Buying Shares Isn’t the Same as Funding Innovation
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The New York Stock Exchange on November 21, 2024 (Michael M. Santiago/Getty Images)
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The conflation of “shareholding” and “investing” has been pervasive over the past 50 years, not only in our everyday language but in the very structures of corporate governance and policymaking.
In reality, publicly traded companies finance the majority of their real investment through means other than issuing or trading shares, Roosevelt Senior Fellow Lenore Palladino and Harrison Karlewicz explain in a new working paper. Despite this fact, corporate governance structures afford shareholders, who primarily buy and sell shares for the purposes of capital appreciation, exclusive power and special privileges under the paradigm of shareholder primacy.
“These theoretical assumptions of neoliberal economics—that shareholders are the core actors financing the private sector—are refuted by the institutional structure of financial markets in the 21st century and by the evidence of how corporations finance themselves,” Palladino and Karlewicz write, contrasting the trading of corporate shares on markets with the funding mechanisms that actually spur productive investment in companies. As Palladino and Karlewicz attest, “control is not investment.”
Disentangling the concepts of shareholding and investing offers an opportunity to challenge the shareholder primacy model and reimagine corporate governance, with shareholders as one group among many stakeholders, from employees to the public. By doing so, Palladino and Karlewicz conclude, “policymakers—free of the distracting assumption that flush stock prices might somehow bring forward productive investment—can refocus on the real work of promoting policies that will actually cause corporations to engage in the innovation process.”
Read the full paper: “The Myth That Shareholders Are Always Investors: Challenging the Paradigm of Shareholder Primacy.”
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A New Opportunity for Book Authors
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The Roosevelt Society’s Author-in-Residence program provides experts with the resources, community, and expanded platform to work on a book manuscript that explores bold paradigms for creating a healthier, more democratic economy. This fellowship is a key component of Roosevelt’s mission both to build the progressive economic field and to reframe the most pressing challenges of our day so they are understood not just as technical problems but as issues of power relations and political economy. We hope the Author-in-Residence program will help provide much-needed infrastructure for authors to incubate their ideas, push public discourse forward, and open new possibilities for realizing a more just and more resilient future.
Applications are due December 8, 2024, at 11:59pm ET. We hope to bring someone on board in January 2025 for a one-year nonresidential fellowship.
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- Business Insider cited Roosevelt Chief Economist Joseph Stiglitz’s prediction that the Fed may raise interest rates in anticipation of inflationary policies from the incoming Trump administration.
- Roosevelt Fellow Joshua Macey and Jacob Mays published a study showing why beneficiaries should foot the bill for new power lines.
Note: The Roosevelt Rundown will be on hiatus until December 6.
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