In an earlier post, I floated the idea that the Democrats could make the case for Social Security privatization based on the idea that it would reward long-term investments over short term ones. Getting Wall Street to start thinking long-term, and not rewarding shareholders quarter-to-quarter, would skew it to more progressive values, since it would force companies to think realistically about sustainability, living wages, and the environment.
I don’t know if privatizing SS is the way to go about it, but I still think it would be valuable for Democrats to coalesce around a message of long-term priorities. Because that’s where market failures occur, and thus that’s the best place for government in a capitalist society: correcting market failures. If the government is to meddle with business at all, this should be the recurring frame: encouraging long-term investments over short-term ones.
What got me thinking about this again was an entry on Google in this year’s edition of the New York Times’ Year in Ideas, which provides the best January-March bathroom reading a guy could wish for. I’ll quote the entire 2nd half, lest it ever sneak behind the NYT paid-archive firewall:
What modern shareholders crave above all are earnings that rise steadily, quarter after quarter, or, even better, earnings that ”beat expectations” — the number that analysts predict the company will report — even by a penny or two. To achieve such beautifully turned out earnings every three months, executives sometimes do dumb things — go on a merger spree, cut back marketing or fiddle with the accounting — to give the stock a short-term pop. A recent survey by Campbell Harvey, professor of finance at Duke University, found that a remarkable 78 percent of 302 chief financial officers said they would take some action to ”smooth” quarterly earnings and meet expectations, even if that action sacrificed long-term value.
In the Google prospectus, Page rejected this nonsense in the kind of straightforward English sentences rarely encountered in securities filings. ”Many companies are under pressure to keep their earnings in line with analysts’ forecasts. Therefore, they often accept smaller, predictable earnings rather than larger and less predictable returns,” he wrote. ”Sergey and I feel this is harmful, and we intend to steer in the opposite direction.”
Google’s policy was inspired by Warren Buffett, who has been preaching long-term management at Berkshire Hathaway for four decades. Buffett feels no pressure from Wall Street because he is arguably the most successful investor of all time. The young founders of Google don’t have that kind of track record, so they sold stock to the public that comes with diluted voting rights. They were thus able to raise lots of money while still retaining control over the company. In the past, this has often spelled trouble. Executives who aren’t accountable to shareholder votes can be prone to mischief. The Google founders seem to be saying that executives get into more mischief when they are overly solicitous of short-term investors. Mindful of all the companies that went astray and sometimes lied to meet analysts’ expectations, Google will not even issue earnings forecasts. Like latter-day corporate barons, they advance the proposition that shareholders will be better off if the executives are trusted more and interfered with less.
This is it. This is the message. I’ll concede that it’s decidedly anti-populist, and therefore not necessarily fertile Democrat territory. But the idea that short-term thinking is harmful to long-term growth is a good one. Is it any surprise that Warren Buffet, the most sucessful investor of all time AND an advisor to the Kerry campaign is preaching the same gospel?
The Google IPO was probably the biggest stock market story of the year. And Buffet is the biggest dog in the market every year. Both of them have underlying ideas that are very sympathetic to the Democrats AND pro-business.
So the question is, why aren’t the Dems aware of this? Why aren’t they making these guys available to every media outlet, pushing them on the Sunday talk shows, etc. The Dems have a pretty deep bench, it’s just that no one’s figured out how to utilize it yet under a cohesive umbrella.
