KUALA LUMPUR – The application of social capitalistic measures are important to ensure that the balance between short- and long-term capitalism can be achieved to a certain extent without compromising companies to merely focus on profit-seeking measures.
PETRA Group Good Capitalism Forum chief executive Graham Kendall said at present, most business entities are focusing on short-term capitalism as a bottom line, being beholden to the shareholders by making profits and returning money to them.
As a social capitalist or a good capitalist, we want to see companies go beyond, so it should not all be about the bottom line.
“In some ways, companies should also measure their other successes by using things like how well you are looking after your employees, how well you support your community, what you can do about the environment – and it’s not about how we are very keen as capitalists or how we make money as that is what we do – but it’s reinvesting that money in the right way,” he told panellists during the recent Horasis Global Meeting session titled “Balancing Capitalism’s Short vs Long-termism”.
The session was chaired by International Banking Federation managing director Hedwige Nuyens with panellists including Biolingus chief executive Yves Decadt and Barbados Financial Services Commission chairman Avinash Persaud.
Kendall pointed out then British chocolate confectionery company Cadbury-Bournville in the late 19th century as an example of social capitalism.
“There is a town in Birmingham called Bournville that was built by the company that used to manufacture and make all this chocolate, because they knew that if they did not do that, they would not be able to get the staff that were required (to run operations) and make all this chocolate.
“So they provided housing, schooling and education for their employees and their families.
“That actually strikes as an example of good capitalism. Looking out for your employees, who in turn look out for the company.
“In the end, everybody benefits. If we can do that going forward rather than just looking at the bottom line, capitalism, I believe, will be much more sustainable than it is now,” he added.
Meanwhile, Decadt, who runs a Swiss biotech company opined that while balancing long-term and short-term capitalism is very important, it is also very difficult.
“It is a very thin line to walk. With our company, we are helped a bit by our technology, which is at the base of our company.
“What we do is produce pills that are placed under the tongue so that diabetes patients do not need to inject insulin for treatment.
“This is very hi-tech, and what is a bit unusual is that it is also low cost, and it stabilises products such as insulin and does not need to be refrigerated during transportation.
“This product will allow us to provide access for delivery to poorer countries,” he said.
As such, by means of technology, Decadt said companies are able to balance short- and long-term capitalism not just with financial goals, but also through social innovation and other means, which are more important to different kinds of stakeholders.
“That’s one thing, but we also need a good story/narrative to bring stakeholders together, and allow typical financial investors to look at long-term investments and review other goals, not just financial goals.
In short, good technology, good product and a great narrative can help fulfil the balance between short-term and long-term capitalism, alongside pure financial goals and non-financial goals, as well.”
Giving a historical perspective, Persaud said the issue reminded him of the Hollywood film “Back to the Future”.
“We did actually have a different kind of capitalism and shareholder capitalism in the past. I remember as a young person, life insurers and pension funds were heavily invested into long-term capitalism, and indeed if you look at the stock market back then, over 50%, or 60% at one point, of participants in the stock market were long-term investors, pension funds and insurance companies.
“Even when you added retail investors, back then before the age of Reddit, retail investors tended to be ‘buy-and-hold’ investors, and if you add all of them up together, you had altogether 70% long-term investors.
“You had around 10% on the stock market of what you call market makers, brokers, and traders, and that was not a bad balance because you need traders to give you price discovery and to see the price today, and you need (the) long term,” he said.
However, the pattern, he said, has changed over the course of time through unintended consequences.
“I mean, when you have long-term investors, they are not interested in a share buyback. They would want a long-term return. They do not want to cash it in today because it is a problem for them, because they would be, like, what do I do with this cash and how do I reinvest it?”
Persaud said factors that drove the present imbalance included the move by financial regulators to have mark-to-market accounting.
“This move was really a defence against fraud because a lot of fraud was carried out, as well as lack of up-to-date pricing. It slipped through the cracks.
“It created a problem for people who were investing in things that weren’t quoted, such as long-term real estate and development, and it became an issue if you do not have mark-to-market accounting.
“There was also a move in bank and insurance regulations towards this belief that liquid things are very good.
So, we have moved away from the kind of long-term capitalism from what we used to have, to what is based on really short-term transactions.”
Persaud said while we now have a more imbalanced type of capitalism, the situation does not need to be prolonged as such.
“We can actually have long-term investors not be desensitised from investing in the long term once more,” he added.
Launched in 2016, the annual Horasis Global Meeting is one of the world’s foremost discussion forums, offering an ideal platform to explore and foster cooperation, impact investing and bring sustainable growth across the world.
Horasis, which was founded in 2005 by Dr Frank-Jürgen Richter, is aimed at bringing the best minds and decision-makers from business, government, innovation, and other disciplines to look at ways to solve global problems, be they poverty eradication, racial injustice, economic inequality, or environmental destruction.
A Greek terminology that loosely translates to “to gaze at, in a vision”, Horasis holds a series of summits throughout the year, including the Horasis Extraordinary Meeting, as well as smaller, country-specific conferences, including the Horasis India Meeting from June 20, and the Horasis China Meeting and Horasis Asia Meeting in Japan later this year.
PETRA Group is Horasis’ strategic partner. – The Vibes, June 14, 2021
