“The only serious financing alternative [to government grants] would be to force companies like this to get backing from Big Pharma -- in return for equity control. That policy would destroy the business model for any small pharmaceutical start up.”He is correct, of course – it is the only serious current financing alternative to those companies that cannot get bank loans. That does not make it a good idea.
Giving tax dollars away to favored companies, on marginal bets, opens politicians up to temptations and accusations of corruption while opening taxpayers up to the certainty of loss. There will always be Solyndras, and putting taxpayers dollars into them provides mud for commenters left and right to throw at the ethics and intentions of politicians on the other side. Each side is convinced that the other’s corporate welfare is corrupt. Both of them are probably more correct than their opponents wish to admit. It is the nature of free money to bring out the worst in both givers and receivers.
But on the other side we have the Big Pharma Problem (call it the BPP): if the only way small companies can get financing is to rely on big companies in their industry to bankroll them, we are going to have trouble. You see it in software development all the time: a little company develops something cool, a big company buys it, and it’s never seen again. Big Pharma, like big software, like big defense, has as much incentive to quash innovation as it does to promote it. Big companies find it easier to strangle their competition in the cradle than to compete with them in the market. Government money, like anti-trust law, is perceived as some protection from this necessity. But it's a terrible alternative.
So why don’t we come up with another alternative? Before we try we have to understand that there is a third horn to our dilemma***: the reason the BPP exists is because politicians and their captive regulators have made it a necessity. If you ever wonder why the rich always seem to get the best deals, it’s because the law requires that the poor be protected from the good deals, which are also the high risks. For example, the rich – called “accredited investors” under the Securities Act of 1933 – are able to buy unregistered stock directly from a tiny company. That means that if the company goes ballistic, this rich investor is going to get richer faster than the poor man who was denied, by law, the same opportunity. Don’t get me wrong, the poor do need to be protected from the scamps and the scoundrels as does everyone else. But if they are going to become rich, they have to be given the opportunity to invest as the rich do.
So how do we a) make it possible to get money into worthy companies without using tax money, b) offer options other than “Big Pharma” to do so, and c) keep the poor and ignorant from being wiped out by financial weasels and allow them to get rich at the same time? One option would be a Kansas Stock and Bond Exchange. But don’t let the name fool you, it’s nothing like the NYSE, which exists to move money from the accounts of small investors to the accounts of large ones. This exchange would exist to allow small investors to take small risks that could have big rewards.
The way it would work is this: If the KBA finds that JCB Laboratories has an idea worth putting $250,000 into, rather than writing a tax check, they would authorize JCB Laboratories to raise $250,000 on the Kansas Exchange. The exchange would allow only a certain number of “deals” per year – about the same amount of money as the state is giving away presently. The approved company could then issue unregistered common stock, or preferred stock, convertibles, bonds, whatever they wished, in increments of $50 and with a maximum of $1000 per investor. Those ‘deals’ would be offered over a Kansas Exchange website, where any Kansas resident could invest in any number of Kansas companies, subject to supply. The small investor, by taking a limited risk, might be able to get a 10% return on a preferred stock rather than 1% in a bank account. The lower middle class budding speculator might find a bet that could pay off 1000% over 20 years like the ones Buffet gets. But this is not a ‘trading’ exchange – this is a place for Kansas companies to partner with Kansans to build the jobs of the future. If you want to sell your stock, you would still have to go through the SEC process just like Warren Buffett. If the company calls your preferred stock, they would have to send you a check, just like companies on the NYSE. It offers limited risk, limited cost, and the possibility of unlimited rewards, but it's not a swap meet.
There is a real advantage to dealing in small numbers – Big Pharma is quite unlikely to bother about $1000. On the other hand, if there are a mere 250 people who think JCB can pull this thing off, the money will be raised without a hitch. If there are 1000 such people, even better. But perhaps its greatest advantage is that it puts real wealth – or at least the possibility of real wealth - in the hands and name of the individual Kansan.
When modern Americans “buy stocks” they are usually centralizing wealth in the hands of the wealthy. If you buy a mutual fund, the fund buys, owns, and votes the stock, and they seldom ask your opinion about it. The more you buy, the more the people who control the funds control America’s wealth. It only gets worse as the boomers collectively save for retirement. It would be better for Kansas companies if their real owners lived and worked alongside them. And it would be far better for all of us – companies, investors, and workers – if rather than the government "investing" our money in companies that have promise, they would make it easier for us to reap the rewards of doing it ourselves.
* Yes, FWIW, I'm Fossick of Fossick's Freehold. I retired the non-anonymous** El Borak on LJWorld because I might have to work in Lawrence someday and I don't trust the liberals at KU not to hold my opinions against me.
** Nonymous?
*** Think of this beast as the Triceratops of Unpleasant Choices.
Posts
0 comments:
Post a Comment