A trillionaire is a policy failure

My favorite part of business school was meeting my wife. My second favorite part was running the MIT $100K Entrepreneurship Competition. Students from across the schools of science, engineering and business formed teams around their research & technology. Then they’d get mentorship before pitching ventures to expert judges.

Hundreds applied and only a few won prizes, but I was rooting for them all. I’ve stayed in touch with a few over the last decade. Some of those student entrepreneurs have built great companies from their ideas, and they have been financially successful.

I think that’s great. Free enterprise is foundational to this country. I want people the world over to believe that, in America, if you have a good idea, work hard at it, and compete fairly, you can get rich. Elon Musk believed that growing up in South Africa, and then came here and achieved it in the late 1990s.

That’s not what happened this week, though. In becoming the world’s first trillionaire, Musk did not strike a blow for a rags-to-riches American story. That story happened for him at the turn of the century.

Instead, Musk’s IPO was a party for plutocracy. Men became billionaires not due to ingenuity and work ethic, but because of relationships with Musk that gave them preferred access to equity. That’s not capitalism, that’s cronyism.

I have written previously about some workable wealth taxes. For example: levying big tech’s tokens and digital advertising revenue; closing the buy-borrow-die loophole for billionaire heirs; and raising the capital gains tax rate. Democrats should also, though, consider another set of reforms to reduce wealth inequality. More companies should go public, sooner.

In my lifetime, the number of publicly traded companies has declined by about half. The most dynamic ventures are staying private much longer. That means less wealth creation for ordinary savers, and more wealth creation for family offices, private equity, and insiders with access. The answer is not more work-arounds, like secondary markets. The answer is more public companies, for more public wealth creation.

Democrats should press for push-pull reforms to get entrepreneurs to launch initial public offerings sooner. The push reforms should ratchet up compliance for big private companies. For example, federal law requires private companies with more than 2,000 investors to start sharing detailed financial information, similar to public companies. Lowering this limit would help compel firms to go public earlier because they would already be facing the burden of public reporting, so they might as well get the benefit of public capital.

The pull reforms should deregulate low-signal aspects of public-company compliance. Scratch or simplify requirements that have become paperwork dumps rather than windows into governance and results. Pull reforms should also reward an IPO’s long-term investors over short-term traders. Companies considering going public often blanche at the stock gyrations they must navigate in their early months on the market.

Any trillion-dollar IPO is a policy failure. Too much wealth was generated before ordinary Americans had a chance to share in it. Democrats should bring wealth creation back into the public markets.