Long term shareholding for a green economy
To enable businesses to function more sustainably, mechanisms to encourage long-term thinking should be introduced.
Are our structures of economic decision-making fit for purpose? That depends on what the purpose is, of course. If decisions need to be made for the long-term, and if they should take into account a balance of different interests and concerns, which they should, then the answer has surely got to be no.
There is a short-termism built into the way most shareholding works. Shares, and the legal control over company decision-making which comes with them, can usually be bought and sold at very short notice. This causes a high degree of instability in the world economy, disrupting economic activity and the lives of people who depend on it. This instability is amplified by currency and commodity speculation, and by the 'herd mentality' of hedge funds, that often just follow or try to predict the behaviour of other investors.
At the same time, this provides a constant incentive to firms to take decisions which are profitable in a short time, for fear that their sources of finance will dry up if they make decisions which have short-term costs and long-term benefits. And yet many sustainability decisions are like that: sacrifices or investments in the short-term, such as investment in energy efficiency, for the sake of savings long-term.
The world economy is therefore skewed in a 'short-termist' direction, at a time in history when the challenge of sustainability makes it essential to take investment and other economic decisions which make sense for the long term, including the interests of future generations. This short-termism in the private sector is paralleled by a similar short-termism in the public sector and the political system.
In addition, there is a long-established privileging within company law of one particular interest, that of the suppliers of finance, over those who supply labour and materials, and other groups affected by firms' activities. This is a fundamental bias built into the economic system.
In recent decades, this question has become difficult to raise. For some people, the only alternative they can conceive of as a replacement for current corporate structures is the Communist system which existed in the highly centralised USSR and its satellites. That system (though China is now rather different) proved a failure in almost every way, including in terms of economic achievement, environmental impacts, and political values such as self-expression and democracy.
But surely we can imagine a better way forward than that.
It is possible to picture an economy with a much greater variety of ownership and governance structures, a much larger 'third sector', and much more diversity on company boards.
There could be a provision in company law stating that the only category of shares that gives shareholders a share in control in large firms would be one which could not be resold for at least a minimum period of time, maybe three years - thereby favouring a less short-term approach.
This could not by any stretch of imagination be regarded as a recipe for centralised state control, because there would still be a plurality of competing firms. It would more accurately be seen as a new and fuller expression of democratic traditions in the west, extended from the political to the economic sphere, as well as a response to the immediate crisis of short-termism and lack of sustainability.
Clearly change of some sort is necessary, yet it is also important to try to avoid a chaotic disruption which would add to people's feelings of anxiety and anger. We should move gradually - for example through enhanced company reporting and scrutiny, by experimenting with new structures for new enterprises, and through NGOs, unions, and community groups trying to engage with companies on a more informed and proactive basis.
A more long-term and balanced approach would enable business to function more sustainably.
This article was also published in the Guardian online