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Ian Garner
Business Writer
12:00 AM 26th October 2024
business

Short-Termism Driven By Political Cycles

 
Image by Gerd Altmann from Pixabay
Image by Gerd Altmann from Pixabay
We have recently witnessed a change of government in Westminster, and it is highly likely that the current party in power will not face elections for the next five years. However, some issues require more than five years to yield significant improvements.

There are examples like health care (NHS) and social care that may need changes that won’t be completed by the time of the next general election. Other examples could include energy policy, the environment, and transport. These challenges may not show the benefits, if any, of improvement before the next turn of the political cycle.

Australian Prime Minister Anthony Albanese said, “Short-term thinking is the greatest enemy of good government.”

The Institute for Government, a prominent independent think tank in the UK, recently made a statement.

“Policy makers have repeatedly prioritised short-term issues in public services at the expense of difficult decisions that would benefit services in the long run. Public services, and the public they serve, are now experiencing the consequences of that short-term thinking.”

The CBI released a report recently that stated that the UK economy faces challenges on multiple fronts: sluggish productivity, underperforming business investment, and persistent labour and skills shortages. These require long-term solutions over short-term headlines. And amid high costs and steep interest rates, business needs a positive economic vision that is honest about these issues and focused on long-term, credible investment in our future.

mage by Gerd Altmann from Pixabay
mage by Gerd Altmann from Pixabay
English-born American author and inspirational speaker on business leadership, Simon Sinek described leadership as “not about the next election; it's about the next generation.”

Governing with an eye to the future is notoriously difficult. Not only are there damaging fears about the reliability of forecasting, but governments face the short-termism of the electoral cycle. The decisions made by the government today will shape the future. Policies agreed now will affect the lives of the next and subsequent generations.

It is not just governments that face the short-term, long-term dilemma.

You can't grow long-term if you can't eat short-term. Anybody can manage short. Anybody can manage long. Balancing those two things is what management is.
Business guru Jack Welch


Businesses can suffer from short-termism. A report from a leading international accounting firm declared that the right balance between a short- and long-term perspective is crucial for the sustainability of a successful business. However, there is a lot of evidence to show that long-term objectives are often neglected because of too much concentration on short-term goals. 

It’s what happens when companies focus on returning money to shareholders each quarter rather than spending money on productivity improvements or on research and development for their next big innovation.

A report by the World Economic Forum reported, “Investors’ obsession with short-term returns, according to the new conventional wisdom, compels corporate boards of directors and managers to seek impressive quarterly earnings at the expense of strong long-term investments. Research and development suffers, as does long-term investment in plant and equipment.”

However, the report goes on to say, “For example, pharmaceutical companies cannot develop new products on a quarterly basis; they must operate with multi-year time horizons. The oil industry cannot open and close oil fields on a quarterly basis; companies must spend a decade or more investing in developing new fields. And remaining on the cutting edge of innovation demands that tech giants like Apple, Intel, Amazon, and Google continue to play the long game. If these industries and companies can take a long-term view, what is stopping other firms from doing so?”

A UK government (BEIS Department for Business, Energy, & Industrial Strategy) research paper in 2022 found that results are not consistent with the hypothesis that publicly listed companies are relatively more short-termist than private companies.

One thing is clear: focus on long-term objectives needs to resist short-term pressure, and it’s just as important for business as it is for governments.

Ian Garner
Ian Garner
Ian Garner is a retired Fellow of the Chartered Management Institute (FCMI) and the Institute of Directors (FIoD).

Ian is a board member of Maggie’s Yorkshire. Maggie’s provides emotional and practical cancer support and information in centres across the UK and online, with their centre in Leeds based at St James’s Hospital.

He is the founder and director of Practical Solutions Management, a strategic consulting practice, and is skilled in developing strategy and providing strategic direction, specialising in business growth and leadership.