Prem Sikka

The real problem is the nature of neoliberal democracy.

Well, glad we\’ve got that settled then. We\’ll obviously have to abolish the system then eh? Perhaps replace it by rule by civil society? Those who thrust themselves forward rather than those we elect?

Corporate interests have become central to domestic and foreign policymaking. With minimum public scrutiny, legislation demanded by corporate interests is enacted. Legislators are available for hire through consultancies and are only too willing to do their bidding. Little attention is paid to the long-term issues, or even consequences for the people, or the economy.

And of course that never happens when it\’s non-corporate interests, does it? We\’ve never seen unions getting their way, never seen absurd pressure groups like the Poppy Project influence policy? No, no, it\’s only those evil corporates.

Short-selling of securities was considered to be a major blot on the financial landscape, but is apparently OK now.

That\’s a bloody stupid thing for a Professor of Accounting to say. Short selling is a vital part of the financial markets: it underpins the entire system of convertible bond issues for example.

On share buybacks, yes, there is the influence upon bonuses and so on but again this is a damn fool thing to say.

The company pays out real cash to buy back its shares. Such cash could have been used to bolster capital, liquidity or research and development, or could even have been put away for a rainy day.

This is making the assumption that companies should be retaining all that money to reinvest (or, at least, some of it). But if we have a liquid capital market then we don\’t need investment to be done by extant firms. We return what profits there are to investors and they make their own decisions as to whether to invest or consume. This has the great advantage that if they decide to reinvest they\’re likely to invest it in new and or different companies.

And, as we know, invention tends to come from new companies. Large and or old companies are indeed pretty good at incremental innovation, but not at the great breakthroughs. So we\’d actually prefer to have a system that made financing the new easier: that is, get the money out of the hands of incumbent management and back to investors who make their own choices. That capital, or at least profits, flow out of extant companies is a damn good thing.

You\’d think that an accountant would know that, no?

One comment on “Prem Sikka

  1. Is he really a Professor of Accounting, and he doesn’t know that buying back shares, or perhaps raising the dividend, is a perfectly sensible thing to do when the gains to shareholders from so doing outweigh those from “bolster capital, liquidity or research and development, or could even have been put away for a rainy day.” In some respects, buying back share is quite like paying down debt. You can’t say you shouldn’t be doing X because you could be doing Y unless you know Y is better than X.

    Likewise, it is in the interest of citizens that the country contains productive profitable firms, so the interests of firms and the interests of citizens may often coincide. They needn’t – as in the obvious example of a firm seeking protection from competition – but I’m not aware that granting firms protection from competition typifies the nature of democracy nowadays.

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