Corporate Short-Termism.

Do you think that private companies concentrate too much on the short-term? At the expense of long term planning? Many do and it is oft put forward as a reason why Government has a place in the longer range planningthat we do.
Leave aside for the moment the fact that very few Governments ever look further than the next election and read Don Boudreaux’s take on the Airbus A-380. No, he’s not talking about the investment that led to its being built:

This popular belief that corporate managers are driven above all to maximize short-term profits came to mind today as I read this account of the new Airbus 380.

I have no opinions on the merits of this new jumbo-est of jets – I
haven’t yet flown in one. And that’s my point. This jet won’t even
begin to carry commercial passengers or freight until sometime next
year. Yet already several companies have placed orders for the $250
million jet, including Virgin Airlines, UPS, and Federal Express.

Federal Express, for example, won’t get its first 380 until 2008 – yet it has already placed orders for ten of them.

I don’t know the dollar amount of FedEx’s down payment for its order
of ten 380s, but I’m certain that it’s in the millions of dollars (and,
likely, in the hundreds of millions of dollars). A company obsessed
with maximizing quarterly profits would not spend millions of dollars
today for a benefit that won’t begin paying off until several years
down the road.

A simple but important point.

One response

  1. Paul Zrimsek Avatar
    Paul Zrimsek

    I’ve found that most believers in corporate short-termism also believe that, in the absence of antitrust laws, corporations would lower prices in the short term in order to drive their competitors out of business and enjoy monopoly profits in the long run.

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