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Short-termism in business
#1
Perhaps the greatest threat to the long term economic future of the developed world and in particularly the Anglo-Saxon model of capitalism is rampant short-termism in business.

This was brought up at a previous Liberal Party Assembly, but the issue has never had the wider public airing it needs.
An obsession with dividend payments and ever high share prices has led to businesses in developed economies to abandon long term business investment, job creation, and hence wider economic growth, simply to produce another impressive business update and an often unsustainable dividend.

Anybody who remembers Sir John Harvey Jones and his 1980’s book, Making It Happen, would be familiar with an unglamorous pre-90s culture of succession planning, long term business growth and investment, with a steady but modest dividend.

By comparison modern executives know that their continued reign is dependent on an uninterrupted stream of positive business updates and profit statements. The business press is littered with numerous examples of CEO’s who’ve departed after a below par trading statement or reduced shareholder pay-out.

Work forces have commonly been slashed to reduce costs and more often this has been done to directly pass on the saving to investors as labour costs are certainly the highest single item on a company’s books.

This often leaves the remaining workforce to carry the burden with the implied threat of redundancy if they do not cover the increased workload.

As Liberals we recognise the advantages of the capitalist business process and cycle, but we also cannot be blind to the erosion of economic development and the wests industrial base.

If we do not invest in new business, plant and machine, and of cause workers, we risk falling behind other economic regions. Then where will be the fruits of economic prosperity to fund public servers?

Since it is undesirable to set levels or ratios for profit and dividend, we need to seek alternative routes to encourage more inward investment and hence economic activity.

You will never convince companies or their investors of the merits of a long-term view. They will always need to be ‘encouraged’ to adhere to this principle via tax breaks and incentives which cost the exchequer money. The trick is to make such concession revenue positive, or at least revenue neutral.

This may involve tax breaks for R&D and direct investment, reduced NI contributions for apprentices, lower business rates or corporate tax. It will involve wider investment in training and education and the nation’s infrastructure.

It also involves a learning process for business and their investors to understand the negative long-term effects on local economies, as well as their own businesses of their own short term pursuit of another unsustainable dividend.

NB The original feed back from this documents circulation amongst the NEC was to highlight the part share options
also influence executives behavior, which is a very important point.
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Short-termism in business - by ReadingLib - 11-11-2015, 07:19 PM

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