Does it really matter who owns what? When foreign sovereign wealth funds, which these days are primarily rich Arab and Asian states, provide the lifeline to struggling North American banks, should we be thankful or worried?
The willingness to sell strategic assets is just one manifestation of the "short-termism" that characterizes so much of economic activity today. Not to be confused with responding quickly to new market information, "short-termism" refers to a focus on immediate earnings rather than a long-term strategy. Examples include the compromise of research and development or long-term investments, the invention and contortion of corporate structures, and even executive compensation schemes that reward short-term performance.
Not to excuse the responsibility of our corporate elites, but often less well considered is the burden -- and the power -- individuals bear in shaping the powers of the marketplace. Each of us, after all, represents a piece of the marketplace that, collectively, dictates the power of that market that shapes our economy. For instance, if most of us are feeling optimistic about our earnings prospects, that "mood" will lead market forecasters to feel confident that consumer spending levels will remain high or even increase. If most of us are feeling "bearish" and apprehensive about our prospects, forecasters will tend to believe we will be prone to saving money and paying down credit cards and therefore less likely to be active spenders.
Equally, our individual expectations regarding our investments will dictate how companies operate in order to meet investor expectations. If what we are looking for is a quick return on investment -- a short-term outlook -- public companies and stock markets will behave differently than if we are more interested in the performance of our investments over time -- a long-term outlook.
For many years now, some investment companies have offered "ethical" or "green" funds designed for individuals who want to get a sound return on their pensions or other investments, but aren't willing to do so if it means they will be profiting from the activities of companies they believe are not behaving in a fashion consistent with their values. Talisman's withdrawal from its holdings in Sudan is a clear example of the role values-based investors can play.
Few people understand this as completely as Jonathan Wellum, CEO, CIO and portfolio manager with AIC Ltd. Twice recognized as Canada's fund manager of the year and a former Top 40 under 40 designate, Wellum is a senior fellow with the Work Research Foundation. Somewhat uniquely for a financial analyst, he holds a master's degree in theology in addition to bachelor's degrees in business administration and in science.
Economics, according to Wellum's inaugural paper for WRF, is "really a metaphysical science rather than a mathematical one in which spiritual values and attitudes are more important that physical assets, and the morality and virtue of the populace are as foundational as the money supply." In Wellum's view, our present economic challenges are a barometer of our social values. "Why are we surprised by our short-termism when we are surrounded by an instant credit, mass consumption culture in which delayed gratification is ridiculed and mocked as outdated and irrelevant?"
Students of political science might be more familiar with this same theme, outlined by many thinkers, but explained succinctly by Thomas Jefferson in a 1792 letter to George Hammond when he said, "A nation, as a society, forms a moral person, and every member of it is personally responsible for his society." Substitute the word "market" for "society" and it's reasonably clear Jefferson and Wellum are speaking to the same issue.
Making long-term intergenerational decisions has important long-term implications, but requires a certain degree of self-sacrifice and philosophical perspective that seems in short supply in North America today. The CFA Institute warns that "an excessive short-term focus combined with insufficient regard for long-term strategy can tip the balance in value-destructive ways for market participants, undermine the market's credibility and discourage long-term value creation and investment."
The map of the world we grew up with -- the one with all the Commonwealth nations coloured in pink and dominated by the mass of the Soviet Union -- has changed radically. Just as profoundly, the geography of the new global economy continues to shift. And as it does, the shape it takes has everything to do with the economic power of our communal conscience.
|date:||May 25, 2008|