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A public policy blog from AEI
Hillary Clinton actually did have an economic message, not that she effectively delivered its various versions. One interesting component was opposition to “quarterly capitalism.” (I have written about the subject off and on, including here.) This is more or less the idea that because of activist shareholder pressures, US companies are more worried about short-term stock market performance (often via buybacks) than, says, long-term investing in R&D. And this is hurting business investment and productivity. Or at least so goes the theory.
One policy of Clinton’s policy ideas, for instance, was to tax capital gains at ordinary rates for stock held for up to two years, after which the rate would decline by four percentage points per year until it reached the current long-term rate. The goal was to encourage more patient investing.
Now there remains a live debate as to how much a problem this really is, and it is a hotter subject on the left than on the right. Also, the Wall Street Journal recently highlighted a study that found “switching to a long-term outlook can improve a company’s operating performance by several measures—return on assets, operating profits, and sales growth—within two years.” But some economists are skeptical.
Anyway, with that context, this from the WSJ:
The U.S. is becoming “de-equitized,” putting some of the best investing prospects out of the reach of ordinary Americans. .. The number of U.S.-listed companies has declined by more than 3,000 since peaking at 9,113 in 1997, according to the University of Chicago’s Center for Research in Security Prices. As of June, there were 5,734 such public companies, little more than in 1982, when the economy was less than half its current size. Meanwhile, the average public company’s valuation has ballooned.
In the technology industry, the private fundraising market now dwarfs its public counterpart. There were just 26 U.S.-listed technology IPOs last year, raising $4.3 billion, according to Dealogic. Meanwhile, private U.S. tech companies tapped the late-stage funding market 809 times last year, raising $19 billion, Dow Jones VentureSource’s data show. … “There’s no great advantage of being public,” says Jerry Davis, a professor at the University of Michigan’s Ross School of Business and author of “The Vanishing American Corporation.” “The dangers of being a public company are really evident.” Among them, Mr. Davis and others say: having an investor base that clamors for short-term stock gains and being forced to disclose information that could be useful to competitors.
So short-termism rears its head. Is de-equitization a good or bad thing? The piece suggests it’s worrisome since retail investors can’t play in hot tech names such as Uber and Snap, which have remained private. And the public market has grown ever-more concentrated.
Then again, you could view companies staying private as a natural market response to short-termism and government regulation. As for retail investors, maybe one day the US will start a national sovereign wealth fund that invests in private firms and distributes the eventual gains to citizens, an idea I hear bandied about from time to time.
Also interesting: Another aspect of short-termism is pushback against companies offshoring or firing workers to bolster profits. If companies thought longer term, they would be more likely to consider themselves stakeholders in communities. This angle, in particular, might be appealing to Team Trump.
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