reformer | We are awash in capital and yet, around the world, the economic revival is floundering.
Clayton M. Christensen and Derek van Bever, writing for the
Harvard Business Review, note the modern era is characterized by
"capital superabundance" in which financial assets are today almost 10
times the value of the global output of all goods and services, and that
the development of financial sectors in emerging economies will cause
global capital to grow another 50 percent by 2020.
"Like an old machine emitting a new and troubling sound that even
the best mechanics can't diagnose, the world economy continues its
halting recovery from the 2008 recession," write Christensen and van
Bever. "Look at what's happening in the United States: Even today, 60
months after the scorekeepers declared the recession to be over, its
economy is still grinding along, producing low growth and disappointing
job numbers."
Despite historically low interest rates, they write, corporations
are sitting on massive amounts of cash and failing to invest in
innovations that might foster growth.
The two acedemicians want to know what is causing this behavior.
"Are great opportunities in short supply, or are executives
failing to recognize them? And how is this behavior pattern linked to
overall economic sluggishness? What is holding growth back?"
The pair, with assistance from alumni, explored a wide range of
reasons for the sputtering recovery, including political and economic
uncertainty, the low rate of bank lending, a decline in publicly
supported research in the United States, and the demise of innovation
platforms like Bell Labs.
They believe that the crux of the problem is that investments in
different types of innovation affect economies and companies in very
different ways, but are evaluated using flawed metrics.
"Specifically, financial markets -- and companies themselves --
use assessment metrics that make innovations that eliminate jobs more
attractive than those that create jobs. Efficiency innovations typically
pay off within a year or two." Companies invest in efficiency, which
eliminate jobs, because on an unexamined assumption, they write, "Which
has risen almost to the level of a religion -- that corporate
performance should be focused on, and measured by, how efficiently
capital is used."
Would you like that in regular English? Short-term profits trump
long-term profits in an era when the rule is get as much as you can, as
fast as you can and get out.
The result, write Christensen and van Bever, is that the
institutions, especially banks, that are meant to "lubricate" capitalism
no longer do so.
Christensen and van Bever believe the system can be turned around
by appealing to logic, fairplay and appropriate government policy that
would liberate capital from short-term profits.
Fat chance, argue some political and economic observers.
"With all due respect ... these guys are thugs and looters,"
notes Arendt, writing for Daily Kos. "Your polite attempt to point out
they are killing the goose that lays the golden eggs will get no
traction with conquistadors. They will continue to suck America dry
while looking for the next target overseas."
Let's not forget that for more than 30 years, following reduced
taxes on the wealthiest Americans and the rolling back of regulations to
rein in financial malfeasance, we have been promised the wealth would
"trickle down" or that "a rising tide raises all boats." But since
Ronald Reagan's days as president, the rich and corporations have
stashed more than $30 trillion in offshore tax havens.
"Our surplus has been channeled into the Wall Street gambling
casino, the rise of a predatory class of financial capitalists, and a
bloated military/intelligence/police budget," notes Arendt.
Michael Lind calls this a "plantation" mentality, "a cruel caste
system in which the white, brown and black majority labor for inadequate
rewards while a cultivated but callous oligarchy of rich white families
and their hirelings in the professions dominate the economy, politics,
and the rarefied air of academic and museum culture." Fist tap Dale.
