3.5.6.5 Investment in Business Development and Growth

(This is a current page, from the Patterns of Power Edition 3 book contents.  An archived copy of this page is held at http://www.patternsofpower.org/edition03/3565.htm)

Some of the proceeds from wealth-creation, or borrowed money, can be used to invest in developing the business: for example in facilities, machinery, tools or research (3.2.8) for any of the following purposes:

  • Increasing a company’s capacity.
  • Increasing its productivity, for example by automation.
  • Development of new products and markets.

These investments, if successful, benefit both the company and the economy as a whole.  A problem in America and Britain since the 1990s, though, is that the rate of investment has slowed and productivity is not increasing as fast as previously.  This has damaged the competitiveness of businesses in both countries.

The slowdown has been attributed to a short-term focus on increasing the share price, by management and shareholders whose incentives are linked to that.[1]

There is also a case for national investment in infrastructure, technology and people – as argued by Joseph E Stiglitz when endorsing Corbyn’s bold rethink for State involvement in Britain’s economy.

© PatternsofPower.org, 2014

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[1] Forbes.com published an article by Steve Denning, entitled Will Trump Discover Why So Many Americans Were Left Behind?  It was available in March 2018 at http://www.forbes.com/sites/stevedenning/2016/11/15/will-trump-discover-why-so-many-americans-were-left-behind/#52dfe92d2a1c.  He quoted a report by three professors at Harvard Business School, who wrote:

“firms invested less in shared resources such as pools of skilled labor, supplier networks, an educated populace, and the physical and technical infrastructure on which U.S.  competitiveness ultimately depends.”

He attributed this to the policy of “maximizing shareholder value as reflected in the current stock price.”  The remedy he suggests is a renewed focus on “entrepreneurship and innovation”, so that companies can continue to improve their productivity and ensure their long-term survival.