New Items

Below are articles and reviews that have been published since the date of the last newsletter. Articles shown here may later be incorporated into the monthly 'story' for upcoming newsletters – into Editors' Picks or Front Page articles.

Semisovereign People, The

Title: Semisovereign People
Author(s): E. E. Schattschneider
Publisher: Dryden Press
Pages: 143
Date: 1975

Find on WorldCat

Find on LibraryThing

Find on Google Books


Structure and change in economic history

Title: Structure and change in economic history
Author(s): Douglass Cecil North
Publisher: New York : Norton
Pages: 228
Date: 1981

Find on WorldCat

Find on LibraryThing

Find on Google Books

 


Productivity Not Profits

Over long periods of time, small differences in rates of productivity growth compound, like interest in a bank account, and can make an enormous difference to a society's prosperity. Nothing contributes more to reduction of poverty, to increases in leisure, and to the country's ability to finance education, public health, environment and the arts. Alan Blinder and William Baumol (1993). Economics: Principles and Policy, Harcourt Brace Jovanovich, San Diego, p. 778.

Productivity not profits.

If you can't sustain a growing rate of industrial productivity in a nation-state then you can't sustain a great nation. Let the economy tank and you open up quarters for popular discontent and single-issue political solutions. 'Drill Baby Drill' or 'Universal Health Insurance' become politically attractive siren songs – providing geographically stable jobs to a population desperate for any relief to their personal economic distress. Over long periods of time small, steady losses in industrial productivity undermine an economy to the point where the population is reduced to fighting amongst itself for a piece of an ever-smaller economic pie. It's a dangerous time, engendering the rise of divisive political philosophies and partisan platforms.

Profits are a very poor surrogate measure for productivity, even over the long run.

  • Profits allow management to give the appearance of productivity while they mortgage the future+. It's easy to manipulate profitability for up to a decade: cut back steadily on R&D expenditures, outsource core capabilities, etc.
  • Profits allow lucky managers to pillage their firms ...

Bureaucracy

Title: Bureaucracy
Author(s): James Q. Wilson
Publisher: Basic Books
Pages: 433
Date: 1989

Find on WorldCat

Find on LibraryThing

Find on Google Books



One Person, One Vote, No Proxies

The one share, one vote rule, called the proportionality principle, states voting power should match economic incentives, i.e., shareholders should be able to vote their opinion in proportion to their claim on cash flows from the firm. Sounds alluring, but consider why a percentage claim on cash flows from a firm (e.g., dividends) should entitle anyone to the same percentage claim on decisions affecting firm revenues, cash expenditures or debt levels? Cash flows are typically a very small percentage of revenues (e.g., 10-15%). Why should a percentage of cash flows be transferable to a vote on the many thousands of decisions of the firm often having little to do with cash flows?
Figure 1. The support structure for funding of unpredictable R&D. Investor education is key. Investor participation makes for more effective education. Investor retention is needed to make the education stick.

Proportionality is under attack on a number of fronts. It's not practiced in venture capital firms or in most LLC's. Even non-shareholding labor representatives claim a right to vote in firms of several European countries. It is not by far an indisputable principle.1

  • 1. Perhaps the best argument for proportionality is found in cases where a few high-count shareholders exercise due diligence for the good of all investors, especially in the