1. Introduction & Reason

Dominic Barton’s article on the “Capitalism for the Long Term” and in particular his “Fight the Tyranny of Short-Termism” essentially asserts ‘there is a myopia plagues all Western institutions in every sector’ and in his article, he suggests solutions to potentially treat thus problem He believes that this short-sighted perspective leads to the crippling of corporations, and the economy and creates social problems.

Research that supports Barton’s claim of this pervasive myopia was presented during a conference hosted by Morgan Stanley in June 2011, where it was shown that the majority of chief investment officers from top asset management firms focused on short-term horizons that are disconnected from the organic process that typically value in businesses (Generation Investment Management LLP, 2012). In addition, former United States of America (USA) Vice-President, Al Gore said that ‘capitalism is coming under increased scrutiny and needs to change as short-term thinking has driven a wedge between investing and the creation of value for corporations’ and capitalism needs to change (Johan Carlstrom, 2013). This problem of short-term capitalism has attracted many institutional bodies such as International Monetary Fund and Harvard Business Review to conduct studies looking at its negative impact. The short-fall of short-term capitalism can be seen and felt most recently by the financial crisis in 2008 that saw the collapse of major firms such as Lehman Brothers and the lives of many employees and their families destroyed along with the economy (Financial Crisis Inquiry Commission, 2011).

In summary, his argument calls for the review of a shift from short-term capitalism towards long-term capitalism in order for capitalism to continue to thrive in this modern age.

2. Assumptions & Potential Problems

Barton’s main argument of transferring from short-term capitalism to long-term capitalism is problematic for a few reasons. Firstly, he assumes that short-term capitalism always leads to short-term management. Next, he assumes that short-term management is the root problem of short-term capitalism. Conversely, he assumes that long-term capitalism is better than short-term capitalism.

However it is not possible to determine the true lasting advantages and disadvantages of long-term capitalism as it may not has not run its full course yet. Disadvantages may not be readily apparent initially and may end up being more potent as they have had more time to fester and snowball.

Barton makes a further assumption that all investors are short-term and thus value-orientated which is false because that is a sweeping judgement on a diverse group of investors, of which a notable example to the contrary is Warren Buffet. He also believes that because investors are value-oriented, they are the ones at the root of problem as they pressure the board and management to practise short-term capitalism too. There may be some truth in that value-orientated investors will lead to short-term management this creates a vicious cycle. In theory, the management should be autonomous but in reality their investors usually influence them. A case in point would be that Chief Executives Officers (CEOS) are pressured by their investors to meet quarterly targets for the company’s share price may depreciate if they fail to meet them. CEOs then go to great lengths to achieving them, even if it could damage longer-term health of the business (Tim Koller, Rishi Raj & Abhishek Saxena, 2013). As such, in order to avoid a conflict of interest, any board of directors should be fully independent (Lawrence & Weber, 2011). This is important as the board would then be able to choose what is best for the corporation and should they choose to practise long-term capitalism, they would need to filter out the growth-orientated investors from the value-orientated investors (Bill George, 2013). Hence, the board decides the type of capitalism they want to undertake and the type of investors they wish to attract. Thus, it is not the investors who determine the corporation’s take on capitalism and should not be where we start from to solve this problem of short-term capitalism as mentioned by Barton.

Another assumption that he makes is that ‘short-term capitalism is a tyrant that needs to be rid of for before the social contract between capitalist system and citizenry ruptures.’ The reality is that capitalism is by its very nature is governed by an inanimate non-living economic model and therefore cannot be corrupt. The misuse and abuse of the model by its users is to blame.