3.5.6.5 Investment in Business Development and Growth

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, as described earlier (3.2.8).  A company can do this for various strategic reasons, such as:

  • increasing capacity
  • increasing productivity, for example by automation
  • or development of new products and markets.

There has been a slow-down in business investment in recent years, though, on both sides of the Atlantic.  Steve Denning’s article, Will Trump Discover Why So Many Americans Were Left Behind?, attributed the U.S. slowdown to the policy of “maximizing shareholder value as reflected in the current stock price.”  Management and shareholders have placed a short-term focus on increasing the share price, because their incentives are linked to that.  He quoted a report by three professors at Harvard Business School:

“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.”

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.

The same short-termism has also affected Britain, but the Bank of England has also suggested that “Recent weak business investment appears to reflect the impact of Brexit uncertainties” when analysing What has driven the recent weakness of business investment?

There is a case for government to play a role in correcting this situation by offering incentives and making national investments in infrastructure, technology and people.

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This page is intended to form part of Edition 4 of the Patterns of Power series of books.  An archived copy of it is held at https://www.patternsofpower.org/edition04/3565.htm