Tag Archives: Short-termism

Ending short-termism by keeping score

By Klaus Schwab – As finance ministers gather in Washington, DC, for the World Bank and International Monetary Fund’s annual meetings, they will face no shortage of urgent matters to discuss. Fears of a global recession, the US-China trade war, the fallout of the Brexit talks, and a dangerous debt overhang make this the most stressful economic juncture in a decade. These issues must be discussed, and we should all hope that they can be resolved with minimal damage.

All of this assumes an end to the economic short-termism that underpins policymaking today. For that, we should develop scorecards to track our performance on these long-term priorities. To that end, I have three suggestions.

First, we need to rethink GDP as our “key performance indicator” in economic policymaking.

Second, we should embrace independent tracking tools for assessing progress under the Paris agreement and the SDGs (United Nations Sustainable Development Goals).

Third, we must implement “stakeholder capitalism” by introducing an environmental, social, and governance (ESG) scorecard for businesses.

On the first point, we desperately need to change our overall economic frame of reference. For 75 years, the world marched to the beat of the drum called “Gross Domestic Product.” Now, we need a new instrument. GDP gained traction when economies were primarily seen as vehicles for mobilizing wartime production. Yet today’s economies are expected to serve an entirely different purpose: maximizing wellbeing and sustainability.

It is time to consider a new approach. A group of economists from the private sector, academia, and international institutions, including Diane Coyle and Mariana Mazzucato, has already been working on alternate measures and ways to correct for the failings of GDP.

Their Wealth Project, which evolved from efforts initiated by the World Bank, has offered a number of proposals for how we can move forward. more>

Updates from Chicago Booth

How to curb short-termism and boost the US economy
End the requirement for quarterly reporting
By Haresh Sapra – The United States is in the middle of that rarest of events: a public conversation on accounting standards. Since 1970, public companies in the US have been required to report quarterly. The Securities and Exchange Commission is now considering changing that frequency to biannual reporting, and in December 2018 issued a request for public comment on the matter.

Admittedly, the issue isn’t exactly igniting the passions of the masses, but the implications of these discussions could significantly affect the US economy. For the first time in many years, policy makers are seriously reconsidering the rules on corporate financial reporting. The SEC is examining how to change the system to lighten the burdens on corporations, and to reduce what it calls the “overly short-term focus by managers” of listed companies.

My research suggests there would be great benefits to the US ending mandatory quarterly reporting. It would help to kick-start innovation among US companies, for one. That should be of particular interest to the SEC, which stated in its request that it is interested in how the current system “may affect corporate decision making and strategic thinking.” more>

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