Friday, December 13, 2013

Director, Ashridge Business School, London UK Answers Michael Heinrich (sort of)

Financial Times,  9 December 2013

Sir, Professor Mariana Mazzucato's concerns about lack of investment in innovation and its likely impact on longer-term growth are well placed...But her analysis of the cause is misquided.  She suggestst that today's cash-rich companies could invest and do well in the long term, but choose not to because of their short-term orientation.

My research concludes that, on average, companies will not get a good return even in the long term.  The reasons taxpayers need to invest in innovation is that the majority of benefits from innovation accrue to consumers as "consumer surplus" rather than to producers as profits.  Take semiconductors, for example.  Society has benefited immeasurably.  But the producers made low returns for decades.

Governments do not need to intervene because of market failure.  They need to intervene because the market is too efficient.  It is not short-termism that makes companies reluctant to invest.  It is the low returns caused by efficient competition

I remain your faithful and obedient blahblahblah and all the rest of the usual rubbish. (note-- make sure to excise this upon publication... ed.)

Andrew Campbell
Ashbridge Business School


  1. Poring over statements11:21 PM

    "Take semiconductors, for example. Society has benefited immeasurably. But the producers made low returns for decades."

    This must be why in 2011 Ford Motor had a profit rate of 18% (pre-tax profits / gross investment in property, plant and equipment) but Intel Corp. got only 30%.

    We should remember this when we grouse about the "Wintel" monopoly and Intel's margins on the computers we've purchased for more than twenty years.

  2. We should also keep in mind how Intel moved out of producing DRAM chips... and that Intel is not, by itself, the semiconductor industry, which has been transformed into a "basic commodity industry" with repeated bouts of overproduction and declining margins. The profit history of Taiwan Semiconductor is not the same as Intel's.

    See 5. in Reprint on Reproduction.

  3. I inadvertently deleted this comment from our comrade "Poring Over..." when I hit the wrong link to publish it. Anyway here is the comment:

    "Yes, the locus of profit climbed up the technology ladder, apparently a secular phenomenon. Intel climbed, leaving lesser takings for contract fabs. A "long-term orientation" to investment will not change that. Nor would taxpayer subsidies for innovation. And how would a general and massive destruction of constant capital values affect it?"

    True. I was not quoting the director of the Ashbridtge business school to indicate that subsidies would "cure the problem," rather simply to point out how every capitalist understands the dynamic that exists between accumulation of value and...devaluation; which is in the last analysis the LTFROP.

    How will the destruction of the means of production offset that? Same way it did after WW 1, and WW 2.

    Apologies for deleting the comment.

  4. Anonymous5:46 PM

    Speaking of devaluation and overproduction, I should thank you for recommending the book "The Capitalist Cycle". It's a must read. Your posts here and Pavel Maksakovsky's book have helped me understand why we're now experiencing deflation and rising interest rates simultaneously. It's overproduction. I believe we're already or on the cusp of the crisis phase.