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Capitalism 2.0: Distributed, Democratic Capitalism

Posted on Tuesday, Oct 12th 2010

Even though I have been thinking about it for a while, I have taken my time to write this final piece on the Capitalism 2.0 series. Well, it is my conclusion that capitalism 2.0 needs to be rooted in value creation, somewhat distanced from the reaches of the speculators who have basically hijacked the 1.0 system, and it needs to be democratic, distributed, and its fruits far reaching.

Indeed, One Million by One Million is my proposed framework for capitalism 2.0. Through extensive education and mentoring, I would like to see 1M/1M evolve into a global movement that teaches sophisticated business practices with respect to entrepreneurship and wealth creation to a significantly larger number of people.

The knowledge and expertise that has so far remained restricted to an elite group of schools and a select few entrepreneurial hubs needs to be democratized. Much, much larger numbers of people need to learn how to create value and then how to create wealth through entrepreneurship.

Rather than just a handful of companies building up to become billion-dollar enterprises, we need millions of companies building million-dollar businesses. Or even 500,000 dollar businesses. Two hundred thousand-dollar businesses. 100,000-dollar businesses. 50,000-dollar businesses. 10,000-dollar businesses.

Yes, the 10,000- or 50,000-dollar businesses are important as the developing world finds its own stride and grassroots entrepreneurs in all those regions build within their own capacity and economic realities.

I am convinced that the Western world’s economic turnaround and the developing world’s economic development are both dependent upon how well and how fast the entrepreneurs around the world step up to the plate. They are also dependent on how successfully world leaders design policies and frameworks to support this movement.

Let me also note here that the distributed capitalism I envision will largely be made up of small, private businesses, and as such, the speculators will have nothing to do with them. This will also create a somewhat more stable economic system, perhaps a little less susceptible to bubbles and shocks that cause such colossal human suffering.

I would love to hear your thoughts.

Related Reading: Capitalism’s Fundamental Flaw

This segment is a part in the series : Capitalism 2.0

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I only recently found your blog and writings. I am so glad that I did.

Geoffrey Tuesday, October 12, 2010 at 3:09 PM PT

I hope your dream of democratization comes true. Lately I have been reading about the lack of "exit" options. If this true, might we see entrepreneurs stay in their business longer rather than cashing out? Could this hiccup (albeit caused due to financial market maelstroms) actually be a speed bump that "forces" founders into longer term "lifestyle" businesses? I wish I had a crystal ball. I like the notion of many more smaller companies rather than a handful of large ones. I salivate at the notion of millions of small business owners leveraging skills and technologies once reserved for larger entities only. But there is often upwards pricing pressure due to scarcity (forced scarcity at times) is real and there may be headwinds created by financiers who would rather see a few home run companies rather than a million small business owners building true lifestyle businesses for themselves, their families and their communities. Here is to both the doer and dreamer you appear to be. One more sending energy to the dream.

Geoffrey Tuesday, October 12, 2010 at 3:18 PM PT

The vision I articulate above assumes that these entrepreneurs will be building businesses that have customers, revenues, and profits, and will be sustainable, long term entities, not necessarily dependent upon exits.

Also, by definition, the bulk of this population of entrepreneurs will be building bootstrapped businesses, without any external financing, so exit is not a necessary piece of the equation.

In other words, I'd like to see a version of capitalism where the financiers are less critical to the system. The real transaction happens between a producer of value and a consumer of value, with the financier becoming optional.

sramana Tuesday, October 12, 2010 at 3:55 PM PT

Yes, I know and agree wholeheartedly. You have a like-minded individual to share in that vision.

Geoffrey Tuesday, October 12, 2010 at 5:27 PM PT

Great post, Sramana.

BTW, how many hours in a day you spend on reading on various subjects ? I know you are well-connected, but do you have a close group of thought leaders that you bounce off your ideas culminating in to such articles with great depth ?. OR, its just your inquisitive mind at work and you put those thoughts in to words ?

Dhana Tuesday, October 12, 2010 at 7:34 PM PT

Both. I generally hang out with very intelligent, insightful people. I read a lot. I think a lot. I ask a lot of questions. And I write a lot to process those questions.

sramana Tuesday, October 12, 2010 at 8:29 PM PT

Go sramana! Your vision of capitalism 2.0 is beautiful. I hope people in general have enough responsibility to make it work.

Rafael Monday, October 18, 2010 at 8:23 AM PT

The next wave of capitalism is not going location based, I feel it would be globalized. You will have best operating companies and products emerging across globe and more so from emerging economies, probably due to the reason of week currency prevailing at these countries and hence cheaper operating cost & easier break even

M. Guha Rajan Monday, October 18, 2010 at 8:44 AM PT

Absolutely on target and thank you for publicly pushing forward on so many fronts. Your blog and interviews have become my favorite site for insight and inspiration. Thankfully you believe this needs to move beyond the Valley.
That said, please pursue the "exit" issue more completely with your guests and interviews. Unless a company has a very small number of shareholders, they almost always face issues of liquidity, even within a family if the founder dies. I've been witness to and part of this many times. Why should an entrepreneur have to "sell out" to a buyer when all he/she needs is a little liquidity?
What I believe is needed is a small, appropriately regulated public market that is philosophically and institutionally in alignment with the entrepreneur and his shareholders. NASDAQ was this market only several decades ago and the financiers worked hard for their money servicing real companies and their capital needs. This was before they were allowed to manufacture their own financial products. I believe the US is the best place to do this but if we don't someone will do it. It should have a world view like you describe. Why not?
Cheers, Tom

PS. I run an early stage software company founded in Zurich, based here with 115 individual investors. We hope to begin trading next year so this is a real issue for us.

