Corporate lethargy is the new malaise
OUR corporate world has lost its mojo.
Okay, so the swashbuckling nature of Rupert Murdoch’s $80-billion tilt at Time Warner this week may seem to disprove this possibly simplistic claim. Despite the setbacks of recent years, there seems to be ambition left in the octogenarian media mogul. And there is no denying the wow factor in his proposed mega deal.
The more mundane truth, however, is that his approach to Time Warner is just another defensive, cost-cutting, contentrights land grab. It is merely about who owns what.
Corporate consolidation is a necessary part of the creative destruction of the free market. But it makes a poor substitute for genuine entrepreneurship, corporate innovation and investment, and it does not create growth or, in many examples, even wealth.
Merger proposals like this are symbolic of a generalised malaise that hangs over much of the corporate landscape, one that prefers the earnings enhancement of share buybacks, tax planning, corporate takeovers and constant downsizing to the higher-risk ambition of inventiveness, creativity, investment and organic expansion.
For optimists, this is just a cyclical problem brought on by the length and depth of the crisis. And corporate risk aversion may also be something of a generational issue. For many of today’s CEOs, tutored in the survivalist skills of the credit crunch, safety-first cash preservation has become a way of life.
Yet, for pessimists, a much deeper concern underlies this state of corporate lethargy — the suspicion that the West has simply run out of productivity-improving inventiveness.
Apart from a brief interlude brought about by the IT revolution, productivity in most advanced economies has been struggling to make progress ever since the 1970s. The same may be true of rates of innovation, with patent filings in the US significantly lower than they used to be.
Some corporations complain of stifling levels of regulation. Others point to globalisation and labour migration, which may have destroyed, temporarily at least, some of the incentives for innovation.
We are as much damned by the march of innovation as by the absence of it
Even those who are more optimistic about innovation tend to worry about its implications for jobs and demand, with humans displaced by machines and computers. We are as much damned by the march of innovation as by the absence of it.
There are two types of economic growth. One, sometimes referred to as “external”, is caused by increases in population and labour participation. In terms of advancing people’s living standards, this type of growth is pretty much worthless. The other, “internal” growth, comes from innovation and investment, and creates a virtuous cycle of rising productivity and incomes.
Reinvigorating this second form of growth requires a three-pronged approach. A sense of national purpose, such as the space race, can help. Re-establishing decent standards of education remains a work in progress. More important, however, is a renewed drive to liberate enterprise from overmighty regulation, thereby restoring the incentives for risk taking and investment.
There is nothing that says human beings have reached the outer limits of their inventiveness. What definitely has occurred, however, is a creeping form of corporate sclerosis, happy to chug along within a tightly constrained, government-dominated, status quo. Unsurprisingly, it’s not working. — ©