A Manifesto for Sustainable Capitalism

Al Gore and David Blood, his partner in the multi-billion private equity fund, Generation Investment Management, recently opined on “How businesses can embrace environmental, social and governance metrics,” on the Op-Ed page of The Wall Street Journal, an unlikely location for such a conversation – but, just the place it should be happening.

Their narrative is spot on, worthy of reading if only to remind us of the basics that must guide us out of our current economic and environmental mess.

Much of the essence of their plea is focused on the dangers of our obsessive short-term focus – a theme I revisit often on this blog.

Gore and Blood recommend (among other ideas) that we:

  • End the default practice of issuing quarterly earnings guidance;
  • Align compensation structures with long-term sustainable performance; and
  • Incentivize long-term investing with loyalty-driven securities.

All excellent recommendations.

Companies should follow their guidance; however, we have tax, regulatory and securities laws that all push in the opposite direction. Without changing the “system” that financially incentivizes short-term investment, we will not make substantive headway.

So, that’s why I would add the following two suggestions:

  • Radically alter capital gains taxes. We must discourage traders who hold stocks for a matter of seconds and encourage long-term investors. I would advocate a tax rate of 90% on investments held less than one month, 75% on investments held less than a year, with a tax rate of 0% for investments of 30 years or more.
  • Extend the required holding time for stock options that are converted into common shares to qualify for long-term capital gains treatment.

What do you think? Please comment or pose a question below.

2 comments

  1. I just read the article in the Journal. Very effective analogy of steering with the stars versus passing ships. Changing capital gains tax would change the way people invested in companies and the expectations for short term growth. How did you arrive at 90 and 75% and the time periods? Is 90% realistic? It seems like 30 years may seem too drastic for a first step. What about starting with 10 years?

  2. In our work on Economics in Transition, you’ll find a Manifesto for People-Centered Economics which derives from a white paper from the steering group of the Committee to Re-Elect the President in 1996.

    The 2009 presentation examined the development of 20thth century economics and in 2010 the P-CED treaties was discuseed with students.

    http://www.p-ced.com/1/projects/ukraine/sumy/

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