Five years after the official end of the recession, economic activity in the U.S. remains below potential. One important reason is the slow growth in business investment, which remains weak, especially compared to previous recoveries. To an increasing number of observers, the weakness in investment appears related to the rise in what observers are calling “quarterly capitalism” or “short-termism”—the focus on short time horizons by both corporate managers and financial markets.
What has been lacking from this conversation is an all-encompassing agenda for reform, though there are several reform proposals out there. This report, authored by Roosevelt Institute Fellows Mike Konczal and J.W. Mason with Amanda Page-Hoongrajok, is released as part of Roosevelt’s comprehensive Rewriting the Rules agenda. It goes beyond simply tackling short-termism by itself. Instead, it focuses on rebalancing power overall, limiting bad actors but also empowering good ones. This trend can only be combated by emboldening countervailing power in the marketplace while also emphasizing a new role for government.
The first part of this agenda will directly counter several of the specific trends known to increase short-termism. It will include ideas that are broadly applicable across industries, such as policies to address skyrocketing CEO pay, as well as more targeted solutions.
A policy agenda to address corporate short-termism requires a comprehensive approach focused on building countervailing power, which is addressed in the second part of our proposal. The forces that push firms toward short-termism will persist and find new ways to exert power, but the reforms outlined in this paper embrace wide-scale, long-term changes, such as granting workers power on boards, designed to attract long-term stakeholders. The agenda also includes practical, simple policy changes for regulators.
The third part of our agenda contains solutions that point to a new role for the state. Taxes and full employment are two obvious and necessary ways of checking short-termism, and if companies are less interested in investment, government needs to fill in that gap, whether by providing high-speed cable or funding basic research.
This report is part of our two-part Agenda to End Short-Termism. A companion paper, Understanding Short-Termism, addresses some common criticisms and questions about this issue.