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Opinion
Noah Smith

Short-Termism Poses Long-Term Drag on Growth

Investor demands for instant returns deter companies from investing in the future.
The long view hasn't been this popular in ages.

The long view hasn't been this popular in ages.

Source: General Photographic Agency/Getty Images

Eric Ries, an entrepreneur and the author of “The Lean Startup” and other business books, has started a company to create a new stock exchange. The Long-Term Stock Exchange will lock up investors’ money for a long time, forcing them to think beyond next quarter’s earnings. Obviously this lack of liquidity will cause stock sold on the new exchange to go for a discount, since investors will want to be compensated for the inability to get their money out any time they like. But companies might be willing to accept lower stock prices, if they come bundled with a promise that investors won’t hound them to focus on the short-term at the expense of their companies’ future.

Ries’s financial innovation is the latest attempt to address the issue of short-termism in corporate America. That subject has gotten little attention in the halls of policy-making, perhaps because it’s not a hot-button political item. On the left, many are skeptical of the notion that more corporate investment is the medicine the economy needs, choosing instead to focus on redistributive taxation and nationalization of the health-care system; on the right, the focus is on cutting taxes and slashing regulation. Although the notion of tweaking capitalism to make it work better may be out of fashion, it could still be an important piece of the puzzle of how to boost growth. And whether you’re on the right or the left, faster growth is something everyone should want.