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Macdonald-Laurier Institute

Short-termism plagues left-wing politics: Philip Cross in the Financial Post

Politicians are much more obsessed than business firms are with short-term results.

September 12, 2022
in Columns, Economic policy, In the Media, Latest News, Philip Cross
Reading Time: 2 mins read
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Short-termism plagues left-wing politics: Philip Cross in the Financial Post

Photo by Stock Catalog, via Flickr.

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  • Some people assume that corporations focus too much on short-term earnings and neglect long-term investment. For Senior Fellow Philip Cross, such criticisms are overblown and false.

This article originally appeared in the Financial Post. Below is an excerpt from the article, which can be read in full here.

By Philip Cross, September 12, 2022

Many people unquestioningly accept the canard that corporations focus too much on short-term earnings and neglect investing in a long-term vision. Clayton Christensen of the Harvard Business School always claimed firms are too focused on the immediate needs of their customers to make important innovations. Firms that favour “downsize-and-distribute” strategies over “retain-and-reinvest” strategies depress longer-term economic growth.

The economist Tyler Cowen argues in his book Big Business that such criticisms are overblown. There are plenty of examples of firms focusing on long-term results. Most examples of supposedly excessive short-termism actually reflect another firm’s superior ability to anticipate emerging new trends, like Netflix’s innovative model for delivering home entertainment (or at least once-innovative model).

Amazon is a good example of a firm planning for the long term. It did not post its first profit until seven years after its founding and then cycled in and out of profitability for several more years before becoming the world’s dominant retailer by reinvesting its earnings in on-line retailing and cloud computing. Founder Jeff Bezos burnished the myth surrounding Amazon, telling Wired magazine in 2011 that “If everything you do needs to work on a three-year horizon, then you’re competing against a lot of people. But if you’re willing to invest on a seven-year time horizon, you’re now competing against a fraction of those people, because very few companies are willing to do that. Just by lengthening the time horizon, you can engage in endeavors that you could never otherwise pursue.”

***TO READ THE FULL ARTICLE, VISIT THE FINANCIAL POST HERE***

Source: Financial Post
Tags: investment
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