Tom Marsh Monday, October 18, 2010 at 7:55 PM PT

Great thought and action force, Sramana. Best wishes for a great impact!

There are two other key trends developing fast –

1. The C2C (Consumer to Consumer) market – technology enablement and affordability is leading to customers participating in creating the value for themselves while entrepreneurs are becoming platform providers and in turn building a self sustaining system.
2. Larger companies too need small, focused, niche players to build such value that can well be integrated in the chain. Joint development of solution/market is catching up. This is essential for a self-healing eco-system. Provides opportunity for multiple players and creates space for everyone to play.

These two items are changing source and sink dimensions of capitalism – fueling into your vision of capitalism 2.0!

Value centricity around "user experience" becomes the key element of success in this set up than any other – cost, quality or availability. Embedding this as another guiding principle might help larger segment of entrepreneurs in the 1m segment.

Hebbar Monday, October 18, 2010 at 11:26 PM PT

Great piece and vision of an entrepreneurial world order. Agree with the emphasis on sophisticated business practices and the proliferation of small businesses.
Just two queries:
– What role would manufacturing play in this vision, specifically globally distributed manufacturing (I include foundry, assembly, packaging, complex supply chain algorithms).
– Also, where would Chinese politics and ecoomy, and the far east fit into this distributed model? – – What is the feasibility of implementing this vision in nations that have politically and indeed, economically protectionist views? And how would Capitalism 2.0 trump these? Or, would it turn these around, in implementation.;

Urmi Sen Thursday, October 21, 2010 at 5:48 PM PT

Hi Urmi,

I don't necessarily see a world order devoid of large companies. Distributed entrepreneurship will supplement the current world order of large companies (manufacturing, and otherwise). So manufacturing concerns – small and large – would pretty much co-exist.

Why do you specifically ask about China and the Far East? Does it necessarily need to follow a different format? I don't see such a need. But I'd like to understand the basis of question to see if I have missed something …

Also, I don't think protectionism necessarily disrupts this world order, as long as the entrepreneurs perform well within their respective geographies. This is not to say that I like protectionism, but if countries practice protectionism, that won't preclude entrepreneurship, right?

sramana Thursday, October 21, 2010 at 7:27 PM PT

Excellent writings about capitalism,Go ahead

Dominos India Monday, January 3, 2011 at 4:50 AM PT

Great thinking. I just ran across your blog (from HARO) and I'm intrigued. I like these two points:

"I am convinced that the Western world’s economic turnaround and the developing world’s economic development are both dependent upon how well and how fast the entrepreneurs around the world step up to the plate." Great point.

Also, "We need the innovators, the entrepreneurs, the creators, the scientists, the technologists–those who build value, those who create jobs–to lead us out of this nightmare."

The question, then, becomes: what can we do, as a system (of regulation + government), to incentivize value creation and encourage the growth of small businesses, without over-regulating?

An in-depth analysis of the structures in place — including tax codes that discourage small-business growth — is somewhere to start. What works? How do we encourage great thinkers? Does it start with education reform? Does it mean tax reform? Does it mean reduced regulation? More regulation? I am interested in the application of rules that are intended to encourage entrepreneurship + small business innovation, as well as the (unintended) consequences of the rules we currently have in place.

sarahkathleenpeck Sunday, January 16, 2011 at 2:46 PM PT

Sarah, have you seen this?

Sramana Mitra Sunday, January 16, 2011 at 4:36 PM PT

Very interesting perspective. I would be very interested in knowing more about the proposed framework.

So much of what entrepreneurs do, they cannot explain. Decisions made are made because they know, somewhere, often subconsciously, that those are the right decisions. How can this be captured and packaged?

Michael Fox Friday, March 18, 2011 at 7:31 AM PT

I am a firm believer in the fact that EVERYONE should start a company. In the U.S., the tax benefits of owning a company alone are a good reason to start a company.

But, my 20 years of building companies and working with entrepreneurs tells me that MOST people do not have it in them to create a company and take risks of any kind. That is why the servitude mentality of being an employee is so prevalent in the Western world.

For your vision to become a reality, the economy actually has to get worse. More people will lose their jobs and be forced to think entrepreneurial. I have often said that nothing helps start-ups more than the effects of being hungry!

TK Kuegler Wednesday, June 8, 2011 at 4:54 AM PT

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Democratizing entrepreneurship education: Sramana Mitra’s 1M by 1M program Sunday, June 12, 2011 at 3:23 PM PT

The thought process for the past decade or so, in leveraging the knowledge economy to build enterprises, have lead to greater emphasis in what we today term as 'Incubators'.

