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Short-term thinking in corporate America is strangling the economy
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| Contributor | RP |
| Last Edited | RP Oct 03, 2016 01:34pm |
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| Category | Commentary |
| Author | Rachelle C. Sampson |
| News Date | Monday, October 3, 2016 03:10:00 PM UTC0:0 |
| Description | When firms focus on the short term, those firms steer profits to shareholders immediately instead of spending money to improve productivity, the greatest driver of economic growth for both companies and our economy. They spend less on research and development for the next great products and services, less on capital spending to improve manufacturing efficiency, less on employee training, and less on environmental and community stewardship. It’s fair to say that a short-term perspective has the potential to undermine the traditional growth engines of the American economy, and bankrupt our future.
According to Bloomberg, companies spent 95 percent of their earnings on such share buybacks and dividends in 2014. We are on pace to set the record this year, with $160 billion in share buybacks in just the first quarter of 2016 — all in the face of declining earnings. It’s fairly obvious that when cash is returned to investors at increasing rates, even when a company is earning less, that the money has to come from somewhere. That somewhere is usually long-term investment. Just as it is easy for individuals to put off saving for retirement when the rent comes due or to splurge on a weekend getaway, firms feel pressure to put off long-term investing to make shareholders happy in the short term by boosting stock price. |
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