Perfect vision: perfect year for rebalancing short term returns and long term strategies.

I’ve been reading the Value of Everything written by economic professor Mariana Mazzucato, Founder of the Institute of Innovation and Public Value. It’s worth reading.

The book will likely challenge or better inform some of your beliefs about capitalism while shedding light on the political landscape and the initiatives prominent tech leaders are undertaking to address equality, privacy and opportunity for all. 

Value Creators

For several decades now, we’ve been lead to believe that the storied innovators and entrepreneurs are the real value creators in society but that is not be entirely true.

Many ideas are incubated at educational institutions with funding from government grants and loans and later brought to life by an entrepreneur with the help of many other people including employees, consultants and attorneys, vendors and others. The role and contribution of everyone else involved often isn’t adequately acknowledged or valued.

Governments take the biggest risk for the years of research needed to discover the most innovative ideas but Venture Capitalists and Asset Managers realize the biggest rewards. Examples are Genentech [years of government funded research], Tesla [government loans] and EHR companies [government stimulus following the 2008 financial crisis]. 

That’s why economists and political leaders are now thinking about how to “tilt the economic table” so that governments participate in the upside [ie: convertible debt] or directly benefit [ie: pricing regulation] so that all tax payers realize the rewards.

Role of Government

There is an underlying belief that public employees are incompetent or lazy but that’s not always the case. In some instances, public employees have reportedly been four times [4x] as productive as employees of outsourced vendors backed by Private Equity [PE] investors.

A new study reports Canada’s cost of administering their national healthcare system is only 17% vs. 34% in the US for the existing public and private system. US costs will continue to outpace Canada’s cost as a result of the privatization of the Medicare and Medicaid programs.

Consequently, some economists and political leaders are questioning the right role for government in innovation and service. Change would be difficult now because it could negatively impact publicly traded companies and the financial industry. Plus it would require change to the national accounting standards and GDP.

We’re seeing the fear of this type of change play out in the “Medicare for All” debate. With that said, Hedge Fund managers are reportedly bullish on eHealth Inc. which leads me to believe that Medicare for all will not become a reality in near future.

Productivity

Many corporate leaders have been playing with the numbers rather than doing the hard yards. In other words, they haven’t been making the needed investments in employees, capital projects or research because the return on those investments take years to realize and may not result in a high enough return for investors.

Most Asset Managers are traders not investors. Their timeline for realizing a return has gotten shorter and shorter and shorter so that with electronic trading their timeline is measured in seconds not years. The excessive focus on short term results has rippled through Corporate America and put too much focus on value extraction rather than value creation. The focus on value extraction is at the heart of the inequality issues.

There is a concerted effort underway by corporate leaders to shift their focus to long term initiatives such as investing in the skills, health and welfare of employees. Economists and political leaders are looking at financial penalties to deter short term trading and other behaviors that erode value over the long term.

Healthcare Industry

As I read financial reports on the healthcare industry, it’s clear healthcare leaders are also struggling to balance short term expectations against long term investments. Many are still prioritizing investments that improve revenue over other needed investments that don’t have a proven ROI.

It’s a horse and cart quandary. But as an industry we needed to do the hard yards [ie. Screenings for social determinants of health] and clean up our act. For 10 consecutive years, healthcare fraud has accounted for 90% of the recoveries by the Department of Justice.

Governments don’t have an unlimited budget for healthcare which is why when volume goes up, pay usually goes down. My guess is that most would like to work less, get paid more and not have to worry about the fallout of questionable billing strategy.