« Technology, power & ideology | Main | Neoliberalism as lack of self-restraint »

February 12, 2018

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joe

You really have to define what you mean by short termism.

With executive pay heavily defined by quarterly profits - that is the time horizon, 3 months. The motivation here is to maximise short term profits by reducing future investment, staff training, research and development, sales and customer staff but boost the media and PR staff. The CEOs etc take the bonus and aim to get out quick as the long term sustainability of the company is about zero. Short termism is absolutely terrible for UK business as the abysmal productivity figures and huge numbers of untrained staff show.

Stock markets are even more short term minded - some shares are only held for seconds. In 2012, the average time for which a stock is held – went up from 20 seconds to 22 seconds. "Most trades are computerised. Most trades are short-term. The average foreign currency investment lasts – it's up now to 30 seconds, up from 28 seconds.

This is the reason why firms paying high short term dividends are rated highly. As the CEO makes investment and staff cuts the share price goes up - not down. Stock owners take the dividends then sell before the crash. They have zero interest in acting as responsible stakeholders. Several utilities actually borrow money to raise the share price and CEO bonus - plus the UK gives them tax relief on their debts.

Blissex

«Or might it be instead that short-termism is a response to the prospect of collapse, and that rational managers, sensing their business is destined to fail, take money out of it?»

What about if this applies to investors and countries? For example english investors and England? That is, theymight have decided (decades ago) that England was going forward a low-profit location, and that there were much better profits to be had in the plantations of the colonies, in the growing industry of the USA, in the rapidly developing economies of the third-world?
They might have decided to liquidate or work their assets in England as much as possible and underinvest in plant and research...

Blissex

«And the FTSE Aim index – which contains many “growth” stocks” has horribly under-performed the All-share index since its inception in the mid-90s. This tells us that stock markets have generally paid too much for growth»

Well, the AIM is not so much "growth" but "caveat emptor" stocks, so not surprising.

Moreover the question is what "growth" means here. In the stock market is means "share price growth", not necessarily sales growth or profit growth.

While the discussion about short-termism is about companies as businesses in the economy, not as punts in the stock market.

rogerh

Seems to me the long term is merely a concatenation of short terms. A truly long term plan is only possible for a well understood and obviously well funded project - an oil pipeline say or an under city tunnel. Any other project is buffeted by changeable political, technical and economic winds. The key is to join the short term segments together in a coherent way - if you want to.....

That all assumes the business model is intended to survive and not be looted. Then we must consider the role of the buyer in say big outsourcing contracts. Whilst good commercial negotiation is necessary a policy of only to the cheapest and screwing the supplier to the wall is not sensible and only encourages short term thinking on both sides. Perhaps the UK would do well to abandon its adversarial approach to politics and to legal matters.

Blissex

«abandon its adversarial approach to politics and to legal matters.»

That usually works better in ethnically and class homogeneous cultures. My impression is that unfortunately in the UK there are significant ethnic and class (which often overlap) differences, with "cavaliers" who regard "villeins" as unpeople, and centuries and more of distrust and worse by those "villeins" for their masters.
Of the many things said by D Cameron, "we are all in the same boat" is probably the most outrageous, unless he meant "we" to cover just himself and his mates and relatives in "The Establishment".

Chris

It seems to me this point could easily be used to argue that kalecki was wrong about capitalist opposition to a policy of full employment. Businesses behaving in short term interest would prioritise profits from a fiscal stimulus aimed to achieve full employment, instead of the downward pressure in the long term as the result of such a policy.

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