Entrepreneurial

from The Great Debate:

Venture capital harms your wealth

-- Lance Knobel is a guest columnist. The views expressed are his own. He is an independent strategy advisor and writer based in the United States. His professional site is www.lknobel.com --

The promise was certainly seductive: Lock up your money with me for five years and I'll give you double-digit annual returns.

For years, that was an accurate equation for venture capital. From 1981 to 1998, there were ups and downs, but the 10-year return generally hovered around 20 percent, well above most other asset classes. That return came at a price of course. It was illiquid and there was no secondary market. And there was a further catch. Most potential investors were excluded: Venture funds were relatively modest in size, there weren't very many of them and they were picky about whose money they'd take.

The dotcom boom changed all of that. Venture capitalists became business magazine stars, new funds sprouted up all over, and established firms with a decent track record were suddenly able to raise nine- and ten-figure funds. The 20 percent mark began to look pallid. In 1999, the U.S. venture industry was boasting five-year returns of nearly 50 percent, as a flood of IPOs provided swift and lucrative exits. The end-to-end return, net of fees, expenses and carried interest, for the year ended March, 2000, was 310 percent.

Alas, that was then. New York VC Fred Wilson, principal of Union Square Ventures, reckons average returns over the last 10 years are in the range of 6 to 8 percent. Aggregate industry figures are still flattered by the anni mirabili of the dotcom era, and the staggering venture bonanza of the Google IPO for a handful of elite firms. But when 1999 drops out of the 10-year calculation, average returns will slump to the low single figures or negative.

The returns have shrunk, yet the industry hasn't contracted all that much. According to Thomson Reuters data, in 2008 there were 882 existing venture capital firms with $197.3 billion under management. That represents an increase from the go-go year of 1998, when there were 624 firms with $92 billion under management.

Venture investments have been ticking along at a fairly constant rate as well. There were two astoundingly anomalous years -- 1999 and 2000 -- when U.S. venture investment was $52 billion and $102 billion. After the dotcom crash, that slumped to $19 billion in 2003. Last year's $28 billion was down from 2007's $30 billion, but before 1999 the biggest year in the industry's history, 1998, had seen just over $20 billion invested.

from The Great Debate:

Starting a trade war with “Buy America”

–- Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The views expressed are her own. –-

When Congress inserted “Buy America” protectionist provisions that required some goods (such as steel, cement, and textiles) financed by the stimulus bill to be made in America, our government invited a trade war with important economic partners.  Now China and Canada are imposing their own protectionist regulations, potentially destroying well-paid American jobs in the export sector.  Other countries may follow suit.

This week China reported that the government now requires stimulus projects to use domestic suppliers when possible, even though in February it promised to treat foreign companies equally.  The Chinese $585 billion stimulus package has resulted in a World Bank growth forecast of 7.2% for China this year, far above other industrialized countries.

And on June 6 the delegates at the Federation of Canadian Municipalities passed a resolution calling on “local infrastructure projects, including environmental projects such as water and wastewater treatment projects, [to] procure goods and materials required for the projects only from companies whose countries of origin do not impose trade restrictions against goods and materials manufactured in Canada.”

The tragic losers of “Buy America” are free trade agreements and potential job growth in the American economy. Seductively, "Buy America" promises workers they can have it all — cheap goods from China, oil from Canada, as well as protection from global competition. But real life just doesn't work that way.  In reality, "Buy America" is shorthand for fewer jobs as other countries retaliate.

Many markets no longer have national boundaries but global reaches. America sits at the center of global markets for technology, equipment manufacturing, finance, banking, fashion, and advertising — to name but a few. When international markets expand, America grows. When barriers are erected to trade, jobs — and also wages —shrink.