Link logs in the blogosphere are saturated with incredulous links to stories in the vein of “Wow. Look at this company — they pay their employees well, are socially responsible, and they’re still successful. Huh.” Among the companies likely to be the subject of the linked articles are SouthWest, JetBlue, Whole Foods, or Costco.
Great. I like to see great companies rewarded with stellar PR. However, why the accompanying surprise? These companies have chosen the long term over the short term and are justifiably reaping the rewards. Their success is not a surprise for the economically wise — in fact, economists may be wondering to themselves why more companies haven’t caught on. Success is found in thinking long term, not short term.
Oddly, against most economics 101 lessons, a large portion of the private business sector is operating only on the short term. Any small piece of negative company news, whether a possible leadership shake up or a slight miss of quarterly earnings, can send the company stock on a slide. The focus on quarterly earnings have effectly created a business world that has lost sight of the long term. What about looking past Q4 to next year, the next five years, the next ten years?
Great business leaders have a long term vision. Southwest and JetBlue know that keeping fixed costs low maintains low debt and expense burdens for the future. They know that valuing and empowering their human capital lowers turnover and discontent, thereby saving millions (billions?) in training and the added cost of unionized labor. Costco knows that having a well-paid, well-treated work force lowers turnover, increases productivity and efficiency and, thusly, increases profits more than Wal-Mart-esque penny pinching ever could. The same goes for Whole Foods.
So, how do we get out of the short term funk? Well, in my estimation (one tainted by a high level of economics geekiness, but by no means one that should be considered infallible), investors need to look past the next quarter, because the company a year or more in the future is more important. And, ultimately, a company has to be willing to take short term investor losses in order to save the long term. Economic principles will reward them in due time.
1 response so far ↓
1 Charlie // Nov 8, 2005 at 9:57 am
In defense of the investors, I’d like to suggest that most investors are just playing around with their money. My theory is that people only invest their disposable income, so they can afford to risk it for short(er) term gains.
Also, I think investment companies and advisors get better PR (and better paychecks) by moving money around and getting big returns quickly. They encourage riskier shorter-term investments. A financial advisor only has to be right once when suggesting a risky short-term investment with someone elses money. Then he can retire on his commision and move to the Bahamas.
Wal-Mart will eventually collapse. I’ve seen it happen before. People will stop going to places where the staff doesn’t treat them well. Eventually, Wal-Mart employees will unionize, and that will be that. When the union finally gets a foothold in Wal-Mart, you can start counting the days to their bankruptcy. (Not that bankruptcy means anything anymore)
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