Worsening corporate myopia is a threat to long-term growth, say Brookings Institution scholars William Galston and Elaine Kamarck.
In 2014, companies in the S&P 500 spent $914 billion on share buybacks and dividends – or about 95 percent of their earnings, according to BloombergBusiness. At the same time, companies’ capital investments – in equipment, facilities and research – fell.
Such is the consequence of corporate “short-termism,” a phenomenon that Brookings Institution scholars Bill Galston and Elaine Kamarck argue in an important new report poses an increasing threat to long-term economic growth.
“There’s nothing wrong with paying investors handsome returns, and a vibrant stock market is something we should wish for,” Galston and Kamarck write. “But when the very few can move stock prices in the short term and reap handsome rewards, and when this cycle becomes standard operating procedure, crowding out investments that boost productivity and wage increases that boost consumption, the macro-economic consequences are debilitating.”
This short-termism, Galston and Kamarck say, distorts corporate behavior and the economy in a variety of destructive ways.