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Rules for Making Capitalism Sustainable

Conventional measures of economic performance, such as investment and productivity, are often skewed to favor short-term profits. Here is how capitalism can take a longer view.

What’s the Latest Development?

Common evaluations of economic growth have come to favor short-term profit over long-term investment, says Nancy Folbre, economics professor at the U of Mass, Amherst. An important distinction in understanding the problem is the difference between public and private companies. Executives at public companies depend on the continued investment of a large number of shareholders, constraining their actions to please those who are often more interested in getting a return on their money than the long-term future of the company.

What’s the Big Idea?

Until a viable alternative to capitalism emerges, small changes can be made to the global economic order to make the world a more just and more stable place. One change involves stopping quarterly earnings reports, which drive capricious investment, in favor of yearly reports. Investment banks could sell ‘loyalty securities’ which offer a higher rate of return in exchange for longer-term investing. Assessing the value of ‘stranded assets’, such as unpaid mortgages and the environment, would also contribute to more responsible investing.

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