We have also tried to define an 'Incubator'. Can we have a fixed definition. To my mind the Incubator ought to be an eco-system that is synergistic with the local civil society.

For example the portal Twelfth Plan a portal by the Indian government, recently opened a discussion on Entrepreneurship and the role of the government.

It was interesting to note that nearly all respondents wanted the government to come forth with funds, logistical facilities including access to markets that government would reserve for these entrepreneurs. If people have such an approach to entrepreneurship, the definition itself is made to stand on its HEAD.

Fortunately, a group of entrepreneurs have branched out on their own to establish enterprises. In India the success rate of these group outside the Incubation facilities are far higher than those within. However, the few that succeed within the Incubator receive enormous publicity, as nearly all Incubators in India are established through federal government grants, and the government would like to tom tom its policy.

Mentor is something very academic in the Indian system. As one respondent remarked that he did not need a benevolent teacher in his business. Further IP is a very new concept here. We would surely pay the fees to a doctor and a lawyer. All other advice we feel ought to come ' Free of Charge'

arindamd Wednesday, June 15, 2011 at 8:46 PM PT

That’s a twisted perspective. So you don’t consider all the other ‘services’ or ‘advice’ of value, and it should come free of charge? Why is that? We don’t share this perspective. You can take a look at 1M/1M. That’s a virtual incubator, and if you talk to the customers, they’re all learning a lot about how to validate their businesses, how to develop a go-to-market strategy, how to sell, how to generate leads, how to bootstrap, how to assess valuation. Why should all that knowledge and advice come for free? I don’t think our entrepreneurs expect them to come for free.

Value needs to always be compensated. That is the basis of capitalism.

Sramana Mitra Thursday, June 16, 2011 at 7:25 AM PT

Sramana, your response is quite expected. That is why at the outset I had mentioned that the eco-systems are in variance.
But I do agree that nothing is free. It could/would take a while in inculcating such a thought process here in India.
As a matter of fact I am writing a paper on the subject of 'Mentor' and I have sent out a questionnaire. Once the paper is ready (mid-august, I hope) I shall send it to you.

Arindam Thursday, June 16, 2011 at 6:28 PM PT

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Capitalism 2.0 has real potential.
Please see these two: First an article:… and the second a comment on another news item:

Bala Subramanian Tuesday, July 5, 2011 at 11:40 PM PT

By having the forum online and as an initiative, the likelihood of success increases multi-fold.

Nadia B. Ahmad Tuesday, July 12, 2011 at 3:14 AM PT

I have a question do you think that moral, ethical, and spiritual foundation of the American democratic capitalist system is eroding?

nick Tuesday, August 23, 2011 at 8:17 AM PT

To an extent. The work ethic seems to be eroding. And the dominance of the speculators has really harmed the system.

Sramana Mitra Tuesday, August 23, 2011 at 12:12 PM PT

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Sramana, I am 100% with you. That is the vision I aspire for. We need stability which comes out of value creation. We need to stop dancing to every hiccup in the stock market.

Nalini M Vanaparthy Monday, October 17, 2011 at 7:23 PM PT

I love the way you put it: “We need to stop dancing to every hiccup in the stock market.” It’s a colossal waste of energy with zero value creation.

Sramana Mitra Tuesday, October 18, 2011 at 8:48 AM PT

I believe that your vision of Capitalism 2.0 makes a lot of sense and this will be probably be the future.
I also understand that it could be similar to Ford's automobile vision “Democratize the automobile, When I'm through, everybody will be able to afford one, and about everybody will have one”, my point of view on Capitalism 2.0 is that as Ford Vision, the entrepreneurship world will be democratize, business ownership will be for anyone.
My understanding of Ford success was to make a new breakthrough, the production line, in order that’s this democratize entrepreneurship vision will materialize in the short term, I believe that a new major breakthrough will have to be created, the “As Is” state of entrepreneurships is not enough.

Roberto Morales Monday, October 17, 2011 at 10:03 PM PT

Excellent analogy – Henry Ford. Democratize the automobile. Democratize personal computing. Now, let’s democratize entrepreneurship.

Sramana Mitra Tuesday, October 18, 2011 at 8:49 AM PT

You don't even address economic policy or the federal reserve. Without first addressing monetary policy and the affect of interest rates on allocation of resources, why bother?

inspector fu Thursday, January 19, 2012 at 7:33 PM PT

Because I don’t believe tying this to politics is going to enhance its chances of success. It will, in fact, destroy its chances.

Sramana Mitra Friday, January 20, 2012 at 8:17 AM PT

Dear Sramana,
Will you highlight the role of conjugate pairs, {Producer, Consumer}, {Investment, Execution}, {Dharma, Karma}, {Capital, Labour}, {Product, Service}, {Science, Economy} ?

Thanks and Regards,

Sandip Ray Tuesday, April 10, 2012 at 11:49 PM PT

I don’t think so. I have better things to do.

Sramana Mitra Tuesday, April 17, 2012 at 7:37 PM PT

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Just came to your blog. I like the concept, beginning with value creation.

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