All Publishing Is Venture Capitalism

Like many an indie author, I branched off on my own out of frustration at what the traditional industry could offer me.

Here’s where I show a little sympathy.

Even with print on demand, publishing is a huge financial risk. Strip down to the bare bones—give up costly developmental editing and settle for a proofread, demand the writer bring a platform and hungry audience, solicit reviews and word-of-mouth marketing without paying for expensive ads (though don’t give up those cushy midtown Manhattan offices!)—and still, publishing is risky.

Agents and editors and publishers are basically no better at picking winners than anyone else. It’s like hiring a manager for your stock portfolio instead of buying index funds. Any occasional big wins will be set off big losses, and in the end your results will be just about the average of the whole market anyway.

Evidently (I’ve heard this but don’t have hard stats—but when was the last time the public really cared about provable stats, anyway?) most published books never sell more than 250 copies. Given the cost of even getting one book out there to sell a piddly 250 copies, how do publishers stay in business?

The same way all venture capitalists do: they invest in a ton of options, and the one that pays off hugely compensates for all the duds.

This is real financial risk, not pretend risk. You can’t go on just publishing anything and stay solvent. You have to make decisions and throw your weight behind them, even if a lot will turn out to be worth zilch. Even so, making the decision to reject manuscripts saves you money you can’t afford to lose. If it turns out you let a big fish get away—like all the people who turned down J. K. Rowling—well, that’s the way it goes.

I draw two lessons from this.

The first is: I’m willing to assume my own risks on my own writing. It’s possible that I generate nothing but duds, never break 250 sales on any of my books, and stay afloat only because I have other sources of income. That’s O.K. by me. It’s a time-honored strategy of financing hobby and art with more lucrative undertakings. At any rate, it’s better than spending the same money on junk or status symbols or conspicuous consumption. And if, by some lucky chance, one of my offerings strikes the Zeitgeist just so and earns me a pile—that’s O.K., too. I took the risk, bore the cost, and enjoyed the rewards.

The second is: capitalism as such only works if those who assume risk actually pay the cost of it. This is exactly where government comes in… and where government stays out (or should, anyway).

Government is necessary to flourishing capitalism to enforce property rights and contract law. In other words, it enforces that those who take risks pay what they owe, and those who reap the rewards of their risks are paid what they are owed. Government properly recognizes that risk is the essence of entrepreneurship and therefore offers its heavy arm of enforcement to protect both sides of the risk equation.

But government does endless harm when it takes the risk out of risk. The outrage felt around the world after the 2008/2009 financial crisis came out of the U.S. government’s covering for the risk-takers, and thereby spreading the risk to taxpayers who never agreed to any such risk (and certainly never were going to get any corresponding profit).

“Too big to fail” is an absolutely fundamental betrayal of the risk of risk that makes capitalism work. Even huge things *must* fail if they took bad risks. They have to pay for their ventures—all the more so in this case, since the venture was always based on impossible investments. Government can survey risk and step in when risk by definition cannot succeed (like in subprime mortgages sold and resold endlessly) or is poised deliberately to exploit the non-risktakers. But government should absolutely not rescue and reward those who take risk that is really no risk to them at all but is to others and perhaps the whole world.

Dismay over the treachery of this kind of “capitalist” behavior unfortunately prompts longings and sympathies toward socialist and communist economic schemes. These can’t solve the problem either, and for similar reasons.

Socialist/communist economies in fact aim to force the entire society sink or float on a very small number of government bureaucrats’ decisions about what risks to take, and because they are not allowed to be wrong, a false economy springs up to cover the error. Bad quality goods and outright lies about quantities were the two major ways communist industries dealt with this problem.

The other problem is that socialist/communist economies are inherently hostile to any real risk-taking at all. They resent the individual entrepreneur’s creative efforts, and even more so the success of such efforts (while refusing to notice the willingly assumed burden of failure that dogs nearly every entrepreneur’s every effort). Nothing interesting will happen, no innovations or improvements will come about at all, unless people are allowed to take risks and benefit from them. The danger in a capitalist system lies in *not* holding them accountable for their failed risks.

But getting rid of risk altogether, either out of resentment of success or misplaced compassion for failure, means everlasting stagnation. And ultimately, all wealth accruing in a small corner of the populace with no way of shifting it at all.

Risk is fair play if the risk-taker both assumes the burden of failure and reaps the reward of success. Interfere on either side and everyone suffers.