter this by imposing a percentage of ownership in the new companies. So for the 1 or 2 businesses that do see future returns, the VC firm(s) get a slice of the profit pie. This helps to offset the losses from the businesses that go under early. This model works to some extent because the new companies do offer their products or services at prices way beyond what they would be if the VC firms did not have ownership in the companies.
As an example, remember the product that was called (I think) the FitBoard? It was just a piece of plastic formed in such a shape that you can stand on it with both feet and try and maintain balance because the center is the only part of the board actually touching the floor. This improves one's balance capabilities and many twisting exercises can be done. This piece of formed plastic cost about $50 US in stores like WalMart!!! As a piece of formed plastic, it was worth about maybe a buck. The markup had to be huge just to recover the initial start-up costs of the business.
I don't know if WalMart and such stores still sells this product... I recently bought one at a thrift store for about $5, reflecting more accurately its true value.
So I don't know if it is really "labour" that is being short-changed, although for sure labour costs are kept as low as possible for startups, and the production may even be done in Asia or Africa or somewhere that labour is very cheap. But the CONSUMER is also bearing the costs as well.
So anyway, I believe that if DM replaces VC firms with state lending, the state will have to do what the VC firms do, which is take partial ownership (equity) of the companies to offset all the failing companies. In effect, the model would be the same and only the players of the game would change. Or do you have something more to say about that? It seems that if the state does not take equity, then the terms of the loans would need to have exorbitant interest rates on the loans just to break even?
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