Short-term Thinking In a Long-term World

New Deal 2.0, via the nc links:

In a press release, entitled “American Business Leaders Call for Revolution in Energy Technology Innovation”, Doerr, the venture capitalist in the group, stated:

“When our company [Kleiner Perkins] shifted our attention to clean energy, we found the innovation cupboard was close to bare. America has simply neglected to support serious energy innovation. My partners and I found the best fuel cells, the best energy storage, and the best wind technologies were all born outside the United States. Other countries are investing huge amounts in these fields. Without innovation, we cannot build great energy companies. We need to restock the cupboard or be left behind.”

The corporate executives who constitute AEIC are looking for the US taxpayer to foot the bill for restocking the cupboard. What about contributions to a national clean energy effort by business corporations that ultimately stand to profit from these new technologies? Over the decade 2001-2010, the six corporations whose current or former leaders are represented on AEIC wasted a total of $185 billion — an average of $18.5 billion per year — buying back their stock, including $110 billion by Microsoft and $48 billion by General Electric. For these six companies over the past decade repurchases were 54% greater than R&D expenditures.
Innovation requires complementary investments by business and government. The government can only do so much, especially with free-market ideologues ranting that the government is already doing too much. A prime reason why the United States is no longer the “innovation nation” is because its major industrial corporations have been obsessed with “maximizing shareholder value” rather than investing in basic technology research.

The corporate world has changed a lot from the heydey of Bell Labs and PARC.  Today, corporations are only interested in their return to shareholders.  One part of that change is cultural, while the other part is based on compensation.  The cultural change involves the overaggressive understanding of maximizing shareholder returns.  This has become a short-term goal, unable to handle long-term investment.  Corporations used to take a long view of employees as part of the team, making the company stronger because they would be there for their whole careers.  Now they are numbers which must be slashed if profits suffer.  Likewise, they used to invest in research and development.  Much of that R & D might have been wasted as far as the products they were envisioned for was concerned.  But the payback came in the knowledge gained, which could be leveraged when other concepts developed.  Now the balance sheet is too fragile for such investments.  Short-term growth is financed by debt, to demonstrate better return on equity (easier if you have less equity), but long-term investment is starved.

The compensation side comes into play because too many top executives are granted large stock options as bonuses.  This tends to make the executives fall prey to the aggressive understanding of maximizing shareholder returns, as they are shareholders.  This would seem to be a good thing for shareholders.  Unfortunately, short-term gains benefit the executives significantly, guiding their decision-making to the shorter time horizon.  This is generally ok with the general shareholders, because they, too, aren't really looking at a long-term investment. 

This is at the heart of our current problems globally.  Everybody is looking for the quick and easy score.  Very few people are willing to invest long-term.  Corporations used to do this more often, and government also did.  Now people aren't willing to make such investments.  Corporations are interested in how to grab as much as they can, as fast as they can, and governments are being used as a source of easy money for these corporations.  Until we become willing to pay now to benefit later, we will continue to slide downhill.  We've put ourselves in the spot where we are already indebted from trying to put off paying for stuff we wanted previously.  Now, when we have no choice but to invest for the future, we can't afford to. 

In other words, the bill is due from past profligacy, and besides paying it, we need to dig even deeper to invest for the long-run.  I don't think we have the mettle necessary.